Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921b.jpg" width="353">
The composite index of leading economic indicators fell 0.2% in August for the second month. It was the fifth m/m decline in the index reported by the Conference Board this year and matched Consensus expectations.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 30%, the lowest level since May but the percentage of components that rose over a six month span improved marginally to 50%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921c.jpg" width="353">
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.1% after an unrevised 0.2% July gain. During the last six months all of the coincident series rose but in August the one month percentage increasing slipped to 75%. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators rose 0.3% as C&amp;I loans rose. Nevertheless, the ratio of coincident to lagging indicators which is a measure of actual economic performance versus excess fell.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/ppdp/2006/ppdp066.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>3.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
</body>
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The composite index of leading economic indicators fell 0.2% in August for the second month. It was the fifth m/m decline in the index reported by the Conference Board this year and matched Consensus expectations. During the last ten [...]

Leading Economic Indicators Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921a.jpg" width="353">
Initial claims for unemployment insurance rose 7,000 last week to 318,000 reversing two weeks of moderate decline. Consensus expectations had been for 310,000 claims. Last year, claims surged in the aftermath of Hurricane Katrina.
The latest figure covers the survey period for September nonfarm payrolls and filings rose 4,000 (1.3%) from the August period.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims was unchanged at 315,000 (-15.0% y/y).
Continuing claims for unemployment insurance fell 29,000 after a 9,000 increase the prior week that was half the rise initially reported.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Would an Inflation Target Help Anchor U.S. Inflation Expectations? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-20.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<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">9/16/06</th>
<th scope="col">9/09/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>318</td>
<td>311</td>
<td>-24.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,461</td>
<td>-6.9%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
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Initial claims for unemployment insurance rose 7,000 last week to 318,000 reversing two weeks of moderate decline. Consensus expectations had been for 310,000 claims. Last year, claims surged in the aftermath of Hurricane Katrina. The [...]

Initial Jobless Insurance Claims Rose More Than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921a.jpg" width="353">
Initial claims for unemployment insurance rose 7,000 last week to 318,000 reversing two weeks of moderate decline. Consensus expectations had been for 310,000 claims. Last year, claims surged in the aftermath of Hurricane Katrina.
The latest figure covers the survey period for September nonfarm payrolls and filings rose 4,000 (1.3%) from the August period.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims was unchanged at 315,000 (-15.0% y/y).
Continuing claims for unemployment insurance fell 29,000 after a 9,000 increase the prior week that was half the rise initially reported.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Would an Inflation Target Help Anchor U.S. Inflation Expectations? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-20.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<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">9/16/06</th>
<th scope="col">9/09/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>318</td>
<td>311</td>
<td>-24.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,461</td>
<td>-6.9%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921b.jpg" width="353">
The composite index of leading economic indicators fell 0.2% in August for the second month. It was the fifth m/m decline in the index reported by the Conference Board this year and matched Consensus expectations.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 30%, the lowest level since May but the percentage of components that rose over a six month span improved marginally to 50%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921c.jpg" width="353">
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.1% after an unrevised 0.2% July gain. During the last six months all of the coincident series rose but in August the one month percentage increasing slipped to 75%. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators rose 0.3% as C&amp;I loans rose. Nevertheless, the ratio of coincident to lagging indicators which is a measure of actual economic performance versus excess fell.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/ppdp/2006/ppdp066.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>3.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
Mass Layoffs Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921d.jpg" width="353">
In August, the number of mass layoff events rose for the third consecutive month. The 6.0% m/m increase pulled the y/y comparison positive for the first time since December.
During the last ten years there has been a (negative) 85% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected last month by mass layoffs surged 11.4% m/m but were up just 0.3% y/y. The number of persons affected by mass layoffs during the first eight months of this year fell 12.6% from the first eight months of 2005.
Increased layoffs in manufacturing (21.2% y/y) and information (-35.0% y/y) dominated the increase in claimants for unemployment insurance last month. Declines elsewhere were widespread.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.

<table border="0" cellspacing="0" width="100%">
<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">Mass Layoffs</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">All US Industries (# Events, SA)</td>
<td>1,193</td>
<td>1,125</td>
<td>4.2%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>127,944</td>
<td>114,895</td>
<td>0.3%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity Index Negative Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921e.jpg" width="353">
The August National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago at -0.18 was negative for the third month in the last four and that was enough to pull the three-month moving average of the CFNAI fell to 0.05, its lowest level in over a year.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_September2006.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-0.18</td>
<td>-0.07</td>
<td>0.13</td>
<td>0.20</td>
<td>0.35</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Negative 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921f.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s September Index of General Business Conditions in the manufacturing sector was negative for the first month since April 2003. The figure fell to -0.4 from an unrevised, very firm 18.5 in August. Consensus expectations had been for a slight decline to 14.8.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
With the exceptions of inventories and employment, each of the sub indexes turned negative in September. The employment index, in fact, rose back into the middle of its range of the last year. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921g.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index dropped further m/m to the lowest level since April. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months also was negative for the first month since January 2001, though expectations for orders, shipments and employment remained positive.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0906.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Sept &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-0.4</td>
<td>18.5</td>
<td>7.0</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>38.1</td>
<td>45.3</td>
<td>50.6</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
Israel's Economy Sees Slower Growth in the Face of War in Lebanon; Lebanon's Economy Falls Dramatically 
by <a href="/comment/Stone.html">Carol Stone</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921h.jpg" width="353">
The Israel&#39;s Central Statistics Bureau today reported its &quot;State of the Economy Index&quot; for August, along with its available components. When we last checked in on the Israeli economy, about six weeks ago, the war in Lebanon was still in full swing and in describing Q2 GDP, we wondered out loud what the war would do to the economy in Q3. Today&#39;s report gives a bit of an indication. The overall index is estimated to have risen 0.3% in each July and August, marginally less than June&#39;s 0.4%, but noticeably less than the 0.6%/month in each of the prior four months. So some slowdown is clearly in process.
The index has five components covering industry, domestic and foreign trade and employment in the business sector (about 70% of total employment). Only exports and imports are published yet for August, and both of these are more than keeping up with their average of the past year. Imports grew 5.2% in August compared with a 12-month average gain of 1.4% and exports were up 3.5% versus an average of 1.1%. Industrial production through July was continuing with some strength as well, with monthly increases well over 1% then and in June, compared with 0.9% monthly for the last 12 months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921i.jpg" width="353">
The slowing is more evident in demand and employment indicators. The employment data lag, with the latest values only covering June and a detailed industrial breakdown only through Q2. But business sector employment by this monthly indicator peaked in March and fell slightly in each of the following months. Since this information is all prior to the Lebanon war, there is no impact evident here. Further, employment had expanded with some vigor since early in 2004. So perhaps there is nothing more in the recent pattern than a pause after a strong uptrend.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921j.jpg" width="353">
Domestic sales, however, seem to be a different story. Revenues from trade and services dropped 2.5% in June and another 2.6% in July, erasing almost all of a nice rise over the nine months beginning last September. People could well hold back purchases or at least take a cautionary stance as political tensions mount. Fortuitously for their welfare, a truce was called quickly, and this likely helps the general economy as well.
In dramatic contrast, the impact of the war showed quickly and distinctly in Lebanon. Data offerings are fairly sparse, but a quick look at imports and exports, which were reported Monday by the Bank of Lebanon, shows a clear picture of significant economic damage. The third graph here tells the whole story.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEMA/@M7/@M7.HTM">Israel: SA, % Chg</a></th>
<th scope="col">Weight (%)</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">Yr Ago (Mo. Avg)</th>
Yearly % Change
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Total Index</td>
<td>100</td>
<td>0.3</td>
<td>0.3</td>
<td>0.4</td>
<td>0.5</td>
<td>7.1</td>
<td>6.9</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>28</td>
<td>--</td>
<td>1.3</td>
<td>1.6</td>
<td>0.9</td>
<td>4.6</td>
<td>7.2</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>15</td>
<td>5.2</td>
<td>2.4</td>
<td>-2.3</td>
<td>1.4</td>
<td>2.3</td>
<td>14.6</td>
<td>-4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade &amp; Services Revenues</td>
<td>28</td>
<td>--</td>
<td>-2.6</td>
<td>-2.5</td>
<td>0.1</td>
<td>8.1</td>
<td>8.0</td>
<td>-0.6</td>
</tr>
<tr>
<td class="firstcol">Employees in Business Sector</td>
<td>19</td>
<td>--</td>
<td>--</td>
<td>-0.3</td>
<td>0.2</td>
<td>4.7</td>
<td>2.4</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>10</td>
<td>3.5</td>
<td>-10.2</td>
<td>9.4</td>
<td>1.1</td>
<td>7.1</td>
<td>17.4</td>
<td>4.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Carol Stone, CBE

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

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

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

Federal Funds Rate Again Held at 5.25%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920c.jpg" width="353">
After two weeks of respectable gain, the number of mortgage applications for purchase fell last week by 3.0%, according to the Mortgage Bankers Association. For the month so far, applications in September are 4.2% above the August average which fell 3.5% from July.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Overall mortgage applications nevertheless rose 2.0% last week and the gain lifted the average level this month 4.3% above August.
Applications to refinance surged 9.5% after three weeks of slight decline. The average level of refis in September is up 4.2% from August which surged 13.3% m/m from July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose to 6.59 from 6.53% the week earlier and has averaged 6.55% this month versus 6.64% in August. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also rose w/w to 6.30% and the peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">09/15/06</th>
<th scope="col">09/08/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>595.8</td>
<td>584.2</td>
<td>-22.8%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>397.9</td>
<td>410.2</td>
<td>-20.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,748.7</td>
<td>1,597.0</td>
<td>-25.7%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
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After two weeks of respectable gain, the number of mortgage applications for purchase fell last week by 3.0%, according to the Mortgage Bankers Association. For the month so far, applications in September are 4.2% above the August [...]

Mortgage Purchase Application Recovery Stalled

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920b.jpg" width="353">
The net worth of the US household sector inched up just 0.1% last quarter versus 1Q&#39;06 to $53.3 trillion. The gain totaled, however, 7.9% versus the second quarter of last year.
On the asset side of the ledger, total assets of households and nonprofit organizations rose 8.4% y/y. Households&#39; ownership of real estate rose 10.5% in value to over $20 trillion. Mutual fund share holdings rose 18.0% though the value of corporate equities held directly by households fell 1.5%. The value of money market shares rose 14.6% after a 6.0% gain last year and Treasury security holdings rose 20.6% y/y in value after a 2.2% decline during 2005.
Credit market debt outstanding held by all sectors of the economy grew 8.9%, about steady with last year&#39;s pace. The federal government&#39;s debt grew 5.9% y/y but U.S. households increased their borrowing at nearly twice that rate, 11.0%. Home mortgage liabilities grew 12.6% y/y after 14% gains during the prior three years. Consumer credit increased 3.9% y/y, the same as last year&#39;s growth rate, but households&#39; obligations in the form of bank loans more than doubled versus 2Q of last year and also doubled during all of 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920a.jpg" width="353">
Borrowing by nonfinancial corporations continued strong, up 11.9%, following double digit growth during 2004 &amp; 2005. During the last forty years there has been a 40% correlation between the y/y growth in corporate borrowing and the growth in nonresidential fixed investment.
Foreign sector holdings of US assets continued to surge, by 13.3% y/y. That was stable with last year&#39;s growth rate but it raised foreigners&#39; ownership of U.S. credit outstanding to 14.1% versus 10.0% ten years ago.
Intangible Capital and Economic Growth from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200624/200624pap.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a> (Y/Y Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">2Q&#39;06</th>
<th scope="col">1Q&#39;06</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>8.9%</td>
<td>9.2%</td>
<td>8.9%</td>
<td>8.9%</td>
<td>9.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>5.9%</td>
<td>6.5%</td>
<td>7.0%</td>
<td>9.0%</td>
<td>10.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>27%</td>
<td>11.0%</td>
<td>11.8%</td>
<td>11.7%</td>
<td>11.7%</td>
<td>11.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>6.8%</td>
<td>6.1%</td>
<td>5.5%</td>
<td>3.6%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>9.1%</td>
<td>8.9%</td>
<td>8.2%</td>
<td>8.1%</td>
<td>9.9%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$53.3</td>
<td>$53.3</td>
<td>$51.8</td>
<td>$48.0</td>
<td>$44.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets: Households</td>
<td></td>
<td>$26.3</td>
<td>$25.8</td>
<td>$25.2</td>
<td>$22.5</td>
<td>$20.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Financial Assets: Households</td>
<td></td>
<td>$39.8</td>
<td>$39.9</td>
<td>$38.8</td>
<td>$36.4</td>
<td>$33.5</td>
</tr>
</tbody>
</table>
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The net worth of the US household sector inched up just 0.1% last quarter versus 1Q'06 to $53.3 trillion. The gain totaled, however, 7.9% versus the second quarter of last year. On the asset side of the ledger, total assets of [...]

US Flow of Funds: Households' Net Worth Stable

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920b.jpg" width="353">
The net worth of the US household sector inched up just 0.1% last quarter versus 1Q&#39;06 to $53.3 trillion. The gain totaled, however, 7.9% versus the second quarter of last year.
On the asset side of the ledger, total assets of households and nonprofit organizations rose 8.4% y/y. Households&#39; ownership of real estate rose 10.5% in value to over $20 trillion. Mutual fund share holdings rose 18.0% though the value of corporate equities held directly by households fell 1.5%. The value of money market shares rose 14.6% after a 6.0% gain last year and Treasury security holdings rose 20.6% y/y in value after a 2.2% decline during 2005.
Credit market debt outstanding held by all sectors of the economy grew 8.9%, about steady with last year&#39;s pace. The federal government&#39;s debt grew 5.9% y/y but U.S. households increased their borrowing at nearly twice that rate, 11.0%. Home mortgage liabilities grew 12.6% y/y after 14% gains during the prior three years. Consumer credit increased 3.9% y/y, the same as last year&#39;s growth rate, but households&#39; obligations in the form of bank loans more than doubled versus 2Q of last year and also doubled during all of 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920a.jpg" width="353">
Borrowing by nonfinancial corporations continued strong, up 11.9%, following double digit growth during 2004 &amp; 2005. During the last forty years there has been a 40% correlation between the y/y growth in corporate borrowing and the growth in nonresidential fixed investment.
Foreign sector holdings of US assets continued to surge, by 13.3% y/y. That was stable with last year&#39;s growth rate but it raised foreigners&#39; ownership of U.S. credit outstanding to 14.1% versus 10.0% ten years ago.
Intangible Capital and Economic Growth from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200624/200624pap.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a> (Y/Y Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">2Q&#39;06</th>
<th scope="col">1Q&#39;06</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>8.9%</td>
<td>9.2%</td>
<td>8.9%</td>
<td>8.9%</td>
<td>9.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>5.9%</td>
<td>6.5%</td>
<td>7.0%</td>
<td>9.0%</td>
<td>10.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>27%</td>
<td>11.0%</td>
<td>11.8%</td>
<td>11.7%</td>
<td>11.7%</td>
<td>11.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>6.8%</td>
<td>6.1%</td>
<td>5.5%</td>
<td>3.6%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>9.1%</td>
<td>8.9%</td>
<td>8.2%</td>
<td>8.1%</td>
<td>9.9%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$53.3</td>
<td>$53.3</td>
<td>$51.8</td>
<td>$48.0</td>
<td>$44.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets: Households</td>
<td></td>
<td>$26.3</td>
<td>$25.8</td>
<td>$25.2</td>
<td>$22.5</td>
<td>$20.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Financial Assets: Households</td>
<td></td>
<td>$39.8</td>
<td>$39.9</td>
<td>$38.8</td>
<td>$36.4</td>
<td>$33.5</td>
</tr>
</tbody>
</table>
Mortgage Purchase Application Recovery Stalled 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920c.jpg" width="353">
After two weeks of respectable gain, the number of mortgage applications for purchase fell last week by 3.0%, according to the Mortgage Bankers Association. For the month so far, applications in September are 4.2% above the August average which fell 3.5% from July.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Overall mortgage applications nevertheless rose 2.0% last week and the gain lifted the average level this month 4.3% above August.
Applications to refinance surged 9.5% after three weeks of slight decline. The average level of refis in September is up 4.2% from August which surged 13.3% m/m from July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose to 6.59 from 6.53% the week earlier and has averaged 6.55% this month versus 6.64% in August. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also rose w/w to 6.30% and the peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">09/15/06</th>
<th scope="col">09/08/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>595.8</td>
<td>584.2</td>
<td>-22.8%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>397.9</td>
<td>410.2</td>
<td>-20.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,748.7</td>
<td>1,597.0</td>
<td>-25.7%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Federal Funds Rate Again Held at 5.25% 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920f.jpg" width="353">
The target interest rate for Federal funds was again held steady at 5.25% at today&#39;s meeting of the Federal Open Market Committee. Voting against the decision for the second time was Richmond Federal Reserve Bank President Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target.
The discount rate also was held steady at 6.25%.
Today&#39;s decision was widely expected by analysts.
The Fed&#39;s rationale for leaving rates unchanged indicated that &quot;The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.&quot;
Need for further rate increases was stressed by the Fed. &quot;The extent and timing of any additional firming that may be needed to address these (inflation) risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920e.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060920/default.htm">link</a>.
The accompanying chart plots the U.S. economy&#39;s actual rate of growth during the last two quarters versus its so called &quot;potential&quot;, i.e., growth in the labor force plus the growth in labor productivity. The economy&#39;s potential for 4% growth was exceeded slightly in the first half due to the 5.6% surge in 1Q&#39;06 growth.
Knut Wicksell: The Birth of Modern Monetary Policy from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/ei/ei0401.pdf">here</a>.
Modern Macroeconomics in Practice: How Theory is Shaping Policy from the Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/research/SR/SR376.pdf">here</a>.

Spain's Labor Costs Pick Up in Q2; Benefits Outstrip Wage Gains 
by <a href="/comment/Stone.html">Carol Stone</a> September 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920g.jpg" width="353">
Spain&#39;s National Institute of Statistics (INE) reported on labor costs today for Q2 2006. These costs, measured as monthly compensation per worker, picked up to a 3.5% growth rate year-on-year from 3.4% in Q1 and at or near 3.0% for the previous two calendar years. The data are in a simple format: in Haver&#39;s SPAIN database, they are available in euros and an index of 2000=100, for three sectors of the economy, industry, construction and services, and for the total and two components, earnings and &quot;other&quot;. So there are 12 numbers in each quarterly report for each the euro amount and the index level. Could such a small array be interesting? Indeed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920h.jpg" width="353">
In Q2, while labor costs accelerated in total, they slowed in basic industry and construction and not by small increments. The industry sector increased 3.5% following 4.5% in Q1. Construction gained 3.9% in the latest quarter, after 4.3% in Q1. But the rapidly expanding service sector had 3.8% growth in Q2, well more than the 3.2% in Q1. So labor compensation in services gained visibly even as it slowed in more traditional sectors. However, this may have been a transitory shift, as the average annual gains over the prior five years had the reverse pattern: industry and construction both had vigorous increases, 4.1% annually for industry and 4.7% for construction, with services at 3.6%. So it&#39;s hard to tell if the old-line economy is moving to a slower trend or just pausing after sizable gains in earlier periods. In fact, if anything, these data show how consistent the service sector has been, hovering all the while in a range around 3-1/2% average yearly gains.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920i.jpg" width="353">
Another significant point in this little array of data concerns the split between wages and &quot;other&quot; labor costs. Over the period 2000-2005, earnings grew at an average annual rate of 3.3%. But other labor compensation advanced at a 5.0% pace. These costs cover the same general items referred to in the US as &quot;supplements to wages and salaries&quot; or &quot;benefits&quot;: disability and unemployment, and also in Spain compensation for tools, uniforms and transportation, and similar job-related expenses. In both countries, these also cover employers&#39; payments into the social security system. And in Spain as in the US, to continue the parallel, these &quot;other&quot; costs are growing as a portion of total compensation: in 2000, &quot;other&quot; labor costs were 24.6% of compensation in Spain and by the first half of this year, they absorbed 26.7%. For the US, comparable shares were 16.5% in 2000 and 19.3% this year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Spain: Monthly Labor Cost/ Worker (&#128;, NSA)</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2197</td>
<td>2114</td>
<td>2122</td>
<td>2110</td>
<td>2058</td>
<td>1992</td>
<td>1758</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>3.5</td>
<td>3.4</td>
<td>3.4</td>
<td>2.9</td>
<td>3.0</td>
<td>4.2</td>
<td>3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Earnings</td>
<td>1624</td>
<td>1538</td>
<td>1575</td>
<td>1560</td>
<td>1521</td>
<td>1480</td>
<td>1326</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>3.1</td>
<td>3.0</td>
<td>3.4</td>
<td>2.6</td>
<td>2.8</td>
<td>3.8</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Other&quot;</td>
<td>574</td>
<td>575</td>
<td>547</td>
<td>550</td>
<td>531</td>
<td>512</td>
<td>432</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>4.9</td>
<td>4.4</td>
<td>3.5</td>
<td>3.6</td>
<td>3.6</td>
<td>5.4</td>
<td>5.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Other&quot; as % of Total</td>
<td>26.1</td>
<td>27.2</td>
<td>25.8</td>
<td>26.1</td>
<td>25.9</td>
<td>25.7</td>
<td>24.6</td>
</tr>
<tr>
<td class="firstcol">Memo: Similar US Share</td>
<td>19.3</td>
<td>19.3</td>
<td>19.4</td>
<td>19.4</td>
<td>19.1</td>
<td>19.0</td>
<td>16.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

260423Z1.jpg

**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

260423Z2.jpg

**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

260423Z3.jpg

**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

260423Z4.jpg

**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

260423Z5.jpg

**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

260423Z6.jpg

Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/44A12ktUaoJGHZG7pEVcul?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Risks Build, Markets Shrug

Robert Brusca

260424E.jpg

The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

260424.jpg

Germany

German Ifo Plunges Everywhere

Sandy Batten

260423F8.jpg

260423G8.jpg

The National Activity Index published by the Federal Reserve Bank of Chicago (CFNAI) slipped to -0.20 in March from an upwardly revised +0.03 in February (previously (-0.11). This is the lowest monthly reading since last November. Smoothing out the monthly volatility, the index's three-month moving average (CFNAI-MA3) declined to -0.03 in March from an upwardly revised +0.03 in February (previously -0.01).

This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that readings on the 3-month average of -0.70 or below are consistent with the economy being in a recession. Therefore, even though the March reading on the 3-month average was negative, it indicates that the US economy is still growing, just slightly slower than trend, and is well away from recessionary conditions. The 3-month average would be much deeper in negative territory if the economy was at risk of contracting.

The National Activity Index is a composite of 85 economic indicators, grouped into four major categories: production and income; employment, unemployment, and hours worked; personal consumption and housing; sales, orders, and inventories. Three of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. Production-related indicators contributed –0.20 to the CFNAI in March, down from +0.13 in February. The sales, orders, and inventories category's contribution to the CFNAI was –0.01 in March, down from +0.05 in February. Employment-related indicators contributed +0.02 to the CFNAI in March, up from –0.15 in February. The personal consumption and housing category's contribution to the CFNAI was –0.01 in March, down from a neutral value in February.

The CFNAI Diffusion Index, which measures the breadth of the change in the component series and is also a three-month moving average, increased to –0.04 in March from –0.08 in February. This is the highest reading since February 2025. A reading of zero indicates that all of the indicators are growing at their long-term average. If all of the underlying indicators in a given month are below their long-run averages, the diffusion index will equal -1. If all of the indicators are above their long-run averages, it will equal +1. Thirty-four of the 85 individual indicators made positive contributions to the CFNAI in March, while 51 made negative contributions. Forty-three indicators improved from February to March, while 40 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions.

These figures are available in Haver's **SURVEYS** database.

- The monthly reading fell to -0.20 in March from an upwardly revised +0.03 in February.
- The three-month average slipped from +0.03 to -0.03.
- Despite the slip in March, the index points to near-trend economic growth and is well above recession territory.

Chicago Fed National Activity Index Slipped in March

Kathleen Stephansen, CBE

260423A1.jpg

260423B1.jpg

Initial claims for unemployment insurance rose by 6,000 to 214,000 in the week ending April 18, from 208,000 in the week ending April 11, revised from 207,000. The four-week average rose 750 to 210,750 in the week ending April 18, from 210,000 the April 11 week, revised from 209,750. The Action Economics/Haver Analytics Survey looked for 210,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 12,000 to 1.821 million in the week ending April 11, from 1.809 million in the week ending April 4. The four-week moving average rose to 1.812 million in the latest week from 1.811 million in the March 28 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 4, the highest unemployment rates were in New Jersey (2.51%), Massachusetts (2.37%), Rhode Island (2.31%), Washington (2.25%), Minnesota (2.11%), and California (2.02%). The lowest rates were in Florida (0.30%), Louisiana (0.31%), Arkansas (0.35%), Alabama (0.36%), North Carolina (0.39%), Tennessee (0.46%), South Dakota (0.47%), Kansas and Virginia (both 0.49%). Rates in other notable states include New York (1.92%), Illinois (1.82%), Pennsylvania (1.52%), and Texas (1.04%). These state data are not seasonally adjusted.

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

260423C1.jpg

260423D1.jpg

- New claims rose by 6,000 to 214,000.
- Continuing claims rose by 12,000 to 1.821 million.
- The insured unemployment rate remained at 1.2%.


U.S. Initial Unemployment Claims Rose in the Week of April 18

260423E.jpg

**Manufacturing looks strong while service sectors weaken**
S&P's April flash PMI readings show some very mixed results. For the United States, India, Australia, and the United Kingdom, there is a strengthening in the readings month-to-month for services, manufacturing, and the composite.

For Japan, France, and the European Monetary Union as a whole, there is improvement in the manufacturing sector on the month but a weaker services reading and a weaker composite overall.

Germany is the only responding area in the table showing weakness all around—in all three sectors—a weaker composite, a weaker manufacturing sector, and a weaker services sector in April. For Germany, this follows a weaker composite and service sector in March as well.

Most reporters—France, the United Kingdom, Japan, Australia, and India—had weaker readings for all three metrics in March: the composite, services, and manufacturing. The March exceptions were the United States, Germany, and the European Monetary Union; in each case, the exception was that the manufacturing sector improved month-to-month, while the composite and services both weakened.

This has been a period of weakening—in March and April—since the war in Iran began. The 48 separate sector readings produced 30 readings that were weaker month-to-month in March and April. Among the 16 composite readings, 12 reported weaker conditions month-to-month. In March, the immediate aftermath of the outbreak of war brought instantaneous step backs across the PMI readings, while April, responding to at least a military success in the area, has shown a significant bounce back that is now more common than further weakness.

The sequential data over three months, six months, and 12 months are based only on completed data; therefore, they're up to date through March. On that basis, we have triple sector weakness in the U.S., India, and Australia, with only Japan and the United Kingdom showing triple-sector improvement over three months. However, if we look at six months compared to 12 months, we have triple sector strength in the Monetary Union, Germany, France, the United Kingdom, Japan, and Australia. India and the U.S. each show only one stronger sector over that comparison—services in India’s case and manufacturing in the U.S. case.

**Ranking Peculiarity**
The ranking data take the current flash data and compare them to the history of observations back to January 2022. What is quite surprising is that, on that timeline, the manufacturing sectors of all the countries in the table—except for Australia and India—show manufacturing standings in their respective 80th to 90th percentiles. Meanwhile, services standings are typically in the 30th percentile or lower.

**Odd Impact of War**
If the war in Iran has an impact on something, we would expect that to fall on the goods trade sector. We would expect this to have an impact on manufacturing although it's the opposite thing that's happening. Manufacturing is showing a revival, while services sectors are showing weaker performance across these countries generally. India is an interesting case, with manufacturing only in its 32nd percentile; however, India’s raw diffusion reading for manufacturing is the strongest raw diffusion reading in the table. What India's ranking is telling us is that India had been extremely strong over the period since 2022, and now compared to that past standard, it's relatively weaker. However, it's still strong in absolute terms, showing a great deal of strength based on its pure diffusion value, just not in comparison to historic performance.

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**Next?**
At this point, it's not clear to me at least what these PMI data are telling us since the strength in manufacturing is a curiosity as is the weakness in the services sector. You see these two phenomena displayed in the chart above, in the case of the European Monetary Union’s flash readings as well.

**War breeds negative effects**
It's not a surprise that war would take some toll on consumer confidence or that it would be reflected in the services sector. However, seeing the kind of weakness being portrayed now in services against the strength in manufacturing is simply a bit hard to rationalize and understand. So, I think we're going to have to keep an eye on these readings as well as other readings in the months ahead to try to discern how global events, the war, conditions in the Strait of Hormuz, inflation currency shifts, and central bank policy are playing out across these various countries. None of what is happening is obvious to me. Japan clearly continues to benefit from a weak yen as its manufacturing sector is flying high, at its best reading since January 2022.

Economy in Brief

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Leading Economic Indicators Fell

Initial Jobless Insurance Claims Rose More Than Expected

Initial Jobless Insurance Claims Rose More Than Expected

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

Federal Funds Rate Again Held at 5.25%

Mortgage Purchase Application Recovery Stalled

US Flow of Funds: Households' Net Worth Stable

US Flow of Funds: Households' Net Worth Stable