Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205a.jpg" width="353">
The Institute for Supply Management reported that the Business Activity Index for the non-manufacturing sector in November slipped to 58.5 from an unrevised 60.0 the prior month. A reading above 50 indicates expansion. The latest about matched Consensus expectations for a decline to 59.0.
Since the series&#39; inception in 1997 there has been a 53% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
Despite the decline in the Business Activity gauge, the new orders component rose for the second month after a sharp September decline. In addition, the employment index rose 4 points to the highest level since August. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205b.jpg" width="353">
Pricing power fell for the second month after a 14 point September surge. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP Services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>58.5</td>
<td>60.0</td>
<td>61.9</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>74.2</td>
<td>78.0</td>
<td>73.2</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>
Growth in Japanese Corporate Profits Slowing  
by <a href="/comment/Curley.html">Louise Curley</a> December 5, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205c.jpg" width="353">
Corporate profits in Japan have begun to decelerate after the exceedingly good years of 2003 and 2004, but they are still, in the aggregate, showing positive year-over-year changes so far this year. Rising prices, particularly for energy, and increased wages as the labor market has begun to tighten are the principal factors accounting for the slowdown. The slowdown, however, has varied according to industry and to the size of corporations.
In the third quarter of 2005, profits in the non-manufacturing industry were only 2.39% above the third quarter of 2004, while the corresponding figure for profits in the manufacturing industries was 12.62%. The first chart shows the year-over-year changes in profits for the manufacturing and non manufacturing industries. For the past year, profits in the manufacturing industries have tended to increase faster than those in the non-manufacturing industries. Over the longer term, profits in the manufacturing industries tend to be more volatile than those in the non-manufacturing industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205d.jpg" width="353">
The trend in profits by size of corporation varies widely. Profits in large non-manufacturing corporations declined 3.18% in the third quarter while medium and small sized corporations continued to show year-over-year gains. Profits in large corporations in the manufacturing sector increased 9.25% and those in small corporations were up 42.84%. The weakness in the manufacturing sector was in the profits of medium sized corporation where profits in all three quarters of this year have been lower than those of the corresponding quarters of 2004. (Differences rather than percentage changes are shown for the profits of medium sized corporations because, in the past, this sector has experienced losses and percentage changes cannot be computed from a negative to a positive number). The second chart compares the year-over-year percent changes in profits of all large corporations with those of all small corporations.Note: Profit data for Japanese corporations are found in the JAPAN database in the Financial section under the heading, Corporate Financial Statement, Quarterly Data. Data for all industry, manufacturing and non-manufacturing industries are shown in billions of yen in the section Value of Capital Assets, Liabilities, Equity, Profit and Loss. Data are also available in 100 million yen for corporations in all industry, manufacturing and non manufacturing industries by size of capital under the heading--Financial Statement by Size of Capital.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Corporate Profits in Japan</th>
<th scope="col">Q3 05&nbsp; Y/Y%</th>
<th scope="col">Q2 05 Y/Y% </th>
<th scope="col">Q1 05 Y/Y%</th>
<th scope="col">2004 % &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">2003 %</th>
<th scope="col">2002 %&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All Industries&nbsp;</td>
<td>6.56</td>
<td>12.86</td>
<td>15.84</td>
<td>27.66</td>
<td>12.56</td>
<td>-0.70</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; B Large Corp (1 bil Y and over)&nbsp;</td>
<td>2.68</td>
<td>16.49</td>
<td>12.81</td>
<td>28.22</td>
<td>12.82</td>
<td>11.01</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; C Medium (100 mil-1 bil Y) </td>
<td>3.56</td>
<td>4.47</td>
<td>24.19</td>
<td>20.76</td>
<td>19.00</td>
<td>10.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; D Small (10 -100 mil Y)</td>
<td>17.68</td>
<td>9.92</td>
<td>16.16</td>
<td>29.62</td>
<td>9.71</td>
<td>-17.39</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>12.62</td>
<td>14.47</td>
<td>18.96</td>
<td>30.51</td>
<td>20.39</td>
<td>2.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; B Large Corp (1 bil Y and over)&nbsp;</td>
<td>9.25</td>
<td>13.86</td>
<td>16.02</td>
<td>28.63</td>
<td>24.99</td>
<td>6.56</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &nbsp; C Medium (100 mil-1 bil Y) </td>
<td>-199</td>
<td>-119</td>
<td>-203</td>
<td>5953</td>
<td>4428</td>
<td>1815</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; D Small (10 -100 mil Y)</td>
<td>42.84</td>
<td>25.31</td>
<td>42.33</td>
<td>36.01</td>
<td>0.49</td>
<td>-13.24</td>
</tr>
<tr class="odd">
<td class="firstcol">Non-Manufacturing</td>
<td>&nbsp;2.39</td>
<td>11.89&nbsp;</td>
<td>14.02</td>
<td>25.77</td>
<td>&nbsp;7.92</td>
<td>&nbsp;-2.37</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; B Large Corp (1 bil Y and over)&nbsp;</td>
<td>-3.18</td>
<td>19.69&nbsp;</td>
<td>9.02&nbsp;</td>
<td>27.77&nbsp;</td>
<td>1.95&nbsp;</td>
<td>&nbsp;15.31</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; C Medium (100 mil-1 bil Y) </td>
<td>8.50</td>
<td>9.36</td>
<td>38.88</td>
<td>14.21</td>
<td>12.84</td>
<td>14.21</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; D Small (10 -100 mil Y)</td>
<td>&nbsp;9.55</td>
<td>5.35&nbsp;</td>
<td>10.03&nbsp;</td>
<td>27.81&nbsp;</td>
<td>12.64&nbsp;</td>
<td>-18.63&nbsp;</td>
</tr>
</tbody>
</table>


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The Institute for Supply Management reported that the Business Activity Index for the non-manufacturing sector in November slipped to 58.5 from an unrevised 60.0 the prior month. A reading above 50 indicates expansion. The latest [...]

ISM: Activity Expanded Outside the Factory Sector

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/051202e.jpg" width="353">
House prices are a major economic indicator for the UK. They are seen by many as a measure of the housing market, and also as a gauge of consumer confidence and spending potential. So after a substantial run-up in those prices from 2001 through the middle of last year, it was of no small concern that they flattened out until a few months ago.
The measure here is the &quot;Halifax House Price Index&quot;, a compilation by the country&#39;s largest mortgage lender, HBOS plc. It is based on about 15,000 home sales monthly; the data are adjusted for the size and style of home, so that month-to-month comparisons are calculated from like or &quot;standardized&quot; properties. Thus, the index measures only price change, not movements due to differing house or location characteristics.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202f.jpg" width="353">
The index began to rise again in June after stagnating for nearly a year. A 1.2% rise in November was the fifth increase in six months, and over the last six months, prices have gone up at a 9.7% annual rate. This compares with a low in the six-month annualized percent change of -0.4% in July. Relative to the enormous increases in 2002 and 2003, the recent pace is not fast, but it clearly is an improvement over the weakness of earlier this year. Accompanying data show that the recovery has been firmer in the existing home segment than in new houses. And as shown in the second graph, prices of the obviously smaller homes purchased by first-time buyers have generally been more vigorous than those bought by previous home owners.
All these data are in Haver&#39;s UK database, plus quarterly data for the various regions of the UK. Halifax&#39;s researchers publish the data both unadjusted and seasonally adjusted.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U4/@U4.HTM">UK House Prices: Halifax data,</a> Seasonally Adjusted</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Nov 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="3">Annual Average</td>
</tr>
<tr>
<td class="firstcol">Price (&pound; Thous)</td>
<td>170.1</td>
<td>168.1</td>
<td>168.2</td>
<td>160.7</td>
<td>157.0</td>
<td>132.2</td>
<td>110.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="3">December/December</td>
</tr>
<tr>
<td class="firstcol">% Change*</td>
<td>1.2</td>
<td>-0.0</td>
<td>1.1</td>
<td>5.7</td>
<td>14.2</td>
<td>17.3</td>
<td>23.1</td>
</tr>
</tbody>
</table>
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House prices are a major economic indicator for the UK. They are seen by many as a measure of the housing market, and also as a gauge of consumer confidence and spending potential. So after a substantial run-up in those prices from [...]

UK House Prices Continue Recovery in November

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202a.jpg" width="353">
According to the Office of Federal Housing Enterprise Oversight (OFHEO) home prices in the U.S. continued to rise last quarter, but the rate of escalation showed signs of topping out. The 2.9% q/q rise was down from the prior quarter and was down from a 4.7% jump one year ago. As a result the y/y gain slowed to 12.0% from 14.0% in 2Q.
These rates of gain are hardly slow, and given the near record level of home sales, historically low interest rates and rising personal incomes they are widely expected to remain healthy.
Throughout the country, rates of home price appreciation appear to have topped. However, the variance in the rates of growth between regions is high.
During the last year, job cutbacks in the auto industry helped lower the rate of home price appreciation in Michigan to 4.0% and the state&#39;s gain has lagged all others. At the other end of the spectrum, demographic trends pushed the rate of home price appreciation in Arizona to the top of the scale at 30.3% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202b.jpg" width="353">
During the last five years, home price appreciation in the District of Columbia has surpassed all others at 118.9% followed closely by California at 112.8%. Indiana with a 20.6% rise is at the bottom of the list during the last five years.
The House Price Indices in this report are weighted indexes based on repeat sales or refinancings using data provided by Fannie Mae or Freddie Mac .
Housing Markets and Demographics from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-21.pdf"> here</a>.
The latest report from the Office of Federal Housing Enterprise Oversight (OFHEO) can be found <a href="http://www.ofheo.gov/media/pdf/3q05hpi.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/REGIONAL/@R11/@R1101/@R1101.HTM">House Price Index (OFHEO)</a></th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">United States</td>
<td>2.9%</td>
<td>3.6%</td>
<td>12.0%</td>
<td>10.9%</td>
<td>6.9%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; California</td>
<td>4.2%</td>
<td>5.6%</td>
<td>19.3%</td>
<td>22.4%</td>
<td>12.3%</td>
<td>11.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Jersey</td>
<td>3.1%</td>
<td>4.4%</td>
<td>13.7%</td>
<td>15.0%</td>
<td>10.5%</td>
<td>12.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Alabama</td>
<td>2.2%</td>
<td>2.5%</td>
<td>8.1%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Michigan</td>
<td>0.9%</td>
<td>1.0%</td>
<td>4.0%</td>
<td>4.4%</td>
<td>3.5%</td>
<td>4.4%</td>
</tr>
</tbody>
</table>
</body>
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According to the Office of Federal Housing Enterprise Oversight (OFHEO) home prices in the U.S. continued to rise last quarter, but the rate of escalation showed signs of topping out. The 2.9% q/q rise was down from the prior quarter [...]

Home Price Appreciation Strong, But Off Record Pace

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202d.jpg" width="353">
According to the Autodata Corporation, November US sales of light vehicles recovered most of the prior month&#39;s decline with a 6.7% m/m rise to 15.74M. The increase, however, failed to recoup the decline during the prior three months. As a result, the average of sales so far during 2005 is about equal to all of 2004.
Sales of US made cars &amp; trucks improved 8.6% m/m. Domestic truck sales rose 11.8% (-11.8% y/y) while car sales rose a lesser 4.8% (2.6% y/y).
Sales of imported cars &amp; trucks rose a modest 0.2% m/m (-3.3% y/y) as sales of imported trucks rose 0.8% (-8.5% y/y) and imported auto sales fell slightly (-0.5% y/y).
Import&#39;s share of the US light vehicle market slipped m/m to 21.2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>15.74</td>
<td>14.75</td>
<td>-5.5%</td>
<td>16.87</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.56</td>
<td>7.32</td>
<td>1.7%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.18</td>
<td>7.42</td>
<td>-11.3%</td>
<td>9.37</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the Autodata Corporation, November US sales of light vehicles recovered most of the prior month's decline with a 6.7% m/m rise to 15.74M. The increase, however, failed to recoup the decline during the prior three months. [...]

U.S. Vehicle Sales Up Modestly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202c.jpg" width="353">
In November, non-farm payrolls posted the largest gain since July. The 215,000 increase matched Consensus expectations and followed a 44,000 October rise that was slightly lower than initially reported, but the September figure was revised to up 17,000 from a previously reported 8,000 drop.
From the household survey the unemployment rate held at 5.0%, as expected. Employment fell 52,000 (+1.6% y/y) after a 214,000 rise in October and the labor force rose 97,000 (1.3% y/y).
Factory sector payrolls increased 11,000 (-0.5% y/y). Together with a 15,000 worker rise in October, the figure marked the first time since early last year that factory payrolls have risen in consecutive months. Some improvement in the breadth across industries of job gains was suggested by the sector&#39;s one month diffusion index which rose to 51.8%, its highest level since July of last year.
Construction employment rose 37,000 (4.2% y/y), up a bit from the 28,000 average during the prior three months.
Payrolls in private service producing industries rose 144,000 (1.8% y/y) after a little revised 5,000 worker decline in October. Education &amp; health services jobs increased 36,000 (2.2% y/y) and returned to the earlier pace after an October decline. Retail trade added 8,500 (0.7% y/y) jobs but a larger 29,000 (2.8% y/y) gain was posted by professional &amp; business services. Jobs in financial services rose 13,000 (2.4% y/y) and leisure &amp; hospitality recovered 29,000 (1.6% y/y) after two months of decline.
The gain in average hourly earnings eased to an expected 0.2% after the upwardly revised 0.6% spike in October. Factory sector earnings rose 0.2% (2.5% y/y) but private service sector earnings fell 0.1% (+3.4% y/y).
Today&#39;s remarks by Federal Reserve Board Chairman Alan Greenspan on Budget Policy can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051202/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>215,000</td>
<td>44,000</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>11,000</td>
<td>15,000</td>
<td>-0.5%</td>
<td>-1.2%</td>
<td>-4.9%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.8</td>
<td>33.7 (Nov &#39;04)</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.6%</td>
<td>3.2%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.0%</td>
<td>5.0%</td>
<td>5.4% (Nov &#39;04)</td>
<td>5.5%</td>
<td>6.0%</td>
<td>5.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

In November, non-farm payrolls posted the largest gain since July. The 215,000 increase matched Consensus expectations and followed a 44,000 October rise that was slightly lower than initially reported, but the September figure was [...]

U.S. Payrolls Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202c.jpg" width="353">
In November, non-farm payrolls posted the largest gain since July. The 215,000 increase matched Consensus expectations and followed a 44,000 October rise that was slightly lower than initially reported, but the September figure was revised to up 17,000 from a previously reported 8,000 drop.
From the household survey the unemployment rate held at 5.0%, as expected. Employment fell 52,000 (+1.6% y/y) after a 214,000 rise in October and the labor force rose 97,000 (1.3% y/y).
Factory sector payrolls increased 11,000 (-0.5% y/y). Together with a 15,000 worker rise in October, the figure marked the first time since early last year that factory payrolls have risen in consecutive months. Some improvement in the breadth across industries of job gains was suggested by the sector&#39;s one month diffusion index which rose to 51.8%, its highest level since July of last year.
Construction employment rose 37,000 (4.2% y/y), up a bit from the 28,000 average during the prior three months.
Payrolls in private service producing industries rose 144,000 (1.8% y/y) after a little revised 5,000 worker decline in October. Education &amp; health services jobs increased 36,000 (2.2% y/y) and returned to the earlier pace after an October decline. Retail trade added 8,500 (0.7% y/y) jobs but a larger 29,000 (2.8% y/y) gain was posted by professional &amp; business services. Jobs in financial services rose 13,000 (2.4% y/y) and leisure &amp; hospitality recovered 29,000 (1.6% y/y) after two months of decline.
The gain in average hourly earnings eased to an expected 0.2% after the upwardly revised 0.6% spike in October. Factory sector earnings rose 0.2% (2.5% y/y) but private service sector earnings fell 0.1% (+3.4% y/y).
Today&#39;s remarks by Federal Reserve Board Chairman Alan Greenspan on Budget Policy can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051202/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>215,000</td>
<td>44,000</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>11,000</td>
<td>15,000</td>
<td>-0.5%</td>
<td>-1.2%</td>
<td>-4.9%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.8</td>
<td>33.7 (Nov &#39;04)</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.6%</td>
<td>3.2%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.0%</td>
<td>5.0%</td>
<td>5.4% (Nov &#39;04)</td>
<td>5.5%</td>
<td>6.0%</td>
<td>5.8%</td>
</tr>
</tbody>
</table>
U.S. Vehicle Sales Up Modestly 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202d.jpg" width="353">
According to the Autodata Corporation, November US sales of light vehicles recovered most of the prior month&#39;s decline with a 6.7% m/m rise to 15.74M. The increase, however, failed to recoup the decline during the prior three months. As a result, the average of sales so far during 2005 is about equal to all of 2004.
Sales of US made cars &amp; trucks improved 8.6% m/m. Domestic truck sales rose 11.8% (-11.8% y/y) while car sales rose a lesser 4.8% (2.6% y/y).
Sales of imported cars &amp; trucks rose a modest 0.2% m/m (-3.3% y/y) as sales of imported trucks rose 0.8% (-8.5% y/y) and imported auto sales fell slightly (-0.5% y/y).
Import&#39;s share of the US light vehicle market slipped m/m to 21.2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>15.74</td>
<td>14.75</td>
<td>-5.5%</td>
<td>16.87</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.56</td>
<td>7.32</td>
<td>1.7%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.18</td>
<td>7.42</td>
<td>-11.3%</td>
<td>9.37</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
Home Price Appreciation Strong, But Off Record Pace 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202a.jpg" width="353">
According to the Office of Federal Housing Enterprise Oversight (OFHEO) home prices in the U.S. continued to rise last quarter, but the rate of escalation showed signs of topping out. The 2.9% q/q rise was down from the prior quarter and was down from a 4.7% jump one year ago. As a result the y/y gain slowed to 12.0% from 14.0% in 2Q.
These rates of gain are hardly slow, and given the near record level of home sales, historically low interest rates and rising personal incomes they are widely expected to remain healthy.
Throughout the country, rates of home price appreciation appear to have topped. However, the variance in the rates of growth between regions is high.
During the last year, job cutbacks in the auto industry helped lower the rate of home price appreciation in Michigan to 4.0% and the state&#39;s gain has lagged all others. At the other end of the spectrum, demographic trends pushed the rate of home price appreciation in Arizona to the top of the scale at 30.3% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202b.jpg" width="353">
During the last five years, home price appreciation in the District of Columbia has surpassed all others at 118.9% followed closely by California at 112.8%. Indiana with a 20.6% rise is at the bottom of the list during the last five years.
The House Price Indices in this report are weighted indexes based on repeat sales or refinancings using data provided by Fannie Mae or Freddie Mac .
Housing Markets and Demographics from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-21.pdf"> here</a>.
The latest report from the Office of Federal Housing Enterprise Oversight (OFHEO) can be found <a href="http://www.ofheo.gov/media/pdf/3q05hpi.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/REGIONAL/@R11/@R1101/@R1101.HTM">House Price Index (OFHEO)</a></th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">United States</td>
<td>2.9%</td>
<td>3.6%</td>
<td>12.0%</td>
<td>10.9%</td>
<td>6.9%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; California</td>
<td>4.2%</td>
<td>5.6%</td>
<td>19.3%</td>
<td>22.4%</td>
<td>12.3%</td>
<td>11.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Jersey</td>
<td>3.1%</td>
<td>4.4%</td>
<td>13.7%</td>
<td>15.0%</td>
<td>10.5%</td>
<td>12.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Alabama</td>
<td>2.2%</td>
<td>2.5%</td>
<td>8.1%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Michigan</td>
<td>0.9%</td>
<td>1.0%</td>
<td>4.0%</td>
<td>4.4%</td>
<td>3.5%</td>
<td>4.4%</td>
</tr>
</tbody>
</table>
UK House Prices Continue Recovery in November 
by <a href="/comment/Stone.html">Carol Stone</a> December 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202e.jpg" width="353">
House prices are a major economic indicator for the UK. They are seen by many as a measure of the housing market, and also as a gauge of consumer confidence and spending potential. So after a substantial run-up in those prices from 2001 through the middle of last year, it was of no small concern that they flattened out until a few months ago.
The measure here is the &quot;Halifax House Price Index&quot;, a compilation by the country&#39;s largest mortgage lender, HBOS plc. It is based on about 15,000 home sales monthly; the data are adjusted for the size and style of home, so that month-to-month comparisons are calculated from like or &quot;standardized&quot; properties. Thus, the index measures only price change, not movements due to differing house or location characteristics.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202f.jpg" width="353">
The index began to rise again in June after stagnating for nearly a year. A 1.2% rise in November was the fifth increase in six months, and over the last six months, prices have gone up at a 9.7% annual rate. This compares with a low in the six-month annualized percent change of -0.4% in July. Relative to the enormous increases in 2002 and 2003, the recent pace is not fast, but it clearly is an improvement over the weakness of earlier this year. Accompanying data show that the recovery has been firmer in the existing home segment than in new houses. And as shown in the second graph, prices of the obviously smaller homes purchased by first-time buyers have generally been more vigorous than those bought by previous home owners.
All these data are in Haver&#39;s UK database, plus quarterly data for the various regions of the UK. Halifax&#39;s researchers publish the data both unadjusted and seasonally adjusted.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U4/@U4.HTM">UK House Prices: Halifax data,</a> Seasonally Adjusted</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Nov 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="3">Annual Average</td>
</tr>
<tr>
<td class="firstcol">Price (&pound; Thous)</td>
<td>170.1</td>
<td>168.1</td>
<td>168.2</td>
<td>160.7</td>
<td>157.0</td>
<td>132.2</td>
<td>110.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="3">December/December</td>
</tr>
<tr>
<td class="firstcol">% Change*</td>
<td>1.2</td>
<td>-0.0</td>
<td>1.1</td>
<td>5.7</td>
<td>14.2</td>
<td>17.3</td>
<td>23.1</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201g.jpg" width="353">
Indonesia&#39;s trade data for October, reported this morning, highlight two unexpected aspects of that oil-producing nation&#39;s economic development. In October, its monthly trade surplus was $2.6 billion, a large figure, but not the highest ever, and more importantly, only modestly above the $2.3 billion average for 2003, a time when oil and gas prices were considerably lower than they are now. Thus, even as oil and gas exports have risen, so have the country&#39;s imports, restraining the widening of the trade surplus. Further, in dollar terms, non-oil exports have risen more than oil-related exports. Total exports were $7.2 billion in October, up 41% from a monthly average of $5.1 billion in 2003. Such large growth in exports emphasizes how remarkable it is that the trade balance has changed so little.
When the first energy crisis hit in the mid-1970s, one concern was over how to &quot;recycle petro-dollars&quot;. What would oil-exporting nations do with the large amounts of dollars they were newly receiving? Clearly, this is now a non-issue. The ability of businesses and consumers, at least in Indonesia, to seek out foreign merchandise to import recycles petro-dollars quite effectively. Imports in October were $4.6 billion, up 15% from the year-ago month and 70% from their 2003 average.
Further, oil and gas are hardly the only items Indonesia exports. Over time, Indonesian industry has diversified, so that non-energy products now constitute by far the bulk of its exports. Recently this share has been just above 75% and sometimes in recent years, it has reached 80%. By contrast in the mid-1980s when the data began to include some detail, non-energy exports were only about 25% of total exports. Lately, a look at industrial production data through 2004 suggests that chemicals and fabricated metals have been sources for this growth. Expansion of the chemical sector makes sense in light of the petroleum products already there. Interestingly, the wood and paper products that one might have traditionally thought of for Indonesia are no longer contributors to growth; their industrial production has been declining outright over the past several years.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P7/@P75/@P75.HTM">Indonesia: Foreign Trade</a> Mil.$, Seas Adj*</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Oct 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>2579.6</td>
<td>2407.8</td>
<td>2254.1</td>
<td>1916.5</td>
<td>2375.6</td>
<td>2155.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>7191.4</td>
<td>7226.2</td>
<td>6259.1</td>
<td>5794.8</td>
<td>5088.1</td>
<td>4763.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Oil &amp; Gas</td>
<td>1820.9</td>
<td>1636.4</td>
<td>1401.6</td>
<td>1294.0</td>
<td>1136.9</td>
<td>1009.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-Oil &amp; Gas</td>
<td>5370.5</td>
<td>5589.8</td>
<td>4857.5</td>
<td>4500.8</td>
<td>3951.2</td>
<td>3753.8</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>4611.8</td>
<td>4818.4</td>
<td>4005.0</td>
<td>3878.3</td>
<td>2712.5</td>
<td>2607.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Indonesia's trade data for October, reported this morning, highlight two unexpected aspects of that oil-producing nation's economic development. In October, its monthly trade surplus was $2.6 billion, a large figure, but not the [...]

Indonesia Trade Balance Largely Steady through October, Even with Big Gains in Oil and Non-oil Exports

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201d.jpg" width="353">
The value of construction put in place rose 0.7% in October though the September gain was revised lower to 0.2% due to a lessened increase in residential building.
Residential building in October continued at about its earlier pace and rose 0.6%. New single family building rose 0.7% (11.6% y/y) following an upwardly revised 1.7% surge. The value of residential improvements fell 0.6% (-4.5% y/y) and a previously reported moderate September decline was revised to a 2.6% collapse.
Nonresidential building activity slipped moderately for the second consecutive month thanks to lower office construction (+5.9% y/y) which had been strong.
Public construction spending also fell moderately for the second month as construction activity on highways &amp; streets, nearly one third of the value of public construction spending slipped 0.2% (14.0% y/y) after a 2.0% September surge.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.7%</td>
<td>0.2%</td>
<td>7.9%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.3%</td>
<td>0.4%</td>
<td>6.9%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.6%</td>
<td>0.7%</td>
<td>8.3%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>3.5%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.9%</td>
<td>-0.5%</td>
<td>11.7%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place rose 0.7% in October though the September gain was revised lower to 0.2% due to a lessened increase in residential building. Residential building in October continued at about its earlier pace [...]

U.S. Construction Spending Up

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

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

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Sandy Batten

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The luster fell a bit off the employment rose in June with nonfarm payrolls rising 57,000 against expectations of a 115,000 increase, according to today’s report from the Bureau of Labor Statistics. Moreover, the increases previously reported for April and May were revised down by a total of 74,000. Upon revision, payrolls increased 148,000 in April versus 179,000 previously reported and rose 129,000 in May versus 172,000 previously reported. The average increase over the past three months fell to 111,000 from 164,000 in May while the average increase over the past six months rose to 92,000 in June, its highest reading since February 2025, from 80,000 in May. Both remain on a modest uptrend and much stronger than payroll gains last year. In 2025, monthly payroll gains averaged only 10,000.

The weaker-than-expected payroll report was reinforced by a weak report from the **household survey**. While the number of unemployed fell 213,000 and the unemployment rate edged down to 4.2% from 4.3% in May, the number of employed slumped 507,000 in June, the largest monthly decline since May 2025 (with population adjustment to January 2026). The labor force plunged 720,000 with the labor force participation rate falling to 61.5%, its lowest level since March 2021.

Growth of average hourly earnings (AHE), a key variable for the Federal Reserve, was relatively well behaved in June. AHE increased 0.3% m/m, the same monthly gain as in May, in line with expectations. The y/y rate of advance edged up to 3.5% in June from 3.4% in May. Wage growth in private services-producing firms picked up in June, rising 0.4% m/m (3.4% y/y) versus 0.2% m/m (3.2% y/y) in May. Goods-producing wages increased 0.2% m/m in June after 0.3% monthly gains in both April and May with the y/y rate holding at 4.1%.

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In the **establishment survey**, private-sector employment was also weaker than expected in June, increasing only 49,000 against an expected 115,000 increase. Moreover, April and May figures were also revised down by a total of 50,000. Government employment rose 8,000 following a 32,000 increase in May. Private goods-producing employment increased 10,000, its largest monthly gain in three months with an 11,000 gain in construction and a 3,000 rise in manufacturing jobs, the first increase in three months. In contrast, services-producing employment increased only 39,000 in June, its weakest monthly performance in four months. Private education and health services jobs posted another solid gain of 69,000, up from 45,000 in May. However, retail jobs fell 7,500, their first monthly decline in four months, and leisure and hospitality jobs slumped 61,000, their largest monthly decline since December 2020, after increasing 40,000 in May. There had been speculation in the market that the World Cup would generate additional leisure and hospitality jobs, but this obviously failed to pan out. On a brighter note, although the one-month payroll diffusion index, a measure of the breadth of job gains, slipped to 54.4 in June from 56.0 in May, it remained well above the key 50 level that indicates that more industries were adding jobs than losing them.

The length of the workweek was unchanged at 34.3 hours in June with the aggregate weekly hours index edging up 0.1% m/m, the same monthly gain as in May. The aggregate hours index rose 1.3% q/q saar in Q2, the fastest quarterly gain in four quarters, providing a solid base for Q2 real GDP growth. The goods-producing workweek was unchanged at 40.1 hours, the highest since January 2023, while the private service-producing workweek edged down to 33.2 hours from 33.3 hours in May.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- U.S. nonfarm payrolls increased 57,000 in June with meaningful downward revisions to both April and May.
- The market consensus looked for a 115,000 increase.
- The unemployment rate edged down to 4.2% from 4.3%, due mostly to a large decrease in the labor force.
- Average hourly earnings rose 0.3% m/m (3.5% y/y), in line with expectations.

U.S. Payroll Employment Gains Smaller than Expected in June

Robert Brusca

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Unemployment rates in the European Monetary Union (EMU) were steady in May at 6.2%, the same level as in April, after April had fallen to 6.2% from 6.3%. The 6.2% reading is the lowest for the community since it was formed. Meanwhile, for the larger community, the EU, the unemployment rate has stabilized at 5.9%, the same as in April, again, a tick lower than it was in March. This 5.9% reading is a tick above the historic low for the European Union (EU). In both cases, the performance of these two economic conglomerations is quite excellent.

**Monthly**
The table looks at 12 of the most senior members of the monetary union, including an observation for the United Kingdom based on its claimant-count unemployment rate, presented at the bottom of the table. In May, the monetary union saw 4 of 12 members in the table with lower unemployment rates than they had in April. In April, five members had lower unemployment rates than in March. In March, seven members had lower unemployment rates than they posted in February. The progression to lower unemployment rates has slowed based on monthly data.

**Sequentially**
Looking at changes in the unemployment rates over broader sequential periods—three months, six months, and 12 months—6 out of 12 reporters have lower unemployment rates over three months; 7 have lower unemployment rates over six months; only 4 report unemployment rates that are lower over 12 months. The broader periods for comparison show changes in the unemployment rates that report more declines over the shorter and more recent periods compared to the longer/older periods. This is not the same trend leaning that we get from the last three months of data. It'll be good to watch these developments in the coming months to see if the tendency to lower unemployment rates is slowing or whether dropping unemployment is continuing in force.

**Rankings**
The ranking of unemployment rates since 1990 finds only three of these 12 monetary union members with unemployment rates above their medians. Those are Luxembourg, with a 98.2 percentile standing, Finland with an 81.9 percentile standing, and Austria with a 76.6 percentile standing. Italy, on the other hand, is reporting the lowest unemployment rate that it has seen during this period. The Greek unemployment rate has been this low or lower only about 3% of the time, while in Spain the unemployment rate has been this low or lower 11% of the time. For Portugal, the unemployment ranking figure has been weaker 13% of the time. The monetary union continues to report excellent labor market results even though economic growth has been relatively disappointing.

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**Summing up and central bankers**
In the wake of the monetary conference in the Sintra this past week, central banks featuring contributions from the European Central Bank, the Bank of England, the Federal Reserve, and the Bank of Canada, saw central bank heads talking about getting back to basics and stopping the use of some of the newer tools that had been pressed into service after the great financial crisis and during COVID. Bankers are getting back to basics to focus on short-term interest rates and say they will stop fiddling with the size of the balance sheet and to largely set aside the use of forward guidance. It will take time to determine what these changes are going to mean in terms of how policy performs and how markets will react. While there was a lot of discussion, and in some places concerns about the loss of forward guidance, what is clear is that, with forward guidance gone, there will be more volatility; however, the markets will be freer to price economic events themselves and will not be so stuck to the outlook of the central bank.  That could turn out to be a gigantic win for both markets and central bankers.

Europe

Unemployment Remains Quite Low in Europe

Andrew Cates

**Tightening Bias Intact, but Unevenly Distributed**
The July Blue Chip Financial Forecasts survey's expectations for policy rate changes over the next twelve months reveal a striking divergence across the major advanced economies, as chart 1 below makes clear. Across the board, the rate outlook is higher than it was in late February, before the US-Iran conflict escalated: the energy price shock and its inflationary consequences have left an imprint on the panel's thinking, even as oil prices have since retreated. Japan tops the list with an expected increase of around 40 basis points, reflecting the building pressure on the Bank of Japan to respond to yen weakness and still-elevated domestic inflation. Canada and the euro area also sit firmly in positive territory, with expected increases of around 30 and 20 basis points respectively. The US and the UK, by contrast, are in negative territory — the US barely so, the UK more distinctly, with the panel pencilling in modest rate reductions over the coming year. This pattern is not simply a reflection of where each economy sits in the inflation cycle. It also encodes a judgement about the current stance of monetary policy: in Japan, the euro area and Canada, policy is likely seen as insufficiently tight relative to the inflation challenge, and the conflict has reinforced that view. In the US and UK, by contrast, policy is judged to be closer to or already beyond neutral, meaning the next move is more likely to be an easing than a further tightening — even if, in the US case, that easing has been pushed well into 2027.

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**When Will the Next Move Come?**
Chart 2 below adds a timing dimension to the rate outlook, showing where the BCFF panel currently places the next policy move for the Fed, ECB, Bank of England and Bank of Japan. For the BoJ, the distribution is concentrated around the near term, with a significant share of respondents expecting action in September or October — consistent with the building pressure illustrated in chart 1 and with the BoJ’s next scheduled decision on 31 July. For the ECB, September or later than November emerge as the most likely timing for the next step. The Bank of England panel is more spread, with a meaningful share expecting action to come later. For the Fed, the dominant view places the next move firmly in the ‘later’ category, consistent with the BCFF consensus that the Fed funds rate will hold through the rest of 2026, with a first cut not expected until Q2 2027. Under chair Kevin Warsh, the June FOMC meeting delivered a hawkish dot plot that shifted some participants toward a hike before year-end, but the panel as a whole has not moved that far.

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**Headline Up, Core Contained: The Inflation Picture Across Advanced Economies**
One of the more reassuring features of the current inflation episode has been the limited pass-through from energy prices to underlying price dynamics. Across the advanced economies, headline CPI inflation has risen materially since the conflict escalated in March, driven overwhelmingly by consumer energy costs. Core inflation — stripping out food and energy — has edged higher, but only modestly, suggesting that second-round effects remain contained for now. In the United States, the pressures are arguably more alarming, with core PCE rising sharply between February and May to its highest level since October 2023. In the euro area, the focus this week has been firmly on Eurostat's June flash CPI estimate, published yesterday. Headline inflation fell back to 2.8% from a peak of 3.2% in May, as energy costs — the main driver of the surge since the conflict began — eased meaningfully. Crucially, core inflation also ticked down, and services inflation retreated as well. The June data therefore tell a broadly reassuring story: the energy shock is unwinding without leaving a lasting imprint on underlying price dynamics — precisely what the ECB will have been hoping for.

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**Consumer Price Expectations: Are Households Convinced?**
The aggregate inflation picture looks relatively contained at the macro level, but whether households are similarly reassured is a separate question. Chart 4 below draws on the European Commission's consumer survey data on price expectations — one of the more timely and widely watched indicators of inflation psychology in the euro area. The survey captures whether consumers expect prices to rise, stay the same or fall over the coming twelve months, and its relationship with actual inflation outturns has historically been close. A sustained elevation in consumer price expectations risks becoming self-fulfilling, feeding into wage demands and pricing behaviour in ways that complicate the ECB's task considerably. The June survey, however, brought an encouraging development: expectations fell steeply, suggesting that households have begun to register the reversal in energy prices and the broader easing of the inflationary impulse. That said, the absolute level of expectations remains elevated relative to the pre-conflict period, and one month's decline does not constitute a trend. Whether the June reading marks the beginning of a sustained normalisation — or proves a temporary dip before expectations re-anchor at a higher level — will be one of the key variables shaping the ECB's decision calculus in the months ahead.

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**Japan: A Weak Yen at the Worst Possible Time**
Japan occupies a particularly uncomfortable position in the current global conjuncture. The yen has depreciated to levels not seen since December 1986, with USD/JPY touching 162 this week. The move reflects the persistence of a large interest rate differential: even as the Bank of Japan has continued its gradual tightening, the Fed’s hawkish pivot under chair Kevin Warsh — with the mid-June FOMC dot plot signalling a possible hike before year-end — has reinforced the carry trade dynamics weighing on the currency. For Japan, which imports virtually all of its energy, yen weakness at a time of still-elevated global oil prices is a double burden, amplifying domestic inflation and squeezing real incomes. Verbal warnings from Japan’s Finance Ministry have had only a modest and short-lived effect on the exchange rate. The Bank of Japan’s next policy decision is on 31 July, and the pressure to act more decisively is building. The BCFF panel’s July survey revised upward its expectation for a stronger US dollar against the yen over the coming year — consistent with the fundamental picture that chart 5 below describes.

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**AI: Optimism on the Technology, Scepticism on the Price**
Returning to the BCFF survey, its special questions reveal a panel that continues to look beyond the current cyclical turbulence toward a longer-horizon structural narrative. On artificial intelligence, respondents are broadly optimistic: 45% expect a noticeable impact on US productivity and growth within one to three years, with a further 45% believing those effects are already becoming evident. That is a striking degree of conviction about a technology whose macro-level productivity impact remains, by most empirical measures, still to fully materialise. Yet the same panellists are considerably more cautious about financial markets than about the technology itself. Nearly all respondents believe that expected AI gains are already fully reflected — or even over-reflected — in current asset prices. Chart 6 below captures this tension. It is a combination — high conviction on transformative potential, high scepticism on current valuations — that has historically been associated with stretched risk premia and vulnerability to disappointment, even where the underlying technology story ultimately proves correct.

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Global financial markets have had a more settled feel this week, reflecting the continued unwinding of the geopolitical risk premium that had built up during the worst of the US-Iran conflict. Oil prices have fallen further, equity markets have been broadly supported, and incoming inflation data — notably the euro area’s June flash CPI estimate — have come in below expectations. The US holiday-shortened week ahead, with Independence Day on Friday, is likely to keep volumes thin and activity subdued. The bigger picture, however, remains one of tension between a more benign near-term inflation trajectory and central banks that may not yet be ready to stand down. In the charts below we look first at what the latest Blue Chip Financial Forecasts (BCFF) survey reveals about the expected change in and timing of policy rates across the major economies (charts 1 and 2), then at the divergence between headline and core inflation across the advanced economies (chart 3), and at what euro area consumers are more specifically expecting about inflation in the period ahead (chart 4). We turn next to Japan and the yen’s slide this week to 40-year lows (chart 5), and finally to the BCFF survey’s special questions on artificial intelligence and asset valuations (chart 6).

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Charts of the Week: Forecasters Hold Firm

Winnie Tapasanun

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The ISM U.S. manufacturing PMI fell to a lower-than-expected 53.3 in June, the first m/m fall since February, following a 1.3-point increase to 54.0 in May, according to data from the Institute for Supply Management. The June reading, above the 50 expansion-contraction threshold, indicated the U.S. manufacturing sector expanded for the sixth straight month, albeit at a slightly slower pace. A reading of 53.8 for June had been expected in the Action Economics Forecast Survey. The June manufacturing PMI, while above a contraction-level 49.0 in June 2025 and a low of 47.0 in October 2024, remained below a peak of 63.8 in March 2021.

The production index declined to 52.2 in June from 54.3 in May, indicating production expanded for the eighth consecutive month but at the slowest pace since December. The index was above a low of 44.8 in April 2025 but below a peak of 66.5 in March 2021. In June, 19.0% (NSA) of respondents reported higher production while 13.0% reported lower production. The new orders index slipped to 56.0 in June from 56.8 in May, signaling new orders grew for the sixth straight month following four successive months of contraction. The index remained well above a low of 41.8 in January 2023 but below a high of 67.0 in May 2021. In June, 22.3% (NSA) of respondents reported higher new orders while 13.4% reported declines. The inventories index climbed to 51.4 in June from 49.9 in May, marking the first expansion since April 2025. The index was slightly below a high of 52.7 in March 2025 but above a low of 43.8 in October 2024. Meanwhile, the supplier deliveries index fell to 57.4 in June from 60.6 in May and April, indicating slowing delivery performance for the seventh consecutive month after faster deliveries in November. In June, 18.1% (NSA) of respondents reported slower delivery speeds while 3.4% reported faster speeds.

On the labor front, the employment index improved to 49.7 in June from 48.6 in May, showing employment contracted for the 33rd straight month but at the slowest contraction pace since January 2025. The index was above a low of 44.1 in November 2025 but below a high of 56.5 in March 2022. In June, 16.2% (NSA) of respondents reported higher employment while 13.8% reported lower hiring.

On the pricing front, the prices paid index fell to a still-high 73.0 (NSA) in June, a 9.1-point drop—the largest decline since July 2022—from 82.1 in May, indicating raw materials prices rose for the 21st straight month but at the slowest rising pace since February. The index remained well above a low of 39.4 in December 2022 but below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. In June, 55.1% (NSA) of respondents reported higher prices while 9.2% reported price declines.

In other ISM series not included in the composite index, the new export orders index fell to 48.5 in June from 50.6 in May, indicating new export orders contracted for the third time in four months. The index was up from a low of 40.1 in May 2025 but down from a high of 52.4 in January 2025 and a peak of 57.1 in February 2022. The imports index edged down to 52.9 in June from 53.0 in May, suggesting imports expanded for the fifth successive month. The index was below its recent high of 54.9 in February but above a low of 39.9 in May 2025. The order backlog index decreased to 50.5 (NSA) in June from 52.2 in May, showing backlog levels grew at the slowest pace in six months. The index was below a high of 56.6 in February and a peak of 70.6 in May 2021 but well above a low of 37.5 in May 2023.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- ISM Mfg. PMI down slightly to 53.3 in June; sixth straight month above 50.
- Production (52.2) expands for the eighth consecutive mth.; new orders (56.0) for the sixth successive mth.
- Employment (49.7) contracts for the 33rd straight mth.; at the slowest contraction pace since Jan. ’25.
- Prices Index (73.0) at a four-month low, still indicating prices rising for the 21st consecutive mth.
- Exports (48.5) contract for the third time in four mths.; imports (52.9) continue to grow.

U.S. ISM Manufacturing PMI Still Expansionary in June; New Orders and Production Growing at a Slower Pace; Employment Contracting

Michael J. Moran

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The monthly report on construction activity receives scant attention in the financial press, and investors and traders in financial markets typically pay little heed. However, it is a valuable report for economists, as it provides a broad-based view of building activity, covering private residential and business construction, as well as government-related activity. The figures feed into the calculation of GDP. Unfortunately, results have been soft since early 2025.

Total construction activity rose 0.1 percent in May, marking the third consecutive increase. However, the gains have not been especially large, averaging 0.3%, and they have barely dented the string of weak readings in the preceding 17 months. The year-over-year change in May totaled -1.5%.

Private residential construction, the largest component of the total (41% share), rose 0.3% in May, adding to an average gain of 1.1% in the prior two months and leaving a year-over-year increase of 1.8% (chart, upper left). Most of the advance in the past year was the result of improvements to existing homes (up 8.1%). Construction of new multi-family units has shown little net change in the past year or so, while new single-family building has traced a mild downward trend (off 4.0% in the past year). Public construction has been flat in the past year, with both the federal government and state and local governments showing little net change (chart, upper right).

Private nonresidential construction (34% of the total) has received considerable press attention in the past few years because of explosive growth in the building of data centers. Growth has indeed been vigorous. Building started in 2020 and grew moderately at first, but this sector took off in 2022, about the time when artificial intelligence models became publicly available (chart, lower left, in levels to show the strong trend more clearly). Average annual growth for the three years ended 2025 totaled 48%.

Interestingly, despite the rapid growth in the building of data centers, the private nonresidential sector has been the weakest area of the construction report, with activity trending lower since early 2025 (chart, lower right). Some components of private nonresidential construction have held steady or improved (e.g. amusement & recreation, electric power), but three areas stand out on the soft side: general office, commercial, and manufacturing.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- Building activity in the US was firm in 2023 and 2024, but it has lost ground since then.
- Government-related construction and private residential building have been little changed in the past year or so.
- Private nonresidential construction has been notably weak, despite robust activity in the building of data centers.

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