Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930c.jpg" width="353">
The University of Michigan indicated that its final reading of consumer sentiment during September was unchanged from the preliminary indication of a 13.7% m/m decline to 76.9, the lowest level in over ten years. The September decline followed a 7.7% drop in August and Consensus expectations had been for improvement to 78.0 in August.
During the last ten years there has been a 78% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Consumer expectations were depressed 17.7% as the index of expected business conditions during the next 12 months cratered 39.2% (-46.6% y/y). Unemployment was expected to rise but interest rates were expected to decline.
The mean expected inflation rate for the next twelve months rose to 5.5% from 3.7% in August and that helped erode expectations for real income by 1.3% (-7.3% y/y).
The current conditions index fell 9.3% m/m, roughly double the decline in August. Sentiment regarding personal finances tumbled 12.0% m/m and was at its worst level in over two years.
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.

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<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">Sept (Final)</th>
<th scope="col">Sept (Prelim.)</th>
<th scope="col">August</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">Consumer Sentiment</td>
<td>76.9</td>
<td>76.9</td>
<td>89.1</td>
<td>-18.4%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>98.1</td>
<td>97.7</td>
<td>108.2</td>
<td>-5.4%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>63.3</td>
<td>63.6</td>
<td>76.9</td>
<td>-28.1%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
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The University of Michigan indicated that its final reading of consumer sentiment during September was unchanged from the preliminary indication of a 13.7% m/m decline to 76.9, the lowest level in over ten years. The September decline [...]

U.S. Consumer Sentiment Remained Depressed

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930b.jpg" width="353">
Personal income fell 0.1% last month after an unrevised 0.3% gain in July. Consensus expectations had been for a 0.3% August increase. The Commerce Department indicated that declines in rental &amp; proprietors&#39; income due to Hurricane Katrina probably reduced the two measures by a combined $100 billion annualized.
Wages &amp; salaries rose 0.2% (6.6% y/y) in August following an upwardly revised 0.7% increase in July. Factory sector wages rose 0.1% (4.7% y/y) after a 0.5% July increase. Service sector wages rose 0.2% (7.7% y/y) after an upwardly revised 0.9% July surge.
Disposable personal income fell 0.1% (+4.4% y/y) following two months of 0.4% increase. Adjusted for prices which rose 0.5%, take home pay fell 0.5% (+1.4% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930a.jpg" width="353">
Personal consumption expenditures fell 0.5% due to a sharp drop in light vehicle sales that pulled spending on durables down 8.9% (+3.2% y/y). Nondurables outlays surged 1.1% (9.4% y/y). Spending on gasoline &amp; fuel oil rose 5.7% (32.4% y/y) pumped by an 8.6% m/m increase in gasoline prices that rose another 16.8% this month. Services spending increased 0.4% (5.9% y/y) for the second consecutive month.
The personal savings rate remained negative for the third consecutive month. Nevertheless, the Federal Reserve indicated last week that household sector net worth (from the Flow of Funds Accounts) improved in 2Q to a four year high due to an increase in owners&#39; equity in real estate which has averaged 11.3% per year since 2001.
The PCE chain price index rose 0.5% last month. Less food &amp; energy prices rose 0.2% (2.0% y/y) following two months of 0.1% gain.
What&#39;s Driving Wage Inequality? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/steelmanweinberg.pdf"> here</a>.
Inflation Modeling: A Policy Maker&#39;s Perspective, remarks made by Federal Reserve Board Governor Donald L. Kohn is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050929/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">Aug</th>
<th scope="col">July</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">Personal Income</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.6%</td>
<td>5.9%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>-0.5%</td>
<td>1.2%</td>
<td>6.6%</td>
<td>6.5%</td>
<td>4.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.7%</td>
<td>-1.1%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
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Personal income fell 0.1% last month after an unrevised 0.3% gain in July. Consensus expectations had been for a 0.3% August increase. The Commerce Department indicated that declines in rental & proprietors' income due to Hurricane [...]

U.S. Personal Income Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930b.jpg" width="353">
Personal income fell 0.1% last month after an unrevised 0.3% gain in July. Consensus expectations had been for a 0.3% August increase. The Commerce Department indicated that declines in rental &amp; proprietors&#39; income due to Hurricane Katrina probably reduced the two measures by a combined $100 billion annualized.
Wages &amp; salaries rose 0.2% (6.6% y/y) in August following an upwardly revised 0.7% increase in July. Factory sector wages rose 0.1% (4.7% y/y) after a 0.5% July increase. Service sector wages rose 0.2% (7.7% y/y) after an upwardly revised 0.9% July surge.
Disposable personal income fell 0.1% (+4.4% y/y) following two months of 0.4% increase. Adjusted for prices which rose 0.5%, take home pay fell 0.5% (+1.4% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930a.jpg" width="353">
Personal consumption expenditures fell 0.5% due to a sharp drop in light vehicle sales that pulled spending on durables down 8.9% (+3.2% y/y). Nondurables outlays surged 1.1% (9.4% y/y). Spending on gasoline &amp; fuel oil rose 5.7% (32.4% y/y) pumped by an 8.6% m/m increase in gasoline prices that rose another 16.8% this month. Services spending increased 0.4% (5.9% y/y) for the second consecutive month.
The personal savings rate remained negative for the third consecutive month. Nevertheless, the Federal Reserve indicated last week that household sector net worth (from the Flow of Funds Accounts) improved in 2Q to a four year high due to an increase in owners&#39; equity in real estate which has averaged 11.3% per year since 2001.
The PCE chain price index rose 0.5% last month. Less food &amp; energy prices rose 0.2% (2.0% y/y) following two months of 0.1% gain.
What&#39;s Driving Wage Inequality? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/steelmanweinberg.pdf"> here</a>.
Inflation Modeling: A Policy Maker&#39;s Perspective, remarks made by Federal Reserve Board Governor Donald L. Kohn is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050929/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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Aug</th>
<th scope="col">July</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">Personal Income</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.6%</td>
<td>5.9%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>-0.5%</td>
<td>1.2%</td>
<td>6.6%</td>
<td>6.5%</td>
<td>4.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.7%</td>
<td>-1.1%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Remained Depressed 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930c.jpg" width="353">
The University of Michigan indicated that its final reading of consumer sentiment during September was unchanged from the preliminary indication of a 13.7% m/m decline to 76.9, the lowest level in over ten years. The September decline followed a 7.7% drop in August and Consensus expectations had been for improvement to 78.0 in August.
During the last ten years there has been a 78% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Consumer expectations were depressed 17.7% as the index of expected business conditions during the next 12 months cratered 39.2% (-46.6% y/y). Unemployment was expected to rise but interest rates were expected to decline.
The mean expected inflation rate for the next twelve months rose to 5.5% from 3.7% in August and that helped erode expectations for real income by 1.3% (-7.3% y/y).
The current conditions index fell 9.3% m/m, roughly double the decline in August. Sentiment regarding personal finances tumbled 12.0% m/m and was at its worst level in over two years.
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.

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<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">Sept (Final)</th>
<th scope="col">Sept (Prelim.)</th>
<th scope="col">August</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">Consumer Sentiment</td>
<td>76.9</td>
<td>76.9</td>
<td>89.1</td>
<td>-18.4%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>98.1</td>
<td>97.7</td>
<td>108.2</td>
<td>-5.4%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>63.3</td>
<td>63.6</td>
<td>76.9</td>
<td>-28.1%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Improved Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930d.jpg" width="353">
The Chicago Purchasing Managers Business Barometer improved unexpectedly in September to 60.5, recovering most of the 14.3 point decline in August. Consensus expectations had been for a slight increase to 52.
During the last ten years there has been a 65% correlation between the level of Chicago PMI and the three month change in factory sector industrial production.
The new orders index rose 16.9 points after a 23.1 point drop in August but the production index gained back less than half of the 14.3 point August shortfall. Employment fell for the fifth month in the last six. During the last ten years there has been a 75% correlation between the level of the employment index and the three month change in factory sector employment.
The index of prices surged 13.4 points to the highest level since Januarys. During the last ten years there has been an 86% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">&nbsp;Sept &#39;04</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">Business Barometer</td>
<td>60.5</td>
<td>49.2</td>
<td>64.3</td>
<td>62.9</td>
<td>54.6</td>
<td>52.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>63.4</td>
<td>46.5</td>
<td>71.8</td>
<td>67.0</td>
<td>58.0</td>
<td>56.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>76.3</td>
<td>62.9</td>
<td>86.9</td>
<td>80.1</td>
<td>55.8</td>
<td>56.9</td>
</tr>
</tbody>
</table>
French Unemployment Little Changed in Short-Run, but Young Workers Suffer Significant Joblessness 
by <a href="/comment/Stone.html">Carol Stone</a> September 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930e.jpg" width="353">
As we have noted recently, European economic performance has been basically flat. Today, another piece of evidence in this direction comes from France, which reported its August unemployment rate steady at July&#39;s 9.9%. This does continue the reversal of a modest uptick in the rate to 10.2% in March, April and May. So conditions are not worsening, as it might have appeared during the spring. But the foundation appears fairly tenuous ahead of a winter when heating and other energy costs are likely to be burdensome for even the strongest economies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930f.jpg" width="353">
These data, reported by age group, highlight another feature of the French labor market: the extraordinarily high unemployment rate among younger workers. The overall rate has risen a moderate 1.3 percentage points from a low of 8.6% in the spring of 2001. But that for workers under age 25, now at 23.1%, is up 5.5 percentage points over the same period. Similarly, the total number of unemployed is now 2.712 million, up 17.7% from 2.304 in March 2001, while those under 25 have increased to 625,000 from 452,000, a substantial 38.3% advance. Among the other age groups featured in the French data, for &quot;middle-aged&quot; workers, ages 25-49, unemployment has risen only modestly, with their rate at 9.0%, up from 8.0% at its mid-2001 low and the number unemployed up only about 8% during that period. Older workers have seen a larger percentage increase in their idle numbers, nearly 32%, but their rate is up just 0.9 percentage point from 6.2% to 7.1%. Perhaps more notably, since mid-2003 the rate for this last group is actually down a bit and the mid-range group has seen its rate flat.
Over a longer period, the picture for the youngest group gives greater concern; they have seen their number unemployed ratchet downward from about 1.0 million in 1985 to the 625,000 mentioned earlier, but their unemployment rate is virtually the same at 23%-plus. Thus, by implication, job opportunities for young would-be French workers have diminished markedly. 

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FRANCE/FRANCE.HTM">France</a>&nbsp; Unemployment Rates Seasonally Adjusted</th>
<th scope="col">Aug 2005</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">Aug 2004</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>9.9</td>
<td>9.9</td>
<td>10.1</td>
<td>10.0</td>
<td>10.0</td>
<td>9.8</td>
<td>9.1</td>
</tr>
<tr>
<td class="firstcol">Age under 25</td>
<td>23.1</td>
<td>23.0</td>
<td>23.3</td>
<td>22.6</td>
<td>22.4</td>
<td>20.7</td>
<td>19.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Age 25 - 49</td>
<td>9.0</td>
<td>9.0</td>
<td>9.1</td>
<td>9.1</td>
<td>9.1</td>
<td>8.9</td>
<td>8.3</td>
</tr>
<tr>
<td class="firstcol">Age 50-plus</td>
<td>7.1</td>
<td>7.1</td>
<td>7.1</td>
<td>7.3</td>
<td>7.3</td>
<td>7.5</td>
<td>6.9</td>
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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/050929d.jpg" width="353">
Further data were reported today on foreign direct investment in China for 2004. These data covered the total value of foreign investment contracts, including direct investment and &quot;others&quot;, which covers leasing and other types of financing. The grand total of foreign investment contracts was $156.6 billion, 34% more than in 2003. A special vehicle, &quot;foreign investment enterprises&quot;, is the main Chinese counterparty in these transactions. The data for these began in 1989 with $1.7 billion in committed inflows; last year they brought in $117.3 billion. The more familiar &quot;joint venture&quot; ownership vehicle, a partnership between a Chinese and a foreign firm, accounted for $27.6 billion in 2004.
These figures come from contracts for new projects. The flows of actual funding, so-called &quot;capital utilized&quot; are lower as the projects are actually accomplished. In 2004, the total amount of capital utilized was $64.1 billion, up from $56.1 billion in 2003. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929e.jpg" width="353">
As we examined these data, the geographic origins of these funds and ownership interests drew our attention. Hong Kong entities are by far the largest providers of foreign capital for China, with $20.8 billion last year, about 32% of capital utilized. Other Asian interests are well represented, including Japan with $5.5 billion and Korea, $6.3 billion. Notably, last year was the first in which Korean inflows were larger than those from Japan. Western investors were less involved (though perhaps some Hong Kong capital represents a flow-through of Western money). German investors, for instance, have averaged just about $1 billion in Chinese FDI annually in recent years, and the UK, about $800 million. Nine major European countries together invested $3.8 billion last year, compared with $3.9 billion for the US. As seen in the table below, US funding has actually declined recently; it had been $5.4 billion in 2002.
General interest in China is growing, of course. Separate figures on the value of contracts year-to-date show that new contracts for standard FDI projects (excluding the &quot;other&quot; financing categories) are up in the first half of this year by 19% from the first half of 2004. At the same time, this is slower than 30%-40% growth of the prior couple of years. And the flow of capital utilized was actually a bit smaller in the first half of this year than last. In part, this reflects normal volatility in what are by nature uneven, &quot;lumpy&quot; flows. Even so, the impression of a continuously mushrooming volume of outside funding going into China is not quite an accurate one.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Billions of US$</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Foreign Capital:&nbsp; &nbsp; Value of Contracts</td>
<td>156.6</td>
<td>116.9</td>
<td>84.8</td>
<td>72.0</td>
<td>71.1</td>
</tr>
<tr>
<td class="firstcol">Foreign Capital Utilized</td>
<td>64.1</td>
<td>56.1</td>
<td>55.0</td>
<td>49.7</td>
<td>59.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Utilized from Hong Kong</td>
<td>20.8</td>
<td>19.5</td>
<td>17.9</td>
<td>17.9</td>
<td>16.7</td>
</tr>
<tr>
<td class="firstcol">Japan</td>
<td>5.5</td>
<td>5.1</td>
<td>4.2</td>
<td>4.5</td>
<td>3.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Korea</td>
<td>6.3</td>
<td>4.5</td>
<td>2.7</td>
<td>2.2</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>1.1</td>
<td>0.9</td>
<td>0.9</td>
<td>1.2</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">U.S.</td>
<td>3.9</td>
<td>4.4</td>
<td>5.4</td>
<td>4.5</td>
<td>4.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Further data were reported today on foreign direct investment in China for 2004. These data covered the total value of foreign investment contracts, including direct investment and "others", which covers leasing and other types of [...]

China Foreign Direct Investment: Strong but Uneven Gains, Heavy Reliance on Special "Foreign Investment Enterprises"

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929c.jpg" width="353">
The Index of Help-Wanted Advertising from the Conference Board fell sharply in August to 35 from 39 in July, a record low.
During the last ten years there has been a 61% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume collapsed to 20% from 71% in July and was less than the level averaged last year.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;04</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>35</td>
<td>39</td>
<td>37</td>
</tr>
</tbody>
</table>
</body>
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The Index of Help-Wanted Advertising from the Conference Board fell sharply in August to 35 from 39 in July, a record low. During the last ten years there has been a 61% correlation between the level of help-wanted advertising and the [...]

Help-Wanted Advertising Down Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929b.jpg" width="353">
The &quot;final&quot; estimate of US real GDP growth during 2Q was unrevised at 3.3% (AR) and matched Consensus expectations. Downward revisions to foreign trade and inventories were offset by an upward revision to domestic demand growth.
The upward revision to domestic demand growth stemmed from business fixed investment growth to 8.8% from 8.4% (AR, 9.2% y/y) and growth in real PCE which was raised to 3.9% from 3.0% (3.9% y/y). Residential building growth also was raised to 10.8% from 9.8% (6.1% y/y).
Growth in operating corporate profits was reduced to 4.6% from 6.1% (16.0%) following a 5.6% gain during 1Q. Growth in US nonfinancial corporate sector earnings was lowered slightly to 11.5% from 11.9% (23.7% y/y), still the strongest quarterly increase in three years.Profit margin expansion last quarter was the greatest on record.
The positive contribution to GDP growth from a shallower foreign trade deficit was lessened to 1.1 percentage points. Import growth was reduced back to an estimated slight q/q decline (+5.7% y/y) but growth in exports was lowered more to 10.7% from 13.2% (AR, 7.7% y/y).
The negative growth contribution from inventory decumulation was lessened slightly and still was the third in the last four quarters and was the largest since 2000.
The chain price index was revised up to 2.6% as the chain price index for domestic final demand was raised to 3.3% (2.8% y/y).
Why Has Output Become Less Volatile? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-24.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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">2Q &#39;05 (Final)</th>
<th scope="col">2Q &#39;05 (Prelim.)</th>
<th scope="col">1Q &#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">GDP</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>3.6%</td>
<td>4.2%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-2.1%</td>
<td>-2.0%</td>
<td>0.3%</td>
<td>-1.4%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>5.6%</td>
<td>5.4%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>3.9%</td>
<td>2.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>1.1%</td>
<td>1.2%</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.2%</td>
<td>3.9%</td>
<td>3.7%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.6%</td>
<td>2.4%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The "final" estimate of US real GDP growth during 2Q was unrevised at 3.3% (AR) and matched Consensus expectations. Downward revisions to foreign trade and inventories were offset by an upward revision to domestic demand growth. The [...]

US GDP Growth Unrevised

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929a.jpg" width="353">
Initial claims for unemployment insurance fell a sharp 79,000 to 356,000 last week following a 11,000 rise the prior week which was little revised. Consensus expectations had been that claims would remain in a range of 350,000 to 500,000, wide due to uncertainty caused by Hurricanes.
The Labor Department indicated that, seasonally unadjusted, initial claims linked to Hurricane Katrina totaled 60,000, down from 108,000 the prior week. No claims were yet linked to Hurricane Rita.
The four-week moving average of initial claims rose to 385.500 (13.0% y/y) from 377,000 during the prior four weeks.
Continuing claims for unemployment insurance surged 144,000 following a slightly revised 80,000 increase during the prior week.
The insured rate of unemployment rose to 2.2% from 2.1% the week prior.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">09/24/05</th>
<th scope="col">09/17/05</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>
<td class="firstcol">Initial Claims</td>
<td>356</td>
<td>435</td>
<td>0.0%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,802</td>
<td>-1.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance fell a sharp 79,000 to 356,000 last week following a 11,000 rise the prior week which was little revised. Consensus expectations had been that claims would remain in a range of 350,000 to [...]

Unemployment Insurance Claims Fell Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929a.jpg" width="353">
Initial claims for unemployment insurance fell a sharp 79,000 to 356,000 last week following a 11,000 rise the prior week which was little revised. Consensus expectations had been that claims would remain in a range of 350,000 to 500,000, wide due to uncertainty caused by Hurricanes.
The Labor Department indicated that, seasonally unadjusted, initial claims linked to Hurricane Katrina totaled 60,000, down from 108,000 the prior week. No claims were yet linked to Hurricane Rita.
The four-week moving average of initial claims rose to 385.500 (13.0% y/y) from 377,000 during the prior four weeks.
Continuing claims for unemployment insurance surged 144,000 following a slightly revised 80,000 increase during the prior week.
The insured rate of unemployment rose to 2.2% from 2.1% the week prior.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">09/24/05</th>
<th scope="col">09/17/05</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>
<td class="firstcol">Initial Claims</td>
<td>356</td>
<td>435</td>
<td>0.0%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,802</td>
<td>-1.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
US GDP Growth Unrevised 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929b.jpg" width="353">
The &quot;final&quot; estimate of US real GDP growth during 2Q was unrevised at 3.3% (AR) and matched Consensus expectations. Downward revisions to foreign trade and inventories were offset by an upward revision to domestic demand growth.
The upward revision to domestic demand growth stemmed from business fixed investment growth to 8.8% from 8.4% (AR, 9.2% y/y) and growth in real PCE which was raised to 3.9% from 3.0% (3.9% y/y). Residential building growth also was raised to 10.8% from 9.8% (6.1% y/y).
Growth in operating corporate profits was reduced to 4.6% from 6.1% (16.0%) following a 5.6% gain during 1Q. Growth in US nonfinancial corporate sector earnings was lowered slightly to 11.5% from 11.9% (23.7% y/y), still the strongest quarterly increase in three years.Profit margin expansion last quarter was the greatest on record.
The positive contribution to GDP growth from a shallower foreign trade deficit was lessened to 1.1 percentage points. Import growth was reduced back to an estimated slight q/q decline (+5.7% y/y) but growth in exports was lowered more to 10.7% from 13.2% (AR, 7.7% y/y).
The negative growth contribution from inventory decumulation was lessened slightly and still was the third in the last four quarters and was the largest since 2000.
The chain price index was revised up to 2.6% as the chain price index for domestic final demand was raised to 3.3% (2.8% y/y).
Why Has Output Become Less Volatile? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-24.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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">2Q &#39;05 (Final)</th>
<th scope="col">2Q &#39;05 (Prelim.)</th>
<th scope="col">1Q &#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">GDP</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>3.6%</td>
<td>4.2%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-2.1%</td>
<td>-2.0%</td>
<td>0.3%</td>
<td>-1.4%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>5.6%</td>
<td>5.4%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>3.9%</td>
<td>2.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>1.1%</td>
<td>1.2%</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.2%</td>
<td>3.9%</td>
<td>3.7%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.6%</td>
<td>2.4%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929c.jpg" width="353">
The Index of Help-Wanted Advertising from the Conference Board fell sharply in August to 35 from 39 in July, a record low.
During the last ten years there has been a 61% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume collapsed to 20% from 71% in July and was less than the level averaged last year.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;04</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>35</td>
<td>39</td>
<td>37</td>
</tr>
</tbody>
</table>
China Foreign Direct Investment: Strong but Uneven Gains, Heavy Reliance on Special "Foreign Investment Enterprises" 
by <a href="/comment/Stone.html">Carol Stone</a> September 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929d.jpg" width="353">
Further data were reported today on foreign direct investment in China for 2004. These data covered the total value of foreign investment contracts, including direct investment and &quot;others&quot;, which covers leasing and other types of financing. The grand total of foreign investment contracts was $156.6 billion, 34% more than in 2003. A special vehicle, &quot;foreign investment enterprises&quot;, is the main Chinese counterparty in these transactions. The data for these began in 1989 with $1.7 billion in committed inflows; last year they brought in $117.3 billion. The more familiar &quot;joint venture&quot; ownership vehicle, a partnership between a Chinese and a foreign firm, accounted for $27.6 billion in 2004.
These figures come from contracts for new projects. The flows of actual funding, so-called &quot;capital utilized&quot; are lower as the projects are actually accomplished. In 2004, the total amount of capital utilized was $64.1 billion, up from $56.1 billion in 2003. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929e.jpg" width="353">
As we examined these data, the geographic origins of these funds and ownership interests drew our attention. Hong Kong entities are by far the largest providers of foreign capital for China, with $20.8 billion last year, about 32% of capital utilized. Other Asian interests are well represented, including Japan with $5.5 billion and Korea, $6.3 billion. Notably, last year was the first in which Korean inflows were larger than those from Japan. Western investors were less involved (though perhaps some Hong Kong capital represents a flow-through of Western money). German investors, for instance, have averaged just about $1 billion in Chinese FDI annually in recent years, and the UK, about $800 million. Nine major European countries together invested $3.8 billion last year, compared with $3.9 billion for the US. As seen in the table below, US funding has actually declined recently; it had been $5.4 billion in 2002.
General interest in China is growing, of course. Separate figures on the value of contracts year-to-date show that new contracts for standard FDI projects (excluding the &quot;other&quot; financing categories) are up in the first half of this year by 19% from the first half of 2004. At the same time, this is slower than 30%-40% growth of the prior couple of years. And the flow of capital utilized was actually a bit smaller in the first half of this year than last. In part, this reflects normal volatility in what are by nature uneven, &quot;lumpy&quot; flows. Even so, the impression of a continuously mushrooming volume of outside funding going into China is not quite an accurate one.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Billions of US$</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Foreign Capital:&nbsp; &nbsp; Value of Contracts</td>
<td>156.6</td>
<td>116.9</td>
<td>84.8</td>
<td>72.0</td>
<td>71.1</td>
</tr>
<tr>
<td class="firstcol">Foreign Capital Utilized</td>
<td>64.1</td>
<td>56.1</td>
<td>55.0</td>
<td>49.7</td>
<td>59.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Utilized from Hong Kong</td>
<td>20.8</td>
<td>19.5</td>
<td>17.9</td>
<td>17.9</td>
<td>16.7</td>
</tr>
<tr>
<td class="firstcol">Japan</td>
<td>5.5</td>
<td>5.1</td>
<td>4.2</td>
<td>4.5</td>
<td>3.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Korea</td>
<td>6.3</td>
<td>4.5</td>
<td>2.7</td>
<td>2.2</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>1.1</td>
<td>0.9</td>
<td>0.9</td>
<td>1.2</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">U.S.</td>
<td>3.9</td>
<td>4.4</td>
<td>5.4</td>
<td>4.5</td>
<td>4.4</td>
</tr>
</tbody>
</table>
</body>
</html>

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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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.

260702Z1.jpg

**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.

260702Z3.jpg

**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.

260702Z4.jpg

**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.

260702Z5.jpg

**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.

260702Z6.jpg

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

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%.

260702C4.jpg

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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

260702E.jpg

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.

260702.jpg

**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

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.

Economy in Brief

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