Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061030h.jpg" width="353">
With the exception of the European Central Bank, which explicitly uses the money supply to gauge inflation, most central bankers have down played the role of money in forming monetary policy in recent years. In fact, in the United States, the Board of Governors of the Federal Reserve System discontinued publication of its money supply measure--M3-- on March 23, 2006, stating that M3 had not played a leading role in monetary policy process for many years.
There is some indication that more emphasis is beginning to be placed on the role of money in the economy by at least one central bank. In the United Kingdom, the Governor of the Bank of England (BOE), Mervyn King, recently referred to the rising money supply as a factor increasing inflationary pressures. Indeed, M4, the preferred measure of the money supply in the UK, has been rising at year-over-year levels in excess of 10% since May of 2005. The latest increase in September was 14.4%, the highest rate of increase since September, 1990. This in spite of the 25 basis point rise in the BOE&#39;s key interest rate to 4.75% on August 3rd. The year- over-year increases in the money supply in the UK and the Euro Zone are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061030g.jpg" width="353">
Plentiful and relatively easy money fuels investment in real assets and in the financial markets. If excessive, there is the danger of creating bubbles. Although the housing market in the UK has cooled off from the fevered activity of the last half of 2005, the August interest rate increase has failed to dampen renewed activity in the housing market as attested by the unexpected rise in mortgage approvals in September. Housing prices have also been gaining strength since early this year. In September the price of the average house was up 1.3% from August and 8.3% from September, 2005. The year-over-year changes in the value of mortgage approvals are shown in the second chart.
Should the Monetary Policy Committee of BOE announce an increase in its key interest rate when it next meets on November 9th, it is likely that the persistent rise in the money supply will have played a role in the decision.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Sep&nbsp; 06</th>
<th scope="col">Aug 06</th>
<th scope="col">Sep 05</th>
<th scope="col">M/M %&nbsp;&nbsp;</th>
<th scope="col">Y/Y %&nbsp;&nbsp;&nbsp;</th>
<th scope="col">2005&nbsp;&nbsp; %</th>
<th scope="col">2004 %</th>
<th scope="col">2003&nbsp; %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Money Supply&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;UK M4&nbsp; (Bil. Pounds)</td>
<td>1,459</td>
<td>1,434.8</td>
<td>1,275.2</td>
<td>1.70</td>
<td>14.43</td>
<td>12.66</td>
<td>8.75</td>
<td>7.18</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Euro Zone M3 (Bil Euros)</td>
<td>7,564.7</td>
<td>7,464.7</td>
<td>6,966.0</td>
<td>1.34</td>
<td>8.59</td>
<td>8.17</td>
<td>6.38</td>
<td>6.50</td>
</tr>
<tr>
<td class="firstcol">UK Mortgage Approvals (Mil Pounds)</td>
<td>30,254</td>
<td>29,457</td>
<td>27,314</td>
<td>2.70</td>
<td>10.76</td>
<td>6.17</td>
<td>-1.21</td>
<td>22.78</td>
</tr>
<tr class="odd">
<td class="firstcol">UK House Prices (Q1,1993=100)</td>
<td>336.8</td>
<td>332.5</td>
<td>311.1</td>
<td>1.29</td>
<td>8.26</td>
<td>5.13</td>
<td>17.10</td>
<td>19.47</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
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With the exception of the European Central Bank, which explicitly uses the money supply to gauge inflation, most central bankers have down played the role of money in forming monetary policy in recent years. In fact, in the United [...]

Renewed Interest in the Money Supply??

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061030a.jpg" width="353">
Personal income beat expectations last month and rose 0.5% after an upwardly revised 0.4% August increase. Despite these firm gains, the three month income rise at 5.5% (AR) is down from near 10% growth early this year.
Disposable personal income increased 0.5% (5.9% y/y) after an upwardly revised 0.5% August increase. In contrast to the slowdown in total income, the three month growth in take home pay has been stable at 6.4% (AR), helped by very recent weakness in personal taxes (+13.3% y/y).
Adjusted for recently lower prices, disposable personal income increased 0.8% (3.9% y/y) after two months of 0.2% gain. Real disposable income grew 3.7% (AR) last quarter after a 1.7% 2Q increase. Real disposable income per capita jumped 0.7% (3.0% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061030b.jpg" width="353">
Personal consumption rose 0.1%. Expectations had been for a 0.3% increase. When adjusted for the 0.3% decline in prices, real consumer spending rose 0.4% after a 0.1% August decline. Unit vehicle sales in September recovered half of the prior month&#39;s decline with a 3.5% increase. Real PCE in 3Q grew 3.1% (AR), better than the 2.6% gain during 2Q.
The PCE chain price index fell 0.3% due to last month&#39;s 13.4% decline in retail gasoline prices. Gasoline prices in October are down another 11.9% m/m. Less food &amp; energy prices rose an expected 0.2% but the August gain was revised higher to 0.3%. The three month change in core prices is flat-to-lower since March at 2.3% (AR), helped by falling durable and nondurable goods prices.
Wage &amp; salary disbursements surged 0.5% (7.6% y/y) after the meager 0.2% August increase. Wages in the private service-producing industries surged 0.8% (8.4% y/y) but factory sector wages fell 0.1% (+6.7% y/y) for the second decline in the last three months.
Interest income rose 0.1% (8.7% y/y) for the third straight month while dividend income jumped another 1.1% (11.5% y/y).
The personal savings rate was a slightly less negative -0.2% last month and so far in 2006 has averaged -0.5%, the same as last year. Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2Q06garn.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.5%</td>
<td>0.4%</td>
<td>6.8%</td>
<td>5.2%</td>
<td>6.2%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.1%</td>
<td>0.2%</td>
<td>5.5%</td>
<td>6.5%</td>
<td>6.6%</td>
<td>4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.2%</td>
<td>-0.5%</td>
<td>-0.5% (Sept. &#39;05)</td>
<td>-0.4%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>


</html>

Personal income beat expectations last month and rose 0.5% after an upwardly revised 0.4% August increase. Despite these firm gains, the three month income rise at 5.5% (AR) is down from near 10% growth early this year. Disposable [...]

U.S. Personal Income Firm, Core Price Increases Stable-to-Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061030a.jpg" width="353">
Personal income beat expectations last month and rose 0.5% after an upwardly revised 0.4% August increase. Despite these firm gains, the three month income rise at 5.5% (AR) is down from near 10% growth early this year.
Disposable personal income increased 0.5% (5.9% y/y) after an upwardly revised 0.5% August increase. In contrast to the slowdown in total income, the three month growth in take home pay has been stable at 6.4% (AR), helped by very recent weakness in personal taxes (+13.3% y/y).
Adjusted for recently lower prices, disposable personal income increased 0.8% (3.9% y/y) after two months of 0.2% gain. Real disposable income grew 3.7% (AR) last quarter after a 1.7% 2Q increase. Real disposable income per capita jumped 0.7% (3.0% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061030b.jpg" width="353">
Personal consumption rose 0.1%. Expectations had been for a 0.3% increase. When adjusted for the 0.3% decline in prices, real consumer spending rose 0.4% after a 0.1% August decline. Unit vehicle sales in September recovered half of the prior month&#39;s decline with a 3.5% increase. Real PCE in 3Q grew 3.1% (AR), better than the 2.6% gain during 2Q.
The PCE chain price index fell 0.3% due to last month&#39;s 13.4% decline in retail gasoline prices. Gasoline prices in October are down another 11.9% m/m. Less food &amp; energy prices rose an expected 0.2% but the August gain was revised higher to 0.3%. The three month change in core prices is flat-to-lower since March at 2.3% (AR), helped by falling durable and nondurable goods prices.
Wage &amp; salary disbursements surged 0.5% (7.6% y/y) after the meager 0.2% August increase. Wages in the private service-producing industries surged 0.8% (8.4% y/y) but factory sector wages fell 0.1% (+6.7% y/y) for the second decline in the last three months.
Interest income rose 0.1% (8.7% y/y) for the third straight month while dividend income jumped another 1.1% (11.5% y/y).
The personal savings rate was a slightly less negative -0.2% last month and so far in 2006 has averaged -0.5%, the same as last year. Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2Q06garn.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.5%</td>
<td>0.4%</td>
<td>6.8%</td>
<td>5.2%</td>
<td>6.2%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.1%</td>
<td>0.2%</td>
<td>5.5%</td>
<td>6.5%</td>
<td>6.6%</td>
<td>4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.2%</td>
<td>-0.5%</td>
<td>-0.5% (Sept. &#39;05)</td>
<td>-0.4%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
Renewed Interest in the Money Supply??  
by <a href="/comment/Curley.html">Louise Curley</a> October 30, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061030h.jpg" width="353">
With the exception of the European Central Bank, which explicitly uses the money supply to gauge inflation, most central bankers have down played the role of money in forming monetary policy in recent years. In fact, in the United States, the Board of Governors of the Federal Reserve System discontinued publication of its money supply measure--M3-- on March 23, 2006, stating that M3 had not played a leading role in monetary policy process for many years.
There is some indication that more emphasis is beginning to be placed on the role of money in the economy by at least one central bank. In the United Kingdom, the Governor of the Bank of England (BOE), Mervyn King, recently referred to the rising money supply as a factor increasing inflationary pressures. Indeed, M4, the preferred measure of the money supply in the UK, has been rising at year- over- year levels in excess of 10% since May of 2005. The latest increase in September was 14.4%, the highest rate of increase since September, 1990. This in spite of the 25 basis point rise in the BOE&#39;s key interest rate to 4.75% on August 3rd. The year- over- year increases in the money supply in the UK and the Euro Zone are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061030g.jpg" width="353">
Plentiful and relatively easy money fuels investment in real assets and in the financial markets. If excessive, there is the danger of creating bubbles. Although the housing market in the UK has cooled off from the fevered activity of the last half of 2005, the August interest rate increase has failed to dampen renewed activity in the housing market as attested by the unexpected rise in mortgage approvals in September. Housing prices have also been gaining strength since early this year. In September the price of the average house was up 1.3% from August and 8.3% from September, 2005. The year- over- year changes in the value of mortgage approvals are shown in the second chart.
Should the Monetary Policy Committee of BOE announce an increase in its key interest rate when it next meets on November 9th, it is likely that the persistent rise in the money supply will have played a role in the decision.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Sep&nbsp; 06</th>
<th scope="col">Aug 06</th>
<th scope="col">Sep 05</th>
<th scope="col">M/M %&nbsp;&nbsp;</th>
<th scope="col">Y/Y %&nbsp;&nbsp;&nbsp;</th>
<th scope="col">2005&nbsp;&nbsp; %</th>
<th scope="col">2004 %</th>
<th scope="col">2003&nbsp; %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Money Supply&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;UK M4&nbsp; (Bil. Pounds)</td>
<td>1,459</td>
<td>1,434.8</td>
<td>1,275.2</td>
<td>1.70</td>
<td>14.43</td>
<td>12.66</td>
<td>8.75</td>
<td>7.18</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Euro Zone M3 (Bil Euros)</td>
<td>7,564.7</td>
<td>7,464.7</td>
<td>6,966.0</td>
<td>1.34</td>
<td>8.59</td>
<td>8.17</td>
<td>6.38</td>
<td>6.50</td>
</tr>
<tr>
<td class="firstcol">UK Mortgage Approvals (Mil Pounds)</td>
<td>30,254</td>
<td>29,457</td>
<td>27,314</td>
<td>2.70</td>
<td>10.76</td>
<td>6.17</td>
<td>-1.21</td>
<td>22.78</td>
</tr>
<tr class="odd">
<td class="firstcol">UK House Prices (Q1,1993=100)</td>
<td>336.8</td>
<td>332.5</td>
<td>311.1</td>
<td>1.29</td>
<td>8.26</td>
<td>5.13</td>
<td>17.10</td>
<td>19.47</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>


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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027g.jpg" width="353">
Employment in Spain expanded &quot;only&quot; 3.7%, year-on-year, in Q3, less than the 4.2% and 4.9% of Q2 and Q1, respectively. Even so, this is still 2.3 times as fast as the growth in working-age population (age 16 and over) and unemployment continues to fall. In Q3, the unemployment rate was just 8.2%, the lowest since Q2 1979, more than 27 years ago. Further, at that time, the labor force participation rate was only 49.3%, about 9 points lower than the latest 58.4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027h.jpg" width="353">
The industrial structure of Spanish employment somewhat resembles that in many Western countries. The number of &quot;industry&quot; jobs has been nearly flat for the last few years. But as seen in the second graph, those jobs had been growing before this: from 1996 to 2002 they expanded at more than a 3.5% annual rate. At the same time, in all of Europe, industry employment was flat, and since the middle of 2001 it has fallen consistently. The service sector in both regions has shown gains, though. For all of Europe, this expansion has been between 2% and 3%, with some slowing recently. In Spain, though, these jobs have been growing at about 5%, and recent periods have maintained that pace. Employment opportunities in Spain look favorable.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027i.jpg" width="353">
On the unemployment side of the ledger, we can&#39;t help but recall the riots in France among young frustrated &quot;wannabe&quot; workers just about a year ago. What&#39;s the situation in Spain? It seems to be some better. Unemployment rates for ages under 25 are far higher than for the general population, to be sure, with Q3 at 16.9%. But this level includes some improvement. Two years ago, the rate was 21.6%. In the year from Q3 2004 to Q3 2005, employment among this group actually surged by 8.7%; it has held steady at last year&#39;s level across the latest four quarters. The resulting unemployment conditions are shown in the last graph, which contains harmonized data compiled by Eurostat and reported yesterday through September. Spain&#39;s youth unemployment is now about equal to that of Europe as a whole, a substantial improvement relative to the far higher rates of three years ago and more.

<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/SPAIN/@S06/@S06.HTM">Spain</a><a href="http://www.haverselect.com/dlx/SPAIN/@S06/@S06.HTM">, NSA, Millions</a></th>
<th scope="col">3Q 2006</th>
<th scope="col">2Q 2006</th>
<th scope="col">Q3 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>19.90</td>
<td>19.69</td>
<td>19.19</td>
<td>18.97</td>
<td>17.97</td>
<td>17.30</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industry</td>
<td>3.29</td>
<td>3.29</td>
<td>3.31</td>
<td>3.28</td>
<td>3.21</td>
<td>3.20</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Construction</td>
<td>2.59</td>
<td>2.52</td>
<td>2.40</td>
<td>2.36</td>
<td>2.25</td>
<td>2.10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services</td>
<td>13.10</td>
<td>12.93</td>
<td>12.49</td>
<td>12.34</td>
<td>11.52</td>
<td>11.00</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment</td>
<td>1.76</td>
<td>1.84</td>
<td>1.76</td>
<td>1.91</td>
<td>2.21</td>
<td>2.24</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>8.2</td>
<td>8.5</td>
<td>8.4</td>
<td>9.1</td>
<td>11.0</td>
<td>11.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate (%)</td>
<td>58.4</td>
<td>58.3</td>
<td>57.4</td>
<td>57.4</td>
<td>56.4</td>
<td>55.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Employment in Spain expanded "only" 3.7%, year-on-year, in Q3, less than the 4.2% and 4.9% of Q2 and Q1, respectively. Even so, this is still 2.3 times as fast as the growth in working-age population (age 16 and over) and unemployment [...]

Spanish Labor Markets Remain Vigorous

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027d.jpg" width="353">
The University of Michigan&#39;s full month reading of October consumer sentiment rose 9.6% from September to 93.6 after a preliminary indication of an 8.1% rise. The gain exceeded Consensus expectations for a reading of 92.5 and was to the highest level in over a year.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expected inflation during the next year notched up to 3.7% from 3.5% in the preliminary report and from 3.6% in September. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also rose m/m to 3.5% but that was down slightly from the preliminary read.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027e.jpg" width="353">
Expectations for the economy rose 8.4% m/m to the highest level since July of last year. Expected business conditions next year rose 7.4% (17.0% y/y) and over the next five years also rose 5.4% (34.7% y/y) to the highest since July 2005. The expected change in personal finances improved 7.4% (17.0% y/y).
The reading of current economic conditions added to the preliminary gain and surged 11.1% m/m, rising to the highest level since April. The current read of personal finances (22.9% y/y) rose to the best level since April and perceived buying conditions for large household goods recovered all of the prior month&#39;s decline and rose 15.1% y/y.
Consumers&#39; opinion about gov&#39;t economic policy rose 6.1% (11.5% y/y) after three months having been unchanged. Twenty percent of respondents indicated that a good job was being done, the highest percentage in over a year. Thirty three percent felt that a poor job was being down, the lowest since April.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027f.jpg" width="353">
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Consumption Amenities and City Crowdedness from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/Publicat/Reswkpap/PDF/RWP06-10.pdf"> here</a>.
Targeting Inflation and the Fiscal Balance: What is the Optimal Policy Mix? also from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/Publicat/Reswkpap/PDF/RWP06-07.pdf"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">October (Final)</th>
<th scope="col">October (Prelim.)</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>93.6</td>
<td>92.3</td>
<td>85.4</td>
<td>26.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>107.3</td>
<td>106.1</td>
<td>96.6</td>
<td>17.7%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>84.8</td>
<td>83.4</td>
<td>78.2</td>
<td>34.2%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The University of Michigan's full month reading of October consumer sentiment rose 9.6% from September to 93.6 after a preliminary indication of an 8.1% rise. The gain exceeded Consensus expectations for a reading of 92.5 and was to [...]

U.S. Consumer Sentiment Improved Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027a.jpg" width="353">
U.S. real GDP grew just 1.6% (AR) last quarter, well below the 3.5% average of the prior four quarters and the weakest since 1Q 2003. Growth even fell short of Consensus expectations for a 2.5% rise.
Virtually all of the disappointment was due to housing. Residential investment fell 17.4% (AR, -7.7% y/y) after an 11.1% decline during 2Q. That decline alone sapped 1.1 percentage points from GDP growth last quarter and it was the largest quarterly subtraction made by housing since 1981.
A deterioration in the net export deficit also subtracted 0.6 percentage points from last quarter&#39;s growth in real GDP. That followed a 0.4 point addition during 2Q. Exports grew 6.5% (9.0% y/y) but import growth outpaced that with a 7.8% (7.8% y/y) rise. It was paced by a 13.4% rise in nonauto consumer goods, a 15.4% rise in capital goods and an 18.6% rise in industrial supplies &amp; materials other than petroleum.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027b.jpg" width="353">
Growth in final sales to domestic purchasers overall accelerated to 2.2% despite the weakness in housing. The acceleration was due to 3.1% (2.8% y/y) growth in real personal consumption expenditures which was up from 2.6% growth during 2Q while quarterly growth in business fixed investment nearly doubled to 8.6% (7.9% y/y). Equipment &amp; software investment recovered after a 2Q decline with a 6.5% (5.7% y/y) gain. Notably strong was business investment in structures, up 14.1% (13.7% y/y).
Government expenditures also picked up last quarter and grew 1.9% (1.6% y/y) though the Federal government&#39;s spending on defense fell 0.7% (-1.1% y/y), the third decline in the last four quarters. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027c.jpg" width="353">
A lessened pace of investment in inventories subtracted 0.1 percentage points from GDP growth following a 0.4 point addition during 2Q.
The GDP chain price index rose just 1.8%, its weakest quarterly advance in over three years. The PCE chain price index grew just 2.5% (2.9% y/y). That increase was held back by quarterly declines in prices of furniture (-4.3% y/y) and apparel (+0.1% y/y). The chain price for residential investment fell 0.4% (+3.1% y/y), the first quarterly decline since early 2002.
Barreling Down the Road To Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060901/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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>1.6%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>0.6%</td>
<td>-0.3%</td>
<td>0.4%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>3.5%</td>
<td>3.5%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.6%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>2.2%</td>
<td>1.6%</td>
<td>2.4%</td>
<td>3.6%</td>
<td>4.0%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>1.8%</td>
<td>3.3%</td>
<td>2.9%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>


</html>

U.S. real GDP grew just 1.6% (AR) last quarter, well below the 3.5% average of the prior four quarters and the weakest since 1Q 2003. Growth even fell short of Consensus expectations for a 2.5% rise. Virtually all of the [...]

US GDP Growth Weakest Since 2003

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027a.jpg" width="353">
U.S. real GDP grew just 1.6% (AR) last quarter, well below the 3.5% average of the prior four quarters and the weakest since 1Q 2003. Growth even fell short of Consensus expectations for a 2.5% rise.
Virtually all of the disappointment was due to housing. Residential investment fell 17.4% (AR, -7.7% y/y) after an 11.1% decline during 2Q. That decline alone sapped 1.1 percentage points from GDP growth last quarter and it was the largest quarterly subtraction made by housing since 1981.
A deterioration in the net export deficit also subtracted 0.6 percentage points from last quarter&#39;s growth in real GDP. That followed a 0.4 point addition during 2Q. Exports grew 6.5% (9.0% y/y) but import growth outpaced that with a 7.8% (7.8% y/y) rise. It was paced by a 13.4% rise in nonauto consumer goods, a 15.4% rise in capital goods and an 18.6% rise in industrial supplies &amp; materials other than petroleum.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027b.jpg" width="353">
Growth in final sales to domestic purchasers overall accelerated to 2.2% despite the weakness in housing. The acceleration was due to 3.1% (2.8% y/y) growth in real personal consumption expenditures which was up from 2.6% growth during 2Q while quarterly growth in business fixed investment nearly doubled to 8.6% (7.9% y/y). Equipment &amp; software investment recovered after a 2Q decline with a 6.5% (5.7% y/y) gain. Notably strong was business investment in structures, up 14.1% (13.7% y/y).
Government expenditures also picked up last quarter and grew 1.9% (1.6% y/y) though the Federal government&#39;s spending on defense fell 0.7% (-1.1% y/y), the third decline in the last four quarters. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027c.jpg" width="353">
A lessened pace of investment in inventories subtracted 0.1 percentage points from GDP growth following a 0.4 point addition during 2Q.
The GDP chain price index rose just 1.8%, its weakest quarterly advance in over three years. The PCE chain price index grew just 2.5% (2.9% y/y). That increase was held back by quarterly declines in prices of furniture (-4.3% y/y) and apparel (+0.1% y/y). The chain price for residential investment fell 0.4% (+3.1% y/y), the first quarterly decline since early 2002.
Barreling Down the Road To Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060901/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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>1.6%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>0.6%</td>
<td>-0.3%</td>
<td>0.4%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>3.5%</td>
<td>3.5%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.6%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>2.2%</td>
<td>1.6%</td>
<td>2.4%</td>
<td>3.6%</td>
<td>4.0%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>1.8%</td>
<td>3.3%</td>
<td>2.9%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Improved Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027d.jpg" width="353">
The University of Michigan&#39;s full month reading of October consumer sentiment rose 9.6% from September to 93.6 after a preliminary indication of an 8.1% rise. The gain exceeded Consensus expectations for a reading of 92.5 and was to the highest level in over a year.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expected inflation during the next year notched up to 3.7% from 3.5% in the preliminary report and from 3.6% in September. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also rose m/m to 3.5% but that was down slightly from the preliminary read.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027e.jpg" width="353">
Expectations for the economy rose 8.4% m/m to the highest level since July of last year. Expected business conditions next year rose 7.4% (17.0% y/y) and over the next five years also rose 5.4% (34.7% y/y) to the highest since July 2005. The expected change in personal finances improved 7.4% (17.0% y/y).
The reading of current economic conditions added to the preliminary gain and surged 11.1% m/m, rising to the highest level since April. The current read of personal finances (22.9% y/y) rose to the best level since April and perceived buying conditions for large household goods recovered all of the prior month&#39;s decline and rose 15.1% y/y.
Consumers&#39; opinion about gov&#39;t economic policy rose 6.1% (11.5% y/y) after three months having been unchanged. Twenty percent of respondents indicated that a good job was being done, the highest percentage in over a year. Thirty three percent felt that a poor job was being down, the lowest since April.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027f.jpg" width="353">
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Consumption Amenities and City Crowdedness from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/Publicat/Reswkpap/PDF/RWP06-10.pdf"> here</a>.
Targeting Inflation and the Fiscal Balance: What is the Optimal Policy Mix? also from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/Publicat/Reswkpap/PDF/RWP06-07.pdf"> 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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">October (Final)</th>
<th scope="col">October (Prelim.)</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>93.6</td>
<td>92.3</td>
<td>85.4</td>
<td>26.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>107.3</td>
<td>106.1</td>
<td>96.6</td>
<td>17.7%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>84.8</td>
<td>83.4</td>
<td>78.2</td>
<td>34.2%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Spanish Labor Markets Remain Vigorous 
by <a href="/comment/Stone.html">Carol Stone</a> October 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027g.jpg" width="353">
Employment in Spain expanded &quot;only&quot; 3.7%, year-on-year, in Q3, less than the 4.2% and 4.9% of Q2 and Q1, respectively. Even so, this is still 2.3 times as fast as the growth in working-age population (age 16 and over) and unemployment continues to fall. In Q3, the unemployment rate was just 8.2%, the lowest since Q2 1979, more than 27 years ago. Further, at that time, the labor force participation rate was only 49.3%, about 9 points lower than the latest 58.4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027h.jpg" width="353">
The industrial structure of Spanish employment somewhat resembles that in many Western countries. The number of &quot;industry&quot; jobs has been nearly flat for the last few years. But as seen in the second graph, those jobs had been growing before this: from 1996 to 2002 they expanded at more than a 3.5% annual rate. At the same time, in all of Europe, industry employment was flat, and since the middle of 2001 it has fallen consistently. The service sector in both regions has shown gains, though. For all of Europe, this expansion has been between 2% and 3%, with some slowing recently. In Spain, though, these jobs have been growing at about 5%, and recent periods have maintained that pace. Employment opportunities in Spain look favorable.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061027i.jpg" width="353">
On the unemployment side of the ledger, we can&#39;t help but recall the riots in France among young frustrated &quot;wannabe&quot; workers just about a year ago. What&#39;s the situation in Spain? It seems to be some better. Unemployment rates for ages under 25 are far higher than for the general population, to be sure, with Q3 at 16.9%. But this level includes some improvement. Two years ago, the rate was 21.6%. In the year from Q3 2004 to Q3 2005, employment among this group actually surged by 8.7%; it has held steady at last year&#39;s level across the latest four quarters. The resulting unemployment conditions are shown in the last graph, which contains harmonized data compiled by Eurostat and reported yesterday through September. Spain&#39;s youth unemployment is now about equal to that of Europe as a whole, a substantial improvement relative to the far higher rates of three years ago and more.

<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/SPAIN/@S06/@S06.HTM">Spain</a><a href="http://www.haverselect.com/dlx/SPAIN/@S06/@S06.HTM">, NSA, Millions</a></th>
<th scope="col">3Q 2006</th>
<th scope="col">2Q 2006</th>
<th scope="col">Q3 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>19.90</td>
<td>19.69</td>
<td>19.19</td>
<td>18.97</td>
<td>17.97</td>
<td>17.30</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industry</td>
<td>3.29</td>
<td>3.29</td>
<td>3.31</td>
<td>3.28</td>
<td>3.21</td>
<td>3.20</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Construction</td>
<td>2.59</td>
<td>2.52</td>
<td>2.40</td>
<td>2.36</td>
<td>2.25</td>
<td>2.10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services</td>
<td>13.10</td>
<td>12.93</td>
<td>12.49</td>
<td>12.34</td>
<td>11.52</td>
<td>11.00</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment</td>
<td>1.76</td>
<td>1.84</td>
<td>1.76</td>
<td>1.91</td>
<td>2.21</td>
<td>2.24</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>8.2</td>
<td>8.5</td>
<td>8.4</td>
<td>9.1</td>
<td>11.0</td>
<td>11.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate (%)</td>
<td>58.4</td>
<td>58.3</td>
<td>57.4</td>
<td>57.4</td>
<td>56.4</td>
<td>55.5</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061026f.jpg" width="353">
It&#39;s almost unanimous. Housing is slumping in almost every region of the country. The Census Bureau reported building permit data today for September and the year-to-date for regions, divisions, states and metro areas as well as counties and individual &quot;permit-issuing places&quot;, i.e., towns. These data include the number of units, the number of separate buildings and their aggregate value. Haver maintains these in the PERMITY and other PERMIT databases, which are part of our REGIONAL offerings.
As we know, total building permits for the nation have fallen in every month since January; September&#39;s were off 5.2% from August (seasonally adjusted) and 31% from a year ago (not seasonally adjusted). Single-family housing permits were down 5.1% from August and 35.6% from September 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061026g.jpg" width="353">
The Regional permit data for single-family houses show a year-to-date decline of 13.9% from the comparable period of 2005. Every &quot;division&quot; of the country except &quot;West South Central&quot; has participated in this contraction. The biggest declines in single-family units have been in the Pacific states and the East North Central, both down about 22%. In value terms, the total dollar value of building permits in the Pacific states is down 18.9% and in the East North Central division, 17.8%. The Pacific states include California, Washington, Oregon, Alaska and Hawaii. The East North Central group includes Illinois, Indiana, Michigan, Ohio and Wisconsin.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061026h.jpg" width="353">
The West South Central division comprises Arkansas, Louisiana, Oklahoma and Texas. This area is benefiting from the surge in energy prices and is also the subject of much rebuilding effort after last year&#39;s hurricanes. This latter effect is not yet fully evident, though; permits in New Orleans are still very low, but they have rebounded in Gulfport-Biloxi, Mississippi and Lafayette, Louisiana. In Texas, the energy factor is a notable stimulus: there are major gains in the Midland-Odessa areas in the West Texas oil fields and also in Houston, Dallas and Waco. Even so, in the West South Central division as a whole, the momentum is flagging. In the East South Central States, which include Mississippi plus Alabama, Kentucky and Tennessee, the number of permits is down slightly and their value is up. For all Census divisions, the value of permits is not as weak as the number, indicating persisting increases in the value per unit. We did not examine the month-by-month data to see if this is ongoing or if it has petered out as the year has worn on for the weakening housing market and as other home price measures show outright declines. Indeed, the year-on-year price declines in national data for new and existing home sales set in just in the last couple of months, so the year-to-date could still be up from last year. This isn&#39;t likely to last much longer, though. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/HOUSING.HTM">Building Permits, Single-Family Houses</a><a href="http://www.haverselect.com/dlx/HOUSING.HTM">, by Division</a></th>
<th scope="col">Type</th>
Year-to-Date Through September
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">New England</td>
<td>Number</td>
<td>26,518</td>
<td>32,563</td>
<td>31,764</td>
<td>28,359</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Value (Mil.$)</td>
<td>$5,239</td>
<td>$6,251</td>
<td>$5,790</td>
<td>$4,852</td>
</tr>
<tr>
<td class="firstcol">Middle Atlantic</td>
<td>Number</td>
<td>56,757</td>
<td>63,581</td>
<td>65,702</td>
<td>59,903</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Value (Mil.$)</td>
<td>$10,100</td>
<td>$10,902</td>
<td>$10,318</td>
<td>$8,820</td>
</tr>
<tr>
<td class="firstcol">East North Central</td>
<td>Number</td>
<td>117,179</td>
<td>150,249</td>
<td>149,104</td>
<td>145,138</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Value (Mil.$)</td>
<td>$21,355</td>
<td>$25,970</td>
<td>$24,768</td>
<td>$22,711</td>
</tr>
<tr>
<td class="firstcol">West North Central</td>
<td>Number</td>
<td>58,730</td>
<td>73,264</td>
<td>71,593</td>
<td>68,881</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Value (Mil.$)</td>
<td>$10,170</td>
<td>$11,923</td>
<td>$11,015</td>
<td>$10,061</td>
</tr>
<tr>
<td class="firstcol">South Atlantic</td>
<td>Number</td>
<td>345,613</td>
<td>399,893</td>
<td>357,661</td>
<td>312,148</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Value (Mil.$)</td>
<td>$59,597</td>
<td>$64,069</td>
<td>$52,141</td>
<td>$42,545</td>
</tr>
<tr>
<td class="firstcol">East South Central</td>
<td>Number</td>
<td>70,270</td>
<td>71,707</td>
<td>70,193</td>
<td>62,550</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Value (Mil.$)</td>
<td>$10,438</td>
<td>$10,113</td>
<td>$9,219</td>
<td>$7,588</td>
</tr>
<tr>
<td class="firstcol">West South Central</td>
<td>Number</td>
<td>167,220</td>
<td>161,940</td>
<td>143,032</td>
<td>133,465</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Value (Mil.$)</td>
<td>$25,323</td>
<td>$23,021</td>
<td>$19,373</td>
<td>$17,180</td>
</tr>
<tr>
<td class="firstcol">Mountain</td>
<td>Number</td>
<td>142,321</td>
<td>173,719</td>
<td>162,029</td>
<td>134,341</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Value (Mil.$)</td>
<td>$26,159</td>
<td>$29,327</td>
<td>$25,438</td>
<td>$19,450</td>
</tr>
<tr>
<td class="firstcol">Pacific</td>
<td>Number</td>
<td>137,741</td>
<td>177,339</td>
<td>168,764</td>
<td>154,026</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Value (Mil.$)</td>
<td>$29,389</td>
<td>$36,225</td>
<td>$33,374</td>
<td>$28,782</td>
</tr>
</tbody>
</table>
</body>
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It's almost unanimous. Housing is slumping in almost every region of the country. The Census Bureau reported building permit data today for September and the year-to-date for regions, divisions, states and metro areas as well as [...]

Building Permits Down Sharply in 8 of 9 Census Divisions; Only Oil Patch Shows Gain

Surging orders for computers and electronics propelling durable goods orders

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

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

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Winnie Tapasanun

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The U.S. international trade deficit in goods ballooned to a larger-than-expected $105.75 billion in May after narrowing to $83.01 billion in April, according to the advance estimate from the U.S. Census Bureau. The May reading marked the third widening in the goods trade deficit in four months, exceeding a $91.55 billion shortfall in May 2025. A deficit of $84.0 billion for May had been expected by the Action Economics Forecast Survey. The deficit reached a low of $61.44 billion in October 2025 (the smallest since February 2020) and a record high of $158.73 billion in March 2025. On a quarterly basis, the deficit averaged $94.38 billion so far in Q2'26 versus $81.96 billion in Q1'26.

Total goods exports fell 5.4% m/m (+14.7% y/y) to $207.67 billion in May, the first monthly fall since December and a three-month low, following a 3.8% rise to a record-high $219.52 billion in April. Exports were up 27.7% from a June 2023 low. The m/m fall in exports in May reflected declines of 9.2% (-5.0% y/y) in nonfood consumer goods excluding autos, 7.0% (+23.2% y/y) in industrial supplies & materials, 6.8% (+19.5% y/y) in other goods, and 5.0% (+14.8% y/y) in capital goods excluding autos. To the upside, exports of foods, feeds & beverages (+3.9%; +19.1% y/y) and automotive vehicles & parts (+0.5%; -3.6% y/y) rebounded m/m in May.

Total goods imports, up for the fourth consecutive month, rose 3.6% m/m (15.0% y/y) to $313.43 billion in May, after a 2.0% increase to $302.53 billion in April, marking the highest level since the March 2025 record high of $340.11 billion. Imports were up 25.0% from a March 2023 low. The m/m rise in imports in May was broad-based across all end-use categories, led by an 11.5% gain (22.0% y/y) in other goods, followed by increases of 6.3% (1.4% y/y) in automotive vehicles & parts, 5.7% (-9.1% y/y) in nonfood consumer goods excluding autos, 4.8% (11.7% y/y) in industrial supplies & materials, 4.3% (-0.2% y/y) in foods, feeds & beverages, and 0.4% (41.9% y/y) in capital goods excluding autos. 

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

- Deficit: $105.75 bil. in May, up $22.75 bil. (+27.4%) from April’s $83.01 bil.
- Exports -5.4%, first m/m decline since Dec., led by a 9.2% drop in nonauto consumer goods exports.
- Imports +3.6%, fourth straight m/m rise to highest level since Mar. ’25, driven by an 11.5% gain in imports of other goods.

U.S. Goods Trade Deficit Balloons in May, Largest Since March ’25

Robert Brusca

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In June, there's a slight divergence in the performance of industry climate and service sector climate, although broadly the two sectors have seen their composite indexes moving in more or less the same direction. Since 2024, the industry survey has moved up slightly after falling faster than the services gauge. The services survey has been locked in a slow trend of deterioration, largely since it reached a peak in 2021 in the wake of COVID.

The industry climate gauge has a 30.8 percentile standing, but the recent production trend, while declining, logs a more substantial 42.8 percentile standing. Contributing survey members find their own industry ‘likely trend’ much weaker, at a 21.2 percentile standing. Demand overall, however, has standings above the 50th percentile, putting overall and foreign orders & demand each above their respective medians for this period of ranking back to 2001. Inventories have a strong 81-percentile ranking. Prices are extremely strong, with 87-percentile and 86-percentile standings for respondents for their personal industry trend for prices as well as for the overarching manufacturing sector estimate of prices. Higher prices seem to be the one thing that everyone can agree on by a large margin.

260626.jpg

As for services, the service climate index improved slightly to 93.4 in June from 92.6 in May. The three-month moving average was weaker in June than in May as well; the 12-month moving average has been stuck at its current level for a number of months. The outlook in June improved slightly to a reading of -12 from -15 in May, but the outlook ranking is still a weak 26.8 percentile standing. The three-month expectations and observations of past sales trends haven't changed much in the last two months, but there has been a slight improvement for sales expectations. However, both sales metrics have low 20th percentile standings. Sales prices have deteriorated slightly in June compared to May for both the observed and the expected trends, but prices have standings above their 50th percentiles, logging above-median performance. Employment over the last three months has weakened noticeably, and expected employment is weaker by a small amount.

In terms of rankings, all of the sector rankings are below the 50th percentile on all of these observations, including the climate headline except for sales prices where both the past three-month observed trend and the expected trend have readings above their respective 50th percentiles, indicating past and expected price pressures in excess of normal.

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**Assessment**
On balance, the readings for the French industry, manufacturing sector and services are not encouraging. In addition, concerns about prices linger. The services sector, those concerns seem moderate compared to the concerns in manufacturing.

The hot war continues between Ukraine and Russia, while in the Middle East there was talk of some improvement and a potential peace deal between the United States and Iran, but every time there is some talk of a breakthrough, there appears to be a breakdown. In the most recent development, Iran has asserted its right to control traffic through the Strait of Hormuz, and it's not clear how that demand would ever be consistent with the U.S. allowing a ceasefire. It appears that Iran may have traded its irreconcilable demand for nuclear weapons for a more pragmatic and real-world argument—that it will control the traffic through the Strait of Hormuz simply because it can—and it still is doing exactly that, even after all the destruction it suffered.

Stopping Iran from controlling the Strait would take a commitment to restart the war. All this makes me personally more pessimistic. I think Iran sees the need for Trump to cut a deal and stop the war before the U.S. mid-term elections, and it is pressing that need to its advantage. Trading its nuclear ambitions for real world control of the Strait would elevate Iran’s power from being dangerous but ethereal to a real world event with constant consequences.

France

French Industry and Services Confidence Diverge in June

Andrew Cates

**Equity Momentum and Global Surprises — Still Moving Together**
One of the more telling features of global equity markets in 2026 has been the persistence of the correlation between non-US equity momentum and global growth and inflation surprise indices. Equity markets outside the United States have generally prospered when economic data have beaten consensus expectations and when inflation surprises have been negative  — a combination that has historically been associated with stronger corporate earnings and a more benign policy backdrop in economies other than the US. That correlation has held reasonably well through the turbulence of the past few months, even as the Middle East conflict introduced significant noise into both the economic data and the financial market signal. What the chart reveals this week is a picture of moderate but not alarming deterioration: global growth surprises have softened at the margin, consistent with the energy cost headwinds that have weighed on European and Asian activity, but the relationship between equity momentum and the broader data pulse remains intact. It is a signal that market participants continue to track economic fundamentals rather than purely geopolitical newsflow — a modestly reassuring sign that the underlying framework for assessing the global cycle has not broken down.

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**The Fed Decouples: Why Oil and US Two-Year Yields Have Parted Ways**
For much of 2026, oil prices and US two-year Treasury yields moved in close alignment. The logic was straightforward: higher oil prices raised inflation expectations, which in turn pushed market participants to anticipate a more hawkish Federal Reserve, lifting short-dated yields in the process. That relationship held with notable consistency through the March escalation and the months that followed, as energy market shocks and monetary policy expectations fed off each other. What this week’s chart captures is a striking breakdown in that correlation. As oil prices have fallen on the back of the US-Iran memorandum of understanding and the associated unwinding of the geopolitical risk premium, US two-year yields have not followed them lower. The reason is last week’s Federal Reserve meeting. Under new chair Kevin Warsh, the Fed delivered a hawkish dot plot that shifted the median year-end projection to a hike, making clear that the easing cycle previously priced by some market participants is no longer the central scenario. The message is important: the deflationary impulse from lower oil prices is being offset — at least in the Fed’s framing — by persistent underlying inflation pressures and a commitment to keeping policy tight.

260625Z2.jpg

**Flash PMIs Signal Easing Supply Chain Stress and Softer Price Pressures**
June’s flash PMI surveys, released this week across the major advanced economies, provide a timely read on how the global manufacturing and services sectors are absorbing the shifting macro backdrop. Two findings stand out. First, supplier delivery times have improved (or not lengthened as much as they had in the prior two months). This finding coheres naturally with the broader narrative: lower oil prices reduce transport and energy input costs, while the resumption of Strait of Hormuz shipping flows — examined in more detail in chart 4 — is beginning to reduce the freight disruption and re-routing costs that had been building since the conflict escalated. Second, output price inflation in manufacturing has softened, suggesting that some of the pipeline pressure from earlier energy cost spikes is beginning to fade.

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**Hormuz Traffic and Oil: A Coherent Story of Tentative Normalisation**
The recent US-Iran memorandum of understanding to work towards a final deal, though not without subsequent flare-ups, has already brought relief to markets, most visibly in crude oil prices. This should go a long way towards unwinding the inflation-related concerns that previously elevated oil prices had stoked. While the pullback has owed much to anticipation of the glut of pent-up supply expected to follow, certain trackers of shipping volume through the Strait of Hormuz, such as the IMF’s, already point to a marked pickup in traffic, even if it remains well below pre-conflict levels. Should this normalisation of shipping flows persist, it would lend continued justification to a corresponding easing in oil prices, energy-related inflation and, by extension, headline inflation — a welcome development for central banks grappling with the delicate balancing act of reining in price pressures without dampening growth too sharply.

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**South Korea’s Trade Data Flag a Modest Softening in Global Demand**
South Korea’s trade data serve as one of the global economy’s most useful early warning systems. As one of the world’s most open economies, with exports spanning semiconductors, petrochemicals, steel, automobiles and consumer electronics, South Korea’s monthly trade figures provide a timely and broad-based read on the state of global demand. This week’s data show a slightly softer picture than the strong prints that characterised much of the first quarter. Headline export growth has moderated at the margin, and crucially, semiconductor exports — which had been the most dynamic component of the trade data, propelled by AI-related chip demand — have also come in a touch below the exceptional run rates seen earlier in the year. This is not, in itself, alarming: some moderation from peak rates was always to be expected, and the semiconductor cycle remains structurally supported by the scale of AI infrastructure investment globally.

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**A Super El Niño on the Horizon — The Next Inflation Risk**
With that said, while one driver of price pressures seems to be ebbing for now — albeit not without the risk of future flare-ups — another potential inflationary risk looms on the horizon. The chart illustrates the transmission mechanism. It plots Thailand’s milled rice production (left axis) against Australia’s Southern Oscillation Index (right axis), a well-established barometer of El Niño and La Niña conditions. The convention is straightforward: SOI readings persistently above +8 indicate La Niña, associated with above-average rainfall across Southeast Asia and broadly supportive crop conditions; readings persistently below -8 signal El Niño, which brings drought stress and reduced water availability across the region. The historical relationship is striking. The sharp negative SOI troughs around 2002–03, 2009–10 and most dramatically around 2015 all coincide with visible falls in Thai milled rice output. The severe El Niño of 2014–16 produced both the deepest SOI trough in the series and the sharpest single drop in rice production, to below 24,000 thousand tonnes. As meteorological authorities have been warning for some time, the world appears to be facing an imminent Super El Niño event, with the SOI already drifting back towards negative territory in recent months. Were a significant El Niño to materialise in the second half of this year, the implications for Thai rice output — and by extension for Asian food price inflation — could be substantial. Central bankers, in other words, may find themselves having to wrestle with a new inflationary impulse just as they had begun to hope the worst was behind them.

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The mood in global financial markets this week is more settled, though “settled” should not be confused with resolved. The US-Iran memorandum of understanding, signed last week, has continued to do its work: oil prices have fallen further, Strait of Hormuz shipping traffic has picked up measurably, and the risk premium that had been embedded in energy markets since the conflict escalated in March is now visibly unwinding. That is a material development for the inflation outlook, and central bankers will be watching carefully. Yet the picture is not without its complications. Technology stocks — the most conspicuous beneficiary of the prevailing low-rate, high-growth narrative — have been subject to renewed jitters this week, as investors grow more attentive to stretched valuations and the implications of a Federal Reserve that, under new chair Kevin Warsh, is no longer signalling the easing cycle previously priced into markets. Against this backdrop, this week’s charts draw on the latest data to assess where the global economic cycle stands. Equity momentum outside the United States has tracked closely with global growth and inflation surprises, a correlation that tells us something important about how activity is being perceived (chart 1). Meanwhile, the breakdown of the previously tight relationship between oil prices and US two-year yields is arguably one of the more telling market signals of recent weeks (chart 2). June’s flash PMI surveys point to easing supply chain stress and softer output price inflation in manufacturing — a finding that chimes naturally with lower crude prices and the resumption of Hormuz flows (chart 3). The Strait of Hormuz itself deserves a closer look: traffic data and the mechanics of the oil price pullback are telling a coherent story that supports the PMI picture (chart 4). South Korea’s trade data, including semiconductors, offer a slightly softer read on global demand momentum at the margin (chart 5). And looming on the horizon, one new risk is drawing the attention of meteorological authorities: a Super El Niño event whose probability has been rising, with potentially significant implications for food commodity prices and Asian agriculture (chart 6).

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Charts of the Week: Calmer Waters, New Currents

Michael J. Moran

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The price index for personal consumption expenditures rose 0.4% in May, although the measure almost rounded up to 0.5% (0.4498%). May marked the sixth consecutive month with headline prices increasing 0.3% or more. This series of changes has pulled the year-over-year inflation rate to 4.1%, up from 2.3% just over one year ago (April 2025). Energy prices, of course, have been the most important factor behind the acceleration in inflation, and they remained an issue in May, increasing 4.0% after advances of 3.9% and 11.6% in the prior two months. Food prices have moved erratically in the past year, with jumps and lulls leaving an average monthly increase of 0.2%. The noise was evident in recent months, with food prices increasing only 0.1% in May after a jump of 0.5% in April.

Core prices also have contributed to the pickup in inflation. After averaging monthly increases of 0.24% during 2025, core prices have increased at an average rate of 0.34% so far this year. The year-over-year increase in core inflation totaled 3.4% in May, up from a recent low of 2.6% in April of last year. Both the headline and core inflation rates are uncomfortably above the Federal Reserve’s target of 2.0%.

Total personal income rose briskly in May (0.7%). A surge in farm income played an important role (up 125% month-to-month, most likely reflecting government support payments), but nominal results also were firm elsewhere (up 0.5% ex farm income). Inflation reduced the purchasing power of this income gain, but aggregate income still advanced slightly in real terms (0.2%).

Given the recent surge in energy-driven inflation, May marked only the second monthly increase in real income so far this year. Tight budgets have dampened consumer spending, but individuals have not pulled to the sidelines. Real consumption expenditures rose 0.5% (annual rate) in the first quarter, and results for April and May suggest that real PCE is on track to increase 1.5% to 2.0% in the second quarter.

Households have managed to remain moderately active in their spending by limiting their saving. The saving rate has drifted lower since early 2024 moving to 3.0% in May (chart, below right). The erosion in saving perhaps seems reckless, but some of the reduction could be a response to the strength in the equity market, where wealth gains have possibly limited the incentive to save. Also, larger-than-normal tax refunds this year because of tax cuts in the One Big Beautiful Budget Act have allowed many households to spend actively despite modest increases in real income.

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

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- Energy prices rose sharply for the third consecutive month; core prices were unsettling as well.
- A jump in nominal income translated to a modest advance in real terms, allowing consumers to remain reasonably active.

Personal Income, Consumption, and Prices in May

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New orders for durable goods fell 4.5% m/m in May, the first monthly fall in three months, following an upwardly revised 8.5% gain in April (+7.9% initially reported on May 28) and a 1.3% increase in March (unrevised), according to today’s advance report by the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 4.4% m/m May decrease. The year-on-year rate decelerated to -3.5% in May from +17.7% in April (+20.0% in May 2025), marking the first negative reading since December 2024 (-4.5%). Excluding transportation, durable goods orders rose 1.3% (10.2% y/y) in May, the 13th consecutive m/m rise, after a 1.4% increase in April. Meanwhile, durable goods orders excluding defense dropped 4.6% (-5.0% y/y), down for the third time in four months, following an 8.4% April rebound.

The m/m fall in May durable goods orders was driven by a 51.8% m/m plunge in orders for nondefense aircraft & parts, following a 167.4% surge in April and a 23.0% slump in March. Orders for defense aircraft & parts rose 7.9% (63.5% y/y), the fourth successive m/m increase, after gains of 2.5% in April and 23.7% in March. Orders excluding aircraft climbed 1.0% (9.8% y/y), the six straight m/m rise and the 10th in 11 months, after a 1.3% April increase.

Durable goods orders for transportation dropped 14.0% (-22.1% y/y) in May, the first m/m decline since February, following a 22.4% gain in April. In addition to May’s m/m plunge in nondefense aircraft orders and increase in defense aircraft orders, motor vehicles & parts orders rose 1.1% (12.4% y/y), the sixth straight m/m rise, after a 0.7% April increase. Orders for primary metals advanced 3.0% (15.9% y/y), the largest of six successive m/m gains, after a 2.6% April rise. Machinery orders climbed 1.9% (14.0% y/y), up for the 13th straight month, on top of a 1.3% April rise. Orders for fabricated metal products grew 1.5% (11.2% y/y), the third m/m increase in four months, following a 4.1% April gain. Orders for all other durable goods rose 0.8% (3.2% y/y), the strongest of nine consecutive m/m increases, after a 0.1% April uptick. Orders for computers & electronic products rebounded 0.3% (13.3% y/y), the eighth m/m gain in nine months, following a 0.4% April decrease. Orders for electrical equipment, appliances & components recovered 0.3% (5.8% y/y), the second increase in three months, after a 0.2% April decline.

Capital goods orders fell 13.6% (-21.1% y/y) in May, the first m/m fall in three months and the deepest since June 2025, following a 22.2% jump in April. Nondefense capital goods orders dropped 15.7% (-26.4% y/y), the fifth m/m decrease in six months, after a 24.9% April rebound. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) rose 1.6% (10.5% y/y), the third m/m gain in four months, reversing a 0.7% April decline. Defense capital goods orders slid 3.4% (+14.4% y/y), the first m/m slide since January, after a 10.4% April gain. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 0.3% (7.6% y/y), the eighth m/m rise in nine months, after a 0.5% April increase.

Shipments of all manufactured goods climbed 1.6% (8.9% y/y) in May following a 1.3% gain in April. Durable goods shipments rose 1.0% (8.9% y/y) after a 0.7% April increase. Nondurable goods shipments advanced 2.2% (9.0% y/y), building on a 1.9% April gain. All three series posted the sixth consecutive m/m increase.

Unfilled orders of durable goods rose 0.6% (8.5% y/y) in May, the 10th straight m/m rise, after a 1.8% gain in April. Excluding transportation, unfilled orders increased 0.9% (4.3% y/y), also up for the 10th consecutive month, following a 0.7% April rise.

Manufacturing inventories edged up 0.2% (1.9% y/y) in May, the seventh successive m/m gain, after a 0.3% rise in April. Durable goods inventories grew 0.2% (2.1% y/y), the eighth straight m/m increase, after rising 0.3% in April and March. Nondurable goods inventories, up for the fourth consecutive month, rose 0.3% (1.6% y/y), matching April's pace.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- May headline orders -4.5% m/m, first fall in three mths.; -3.5% y/y, first negative reading since Dec. ’24.
- Nondefense aircraft & parts -51.8% m/m vs. April’s +167.4%.
- Transportation orders -14.0%, first m/m drop since Feb.; orders ex transp. +1.3%, 13th straight m/m rise.
- Core capital goods shipments +0.3%, eighth gain in nine mths., pointing to a moderate contribution to Q2’26 GDP from business equipt. spending.
- Durable goods shipments +1.0%; unfilled orders +0.6%; inventories +0.2%.

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