Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103d.jpg" width="353">
The value of construction put in place fell 0.3% during September. That reversed an August rise which was revised up slightly and the September decline was less than expectations for a 0.8% drop.Year-to-year, the decline in construction activity remained steady at a -6.6% pace.
A drop in the value of residential building activity led the September decline in overall construction. The 1.3% m/m fall reversed most an August increase and it was led by a 4.7% (-41.3% y/y) drop in single-family construction, off by two-thirds from its peak in early-2006. Building activity on multi-family units reversed nearly half of the August decline with a 2.7% (-1.7% y/y) rise while spending on improvements added to an August increase, up 2.4% m/m (-6.6% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103e.jpg" width="353">
The value of nonresidential building activity recovered 1.2% after an August decline. A 4.4% (5.7% y/y) rise in the educational category led the increase while airport building rose by nearly one-half. Increases here were offset by a 2.3% (-11.3% y/y) decline in the multi-retail category. Spending on health care facilities inched up 0.1% (4.5% y/y) while office construction increased 1.7% (7.4% y/y).
Public construction reversed its August gain with a 1.3% decline. The value of construction spending on highways &amp; streets led the weakness with a 1.5% drop (+1.7% y/y). The value of construction on highways &amp; streets is roughly one-third of the value of total public construction spending. Building activity of office space continued firm and rose 1.6% (34.4% y/y) but spending on health care facilities fell 3.5% (+4.0% y/y).
The more detailed categories of construction 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/@E907.HTM">Construction</a> (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.3</td>
<td>0.3</td>
<td>-6.6</td>
<td>-2.7</td>
<td>6.3</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.1</td>
<td>-0.1</td>
<td>-10.3</td>
<td>-6.9</td>
<td>5.5</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.3</td>
<td>1.9</td>
<td>-27.7</td>
<td>-19.8</td>
<td>1.0</td>
<td>14.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.2</td>
<td>-1.6</td>
<td>11.4</td>
<td>19.6</td>
<td>16.2</td>
<td>7.8</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>-1.3</td>
<td>1.3</td>
<td>3.8</td>
<td>12.3</td>
<td>9.3</td>
<td>6.2</td>
</tr>
</tbody>
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The value of construction put in place fell 0.3% during September. That reversed an August rise which was revised up slightly and the September decline was less than expectations for a 0.8% drop.Year-to-year, the decline in [...]

U.S. Construction Spending Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103a.jpg" width="353">
The Composite Index of Manufacturing Sector Activity, reported by the Institute for Supply Management (ISM), fell during October to its lowest level since the end of the 1981-82 recession. The 4.6 point m/m decline to a level of 38.9 exceeded Consensus expectations for a decline to 41.5. The break-even level for this measure of factory sector activity is 50.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three-month growth in factory sector industrial production.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures.
During the last two months, the ISM index composite index fell by eleven points. A decline of that degree was exceeded only by the drop during the short &quot;credit crunch&quot; recession of 1980. Following that decline, the index bounced back smartly only then to fall again during the sharp recession of 1981-82. How severe was that economic downturn? During all of 1982 the average level of the ISM (then called the Nat&#39;l Association of Purchasing Management) index was 38.5 versus an average 52.5 during 1979. The index level signaled a 5.4% decline in factory sector industrial production during 1982 as reported by the Federal Reserve Board.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103b.jpg" width="353">
The new orders index during November fell a sharp 6.6 points to 32.2. The decline followed a 9.5 point plunge during September and it was to the lowest level since 1981. Economic weakness outside of the U.S. was signaled by the new export orders sub-series. It fell eleven points to a less than break-even level of 41.0, its lowest level in this index&#39;s short twenty year history. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.
The production sub-series fell another 6.7 points, to 34.1, after the sharp 11.3 point decline during September. This weakness was mirrored by a decline in the employment index which repeated its September performance and fell 7.2 points to 34.6, the lowest reading since early 1991. During the last twenty years there has been a 67% correlation between the level of the ISM employment index and the three-month growth in factory sector employment.
The shedding of inventories continued at its recent rate as indicated by a an index level of 44.3 which was up just slightly from September. The index gauging the speed of supplier deliveries fell, but just moderately, and order backlogs declined to their lowest level in the series&#39; history.
Prices paid plunged another 16.5 points to 37.0, the lowest level since late 2001 and that further reflected the decline in oil prices. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103c.jpg" width="353">
According to the National Association of Business Economists, 90% of the 102 members responding were more pessimistic about the economy than they were in July. A recession was viewed likely to continue at least through the end of next year, with 79% saying the economy will grow less than 1% and 38% saying the economy will shrink next year.
The Future of Mortgage Finance in the United States is Friday&#39;s speech by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20081031a.htm">here</a>.

<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/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">October &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>38.9</td>
<td>43.5</td>
<td>50.4</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>32.2</td>
<td>38.8</td>
<td>52.8</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>34.6</td>
<td>41.8</td>
<td>51.8</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>37.0</td>
<td>53.5</td>
<td>63.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
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The Composite Index of Manufacturing Sector Activity, reported by the Institute for Supply Management (ISM), fell during October to its lowest level since the end of the 1981-82 recession. The 4.6 point m/m decline to a level of 38.9 [...]

ISM Index Lowest Since 1982 Recession

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031i.jpg" align="left" border="0" height="265" width="353">
The German consumer has kept a stiff upper lip according to
the November reading on the consumer from GfK. Still the consumer has
been stiffening more than just his and her lip. The old wallet seems to
have become a bit less pliable as Germans have tightened up on
spending. Retail sales plunged in September, dropping by 2.5% and
obliterating the 2.4% pop in August. The drop will still leave NOMINAL
German retail sales advancing in Q3 but real ex auto German sales are
shrinking in Q3 at a 0.5% annual rate.
The sequential growth rates on German nominal retail spending
are very flat. The real retail sales ex auto sequential growth rates
are similarly steady but at shallow negative rates of growth.
The good news for Germany is that the September drop in retail
sales can be called a plunge but it only offsets the spike in August.
There is nothing in the data or trends that suggest things are about to
get much worse. But that does not mean that they won&#8217;t either. 


<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr><th colspan="8" scope="col"> German Real and Nominal Retail Sales </th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-2.5%</td>
<td>2.4%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.4%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Food, Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>3.1%</td>
<td>-0.2%</td>
<td>5.0%</td>
<td>0.4%</td>
<td>0.9%</td>
<td>0.0%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>8.7%</td>
<td>-1.2%</td>
<td>4.1%</td>
<td>56.7%</td>
<td>30.0%</td>
<td>0.6%</td>
<td>18.5%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-2.3%</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>-2.0%</td>
<td>-1.4%</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
</body></html>

The German consumer has kept a stiff upper lip according to the November reading on the consumer from GfK. Still the consumer has been stiffening more than just his and her lip. The old wallet seems to have become a bit less pliable [...]

German Retail Sales Run Soft

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031f.jpg" width="353">
The University of Michigan&#39;s October reading of consumer sentiment collapsed by 18.1% from the September level, to 57.6. That was very much the same as reported at mid-month and the latest level was the lowest for the series since June which in turn was the lowest since early-1980. The drop was a record m/m decline for the index which dates back to the late 1970s. The full-month figure matched Consensus expectations.
During the last ten years there has been a 55% correlation between the level of sentiment and the three-month change in real consumer spending.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031g.jpg" width="353">
The opinion of government policy, which apparently influences economic expectations, fell sharply from September (-39.0% y/y) but it was slightly better than the mid-month read. Only five percent of respondents thought that a good job was being done by government while 55% thought a poor job was being done. That was the highest percentage on record.
As reported at mid-month, the current conditions index led the collapse with 22.1% decline. The view of current personal finances gave back all of a September improvement with a m/m decline of one-third. The index of buying conditions for large household goods fell 16.8% m/m to the lowest level since 1980, down 37.3% y/y.
The expectations component of consumer sentiment aided the m/m decline in the total with a 15.6% drop. Expectations for business conditions during the next years collapsed by 24.6%, as reported at mid-month. Expectations for conditions during the next five years fell 14.5% but they remained well up from their historic lows.The expected change in personal finances fell 11.7%. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031h.jpg" width="353">
The mean expected rate of inflation during the next year slipped to 4.3% with lower oil prices, down from the mid-month expectation. It was as high as 7.0% in May but the expectation was still above prior years. The expected inflation rate during the next five years fell to 3.1%, the lowest level since 2003.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.
What Is Liquidity Risk? from the Federal Reserve Bank of San Francisco and it can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-33.pdf">here</a>.
Monetary Policy Transparency and Private Sector Forecasts: Evidence from Survey Data from the Federal Reserve Bank of Kansa City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/3q08Sellon.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">October</th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">October y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>57.6</td>
<td>57.5</td>
<td>70.3</td>
<td>-28.8%</td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>58.4</td>
<td>58.9</td>
<td>75.0</td>
<td>-40.2</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>57.0</td>
<td>56.7</td>
<td>67.2</td>
<td>-18.7</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
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The University of Michigan's October reading of consumer sentiment collapsed by 18.1% from the September level, to 57.6. That was very much the same as reported at mid-month and the latest level was the lowest for the series since [...]

Michigan Consumer Sentiment Collapsed With The Stock Market & The Opinion of Gov't

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031d.jpg" width="353">
The employment cost index for private industry workers increased by 0.6% last quarter. It was stable with 2Q and that was the weakest rate of gain since 1Q 2006. It also fell short of Consensus expectations for a 0.7% rise. The rise held roughly steady with the 3.0% y/y growth in compensation during the last three years.
During the last twenty years there has been a 54% correlation between the growth in employee compensation and the rise in the PCE price index. That level of correlation goes neither up or down, when either series is led or lagged the other. This suggests a self reinforcing effect between the two series.
Wage and salary growth again dipped slightly, last quarter to 0.6% versus 0.7% to 0.8% increases during the prior four quarters. Wages account for roughly 70% of the compensation index. Wages in the services industries grew 0.6% and the y/y gain of 2.8% was the slowest since 2006, down from 4.6% growth back in 2000. Wages in the goods producing industries rose 0.4% (2.7% y/y) and that y/y growth compares to a recent peak of 4.5% in 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031e.jpg" width="353">
The rise in benefit costs picked up slightly to 0.6% but the 2.4% year-to-year rise was near the slowest since 1999. In the goods producing sector benefits ticked up 0.1% (2.2% y/y) and in services they rose 0.6% (2.5% y/y), the same as during the prior two quarters.
Health benefit costs rose 3.9% y/y and that was the slowest rate of growth since 1999.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI - Private Industry Workers</a> (%)</th>
<th scope="col">3Q &#39;08</th>
<th scope="col">2Q &#39;08</th>
<th scope="col">1Q &#39;08</th>
<th scope="col">3Q Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.6</td>
<td>0.6</td>
<td>0.8</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.6</td>
<td>0.7</td>
<td>0.8</td>
<td>2.9</td>
<td>3.4</td>
<td>2.9</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.6</td>
<td>0.5</td>
<td>0.6</td>
<td>2.4</td>
<td>2.4</td>
<td>2.9</td>
<td>4.6</td>
</tr>
</tbody>
</table>


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The employment cost index for private industry workers increased by 0.6% last quarter. It was stable with 2Q and that was the weakest rate of gain since 1Q 2006. It also fell short of Consensus expectations for a 0.7% rise. The rise [...]

U.S. Employment Cost Index Increase Stable During 3Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031a.jpg" width="353">
During September nominal personal income rose 0.2%, just half the revised 0.4% August increase. Moreover, a slowing growth trend was evident in the y/y gain of 3.9% which was down sharply from last year&#39;s 6.1% rise and the 7.1% increase during 2006. The September increase in personal income exceeded Consensus expectations for a 0.1% rise.
Disposable personal income rose 0.2% last month after 1.0%-to-1.8% declines during the prior three months. They occurred due to the absence of tax rebate checks. Weaker job gains have slowed trend growth to 4.2% y/y after last year&#39;s rise of 5.5% and 6.4% during 2006.
Weaker gains in wage &amp; salary income very much reflect the soft jobs environment. Wages rose 0.1% last month, up 3.4% y/y. Three month growth of 3.1% (AR) was considerably below the 9.8% rate of growth early last year. Factory sector wages fell 0.3% (+0.2% y/y) for the second consecutive monthly decline. On a three-month growth basis, wages fell at a 1.3% annual rate after 2.0% growth last year. Wages &amp; salaries in the private service-providing industries ticked up 0.1% (3.6% y/y) and, here again, the trend growth of 3.0% is well below a 2006 gain of 6.4%. Wages in the government sector rose 0.4% (5.1% y/y) and three-month growth of 5.1% was stable.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031c.jpg" width="353">
Proprietors&#39; income fell 0.3% (+1.8% y/y) after a 1.0% August decline. On a three-month basis, the 3.4% rate of negative growth very much reflects the weaker retail environment, after the 4.1% gain last year. Interest income rose 1.1% (-0.2% y/y) for the third straight month due to the recent rise in interest rates off their March lows. Dividend income fell 0.6% (+4.1% y/y) for the third consecutive month and prior months&#39; gains were revised away. Growth of 4.1% y/y compares to a 12.4% rise last year and a 21.7% rise during 2006.
Personal consumption expenditures fell 0.3% after the unrevised sideways movement in August. Adjusted for price inflation, real spending fell 0.4% (-0.4% y/y) last month for the third decline in the last four months. Three-month growth in real spending dropped to negative 3.9% (AR) after the 2.8% gain last year. Real spending on motor vehicles fell at a 23.5% annual rate during the last three months while furniture spending fell at a 10.9% rate following an 8.0% gain last year. Spending on clothing fell at a 14.6% rate during the last three months after a 4.7% rise last year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031b.jpg" width="353">
The PCE chain price index rose just 0.1% as a 0.7% decline (+31.5% y/y) in gasoline prices was offset by a 0.7% rise in food prices. On a three-month basis, food prices were up at a 9.1% rate after a 3.8% rise last year. The core PCE price index rose 0.2% for the second consecutive month but the rise surpassed Consensus expectations for a 0.1% uptick. Three-month growth of 2.6% was up from a 2.2% during all of last year. Apparel prices have been rising at a 6.6% rate after a 0.8% decline last year and transportation costs have been rising at a 5.2% rate after 2.7% growth last year.
The personal savings rate recovered to 1.3% as spending fell.
The figures noted above are available in the Haver USECON and in the USNA databases.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a> (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.2</td>
<td>0.4</td>
<td>3.9</td>
<td>6.1</td>
<td>7.1</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Disposable Personal Income</td>
<td>0.2</td>
<td>-1.0</td>
<td>4.2</td>
<td>5.5</td>
<td>6.4</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption</td>
<td>-0.3</td>
<td>0.0</td>
<td>3.8</td>
<td>5.5</td>
<td>5.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>1.3</td>
<td>0.8</td>
<td>0.6 (Sept. &#39;07)</td>
<td>0.5</td>
<td>0.7</td>
<td>0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1</td>
<td>0.0</td>
<td>4.2</td>
<td>2.6</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2</td>
<td>0.2</td>
<td>2.4</td>
<td>2.2</td>
<td>2.3</td>
<td>2.1</td>
</tr>
</tbody>
</table>
</body>
</html>

During September nominal personal income rose 0.2%, just half the revised 0.4% August increase. Moreover, a slowing growth trend was evident in the y/y gain of 3.9% which was down sharply from last year's 6.1% rise and the 7.1% [...]

U.S. September Income Rose, Spending Fell: Trend Growth of Both Down

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031a.jpg" align="left" border="0" height="265" width="353">
During September nominal personal income rose
0.2%, just half the revised 0.4% August increase. Moreover, a slowing
growth trend was evident in the y/y gain of 3.9% which was down sharply
from last year's 6.1% rise and the 7.1% increase during 2006. The
September increase in personal income exceeded Consensus expectations
for a 0.1% rise.
Disposable personal income rose 0.2% last
month after 1.0%-to-1.8% declines during the prior three months. They
occurred due to the absence of tax rebate checks. Weaker job gains have
slowed trend growth to 4.2% y/y after last year's rise of 5.5% and 6.4%
during 2006.
Weaker gains in wage &amp; salary income very much reflect
the soft jobs environment. Wages rose 0.1% last month, up 3.4% y/y.
Three month growth of 3.1% (AR) was considerably below the 9.8% rate of
growth early last year. Factory sector wages fell 0.3% (+0.2% y/y) for
the second consecutive monthly decline. On a three-month growth basis,
wages fell at a 1.3% annual rate after 2.0% growth last year. Wages
&amp; salaries in the private service-providing industries ticked
up 0.1% (3.6% y/y) and, here again, the trend growth of 3.0% is well
below a 2006 gain of 6.4%. Wages in the government sector rose 0.4%
(5.1% y/y) and three-month growth of 5.1% was stable.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031c.jpg" align="right" border="0" height="265" width="353">
Proprietors' income fell 0.3% (+1.8% y/y) after a 1.0% August
decline. On a three-month basis, the 3.4% rate of negative growth very
much reflects the weaker retail environment, after the 4.1% gain last
year. Interest income rose 1.1% (-0.2% y/y) for the third straight
month due to the recent rise in interest rates off their March lows.
Dividend income fell 0.6% (+4.1% y/y) for the third consecutive month
and prior months' gains were revised away. Growth of 4.1% y/y compares
to a 12.4% rise last year and a 21.7% rise during 2006.
Personal consumption expenditures fell 0.3% after the
unrevised sideways movement in August. Adjusted for price inflation, real
spending fell 0.4% (-0.4% y/y) last month for the third
decline in the last four months. Three-month growth in real spending
dropped to negative 3.9% (AR) after the 2.8% gain last year. Real
spending on motor vehicles fell at a 23.5% annual rate during the last
three months while furniture spending fell at a 10.9% rate following an
8.0% gain last year. Spending on clothing fell at a 14.6% rate during
the last three months after a 4.7% rise last year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031b.jpg" align="left" border="0" height="265" width="353">
The PCE chain price index rose just 0.1%
as a 0.7% decline (+31.5% y/y) in gasoline prices was offset by a 0.7%
rise in food prices. On a three-month basis, food prices were up at a
9.1% rate after a 3.8% rise last year. The core PCE price
index rose 0.2% for the second consecutive month but the rise
surpassed Consensus expectations for a 0.1% uptick. Three-month growth
of 2.6% was up from a 2.2% during all of last year. Apparel
prices have been rising at a 6.6% rate after a 0.8% decline last year
and transportation costs have been rising at a 5.2% rate after 2.7%
growth last year.
The personal savings rate recovered to 1.3% as spending fell.
The figures noted above are available in the Haver USECON
and in the USNA databases.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition
of Personal Income</a> (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.2</td>
<td>0.4</td>
<td>3.9</td>
<td>6.1</td>
<td>7.1</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Disposable
Personal Income</td>
<td>0.2</td>
<td>-1.0</td>
<td>4.2</td>
<td>5.5</td>
<td>6.4</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption</td>
<td>-0.3</td>
<td>0.0</td>
<td>3.8</td>
<td>5.5</td>
<td>5.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>1.3</td>
<td>0.8</td>
<td>0.6 (Sept. '07)</td>
<td>0.5</td>
<td>0.7</td>
<td>0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1</td>
<td>0.0</td>
<td>4.2</td>
<td>2.6</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less food
&amp; energy</td>
<td>0.2</td>
<td>0.2</td>
<td>2.4</td>
<td>2.2</td>
<td>2.3</td>
<td>2.1</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment
Collapsed With The Stock Market &amp; The Opinion of Gov't 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 31 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031f.jpg" align="left" border="0" height="265" width="353">
The University of Michigan's October reading of consumer
sentiment collapsed by 18.1% from the September level, to 57.6. That
was very much the same as reported at mid-month and the latest level
was the lowest for the series since June which in turn was the lowest
since early-1980. The drop was a record m/m decline for the index which
dates back to the late 1970s. The full-month figure matched Consensus
expectations.
During the last ten years there has been a 55% correlation
between the level of sentiment and the three-month change in real
consumer spending.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031g.jpg" align="right" border="0" height="265" width="353">
The opinion of government policy, which apparently influences
economic expectations, fell sharply from September (-39.0% y/y) but it
was slightly better than the mid-month read. Only five
percent of respondents thought that a good job was being done by
government while 55% thought a poor job was being done. That
was the highest percentage on record.
As reported at mid-month, the current conditions index led the
collapse with 22.1% decline. The view of current personal finances gave
back all of a September improvement with a m/m decline of one-third.
The index of buying conditions for large household goods fell 16.8% m/m
to the lowest level since 1980, down 37.3% y/y.
The expectations component of consumer sentiment aided the m/m
decline in the total with a 15.6% drop. Expectations for business
conditions during the next years collapsed by 24.6%, as reported at
mid-month. Expectations for conditions during the next five years fell
14.5% but they remained well up from their historic lows.The expected
change in personal finances fell 11.7%. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031h.jpg" align="left" border="0" height="265" width="353">
The mean expected rate of inflation during the next year
slipped to 4.3% with lower oil prices, down from the mid-month
expectation. It was as high as 7.0% in May but the expectation was
still above prior years. The expected inflation rate during the next
five years fell to 3.1%, the lowest level since 2003.
The University of Michigan survey is not seasonally
adjusted.The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database,
with details in the proprietary UMSCA database.
What Is Liquidity Risk? from the
Federal Reserve Bank of San Francisco and it can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-33.pdf">here</a>.
Monetary Policy Transparency and Private Sector
Forecasts: Evidence from Survey Data from the Federal
Reserve Bank of Kansa City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/3q08Sellon.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">October</th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">October y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>57.6</td>
<td>57.5</td>
<td>70.3</td>
<td>-28.8%</td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>58.4</td>
<td>58.9</td>
<td>75.0</td>
<td>-40.2</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>57.0</td>
<td>56.7</td>
<td>67.2</td>
<td>-18.7</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
U.S. Employment Cost Index
Increase Stable During 3Q 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 31, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031d.jpg" align="left" border="0" height="265" width="353">
The employment cost index for private industry workers
increased by 0.6% last quarter. It was stable with 2Q and that was the
weakest rate of gain since 1Q 2006. It also fell short of Consensus
expectations for a 0.7% rise. The rise held roughly steady with the
3.0% y/y growth in compensation during the last three years.
During the last twenty years there has been a 54% correlation
between the growth in employee compensation and the rise in the PCE
price index. That level of correlation goes neither up or down, when
either series is led or lagged the other. This suggests a self
reinforcing effect between the two series.
Wage and salary growth again dipped slightly, last quarter to
0.6% versus 0.7% to 0.8% increases during the prior four quarters.
Wages account for roughly 70% of the compensation index. Wages in the
services industries grew 0.6% and the y/y gain of 2.8% was the slowest
since 2006, down from 4.6% growth back in 2000. Wages in the goods
producing industries rose 0.4% (2.7% y/y) and that y/y growth compares
to a recent peak of 4.5% in 2004.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031e.jpg" align="right" border="0" height="265" width="353">
The rise in benefit costs picked up slightly to 0.6% but the
2.4% year-to-year rise was near the slowest since 1999. In the goods
producing sector benefits ticked up 0.1% (2.2% y/y) and in services
they rose 0.6% (2.5% y/y), the same as during the prior two quarters.
Health benefit costs rose 3.9% y/y and that was the slowest
rate of growth since 1999.


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI
- Private Industry Workers</a> (%)</th>
<th scope="col">3Q '08</th>
<th scope="col">2Q '08</th>
<th scope="col">1Q '08</th>
<th scope="col">3Q Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.6</td>
<td>0.6</td>
<td>0.8</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp;
Salaries</td>
<td>0.6</td>
<td>0.7</td>
<td>0.8</td>
<td>2.9</td>
<td>3.4</td>
<td>2.9</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.6</td>
<td>0.5</td>
<td>0.6</td>
<td>2.4</td>
<td>2.4</td>
<td>2.9</td>
<td>4.6</td>
</tr>
</tbody>
</table>
German Retail Sales Run Soft 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 31 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031i.jpg" align="left" border="0" height="265" width="353">
The German consumer has kept a stiff upper lip according to
the November reading on the consumer from GfK. Still the consumer has
been stiffening more than just his and her lip. The old wallet seems to
have become a bit less pliable as Germans have tightened up on
spending. Retail sales plunged in September, dropping by 2.5% and
obliterating the 2.4% pop in August. The drop will still leave NOMINAL
German retail sales advancing in Q3 but real ex auto German sales are
shrinking in Q3 at a 0.5% annual rate.
The sequential growth rates on German nominal retail spending
are very flat. The real retail sales ex auto sequential growth rates
are similarly steady but at shallow negative rates of growth.
The good news for Germany is that the September drop in retail
sales can be called a plunge but it only offsets the spike in August.
There is nothing in the data or trends that suggest things are about to
get much worse. But that does not mean that they won&#8217;t either. 

<table border="0" cellspacing="0" width="100%"> <colgroup><col></colgroup>
<thead><tr>
<th colspan="8" scope="col"> German
Real and Nominal Retail Sales </th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-2.5%</td>
<td>2.4%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.4%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Food, Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>3.1%</td>
<td>-0.2%</td>
<td>5.0%</td>
<td>0.4%</td>
<td>0.9%</td>
<td>0.0%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>8.7%</td>
<td>-1.2%</td>
<td>4.1%</td>
<td>56.7%</td>
<td>30.0%</td>
<td>0.6%</td>
<td>18.5%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-2.3%</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>-2.0%</td>
<td>-1.4%</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
</body></html>

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

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The Producer Price Index for final demand was unchanged (2.3% y/y) in June after rising 0.3% in May, revised from 0.1%, and easing 0.3% in April, revised from a 0.2% fall, according to the Bureau of Labor Statistics (BLS). The Action Economic Forecast Survey expected a 0.2% increase in June. Producer prices excluding food, energy & trade services also were unchanged (2.5% y/y) after a 0.1% May gain, and falling 0.2% in April, which was revised from -0.1%. A 0.2% increase had been expected.

Food prices rose 0.2% (3.3% y/y) in June after holding steady in May. Finished consumer food prices rose 0.2% (3.7% y/y) after increasing in May. Energy prices for final demand rose 0.6% (-2.6% y/y) last month after falling 0.3% in May. Finished consumer energy prices rose 0.9% last month (-1.7% y/y) after a 0.6% increase.

Final demand services prices continued to hold back overall pricing pressure last month with a 0.1% dip (+2.7% y/y), following a 0.4% increase. Final demand trade services prices held steady (+2.9% y/y) after surging 1.1%, while the trade of finished goods index remained unchanged (+2.8% y/y) following a 1.2% surge. Transportation & warehousing prices fell 0.2% (+2.5% y/y) after a 0.4% gain in May. Prices for final demand services less trade, transportation, and warehousing eased 0.1% last month (+2.6% y/y) after improving 0.1% in May.

The price index for final demand goods less foods & energy increased 0.3% (2.5% y/y) in June following a 0.2% increase. Nondurable consumer goods prices less food & energy rose 0.1% (2.3% y/y) after a 0.2% increase. Durable consumer goods prices rose 0.4% (2.4% y/y) following a 0.5% rise. The private capital equipment price index improved 0.3% (3.2% y/y) for the second straight month. Government prices less food & energy rose 0.4% (2.9% y/y) after increasing 0.2% in May.

Construction costs rose 0.3% (1.6% y/y) in June after rising 0.2% in May.

Prices for intermediate demand of processed goods edged 0.1% higher (1.9% y/y) in June for the second consecutive month. Processed energy goods prices improved 0.6% following a 1.9% decline while processed foods and feeds prices fell 0.3% after rising 0.7% in May.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Unchanged monthly levels extend weakness earlier this year.
- Core price gain slows y/y.
- Final demand price index is steady; services prices decline.

U.S. Producer Price & Core Price Indexes Hold Steady in June

Winnie Tapasanun

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Industrial production (IP) increased a more-than-expected 0.3% m/m in June after no change in May (-0.2% initially) and April (+0.1% previously), data from the Federal Reserve Board showed. A 0.1% m/m June increase had been expected in the Action Economics Forecast Survey. The year-on-year rate of increase picked up to 0.7% in June after decelerating to 0.6% in May (lowest since December); however, it was down from +1.6% y/y in June 2024. The June IP index was at 104.0, the highest since December 2018 and 2.5% above a low of 101.5 in January 2024.

By **industry groups**, manufacturing production edged up 0.1% (0.8% y/y) in June, the fourth m/m increase in five months, after an upwardly revised 0.3% rise in May (+0.1% initially). Durable goods production was essentially unchanged (+1.5% y/y) in June following a 0.7% rebound in May. Within durables, the following categories fell m/m in June, including output drops of 2.6% (-2.2% y/y) in motor vehicles & parts, 2.5% (-1.7% y/y) in electrical equipment, appliances & components, 0.9% (+2.8% y/y) in wood products, and 0.2% (-1.2% y/y) in fabricated metal products. To the upside, the following durable goods categories rose m/m in June, including output rises of 3.1% (5.0% y/y) in primary metals, 1.6% (5.4% y/y) in aerospace & miscellaneous transportation equipment, 1.3% (-1.9% y/y) in furniture & related products, 0.8% (3.3% y/y) in machinery, 0.6% (1.6% y/y) in nonmetallic mineral products, 0.2% (6.6% y/y) in computer & electronic products, and 0.1% (-1.9% y/y) in miscellaneous durables goods. Notably, aircraft & parts production climbed 1.8% (9.1% y/y) in June, the eighth straight m/m rise, on top of a 0.7% increase in May.

Nondurable goods production rose 0.3% (0.4% y/y) in June, the first m/m rise in three months, following a 0.1% dip in May. The June rise reflected m/m output increases of 2.9% (0.7% y/y) in petroleum & coal products, 0.5% (-5.1% y/y) in apparel & leather goods, and 0.2% (-0.8% y/y) in food, beverages & tobacco. To the downside, the following nondurable goods categories fell m/m in June, including output drops of 1.0% (-3.4% y/y) in textiles & product mills, 0.7% (-2.0% y/y) in printing & related support activities, 0.6% (-2.8% y/y) in plastics & rubber products, and 0.3% (-0.8% y/y) in paper. Meanwhile, production for chemicals held steady (3.2% y/y) for two months.

Utilities output rebounded 2.8% (-0.8% y/y) in June, the second m/m increase in three months, following a revised 2.5% decline in May (-2.9% initially). In contrast, mining activity fell 0.3% (+1.6% y/y), down for the second month in three, after an unrevised 0.1% May uptick.

By **market groups**, materials production recovered 0.4% (1.3% y/y) in June, up for the second month in three, following a 0.1% easing in May. Construction supplies production rose 0.3% (2.4% y/y), the fourth m/m rise in five months, after a 0.1% May uptick. Consumer goods output increased 0.2% (-0.7% y/y) in June following no change in May, reflecting a 1.4% drop (-3.4% y/y) in durable consumer goods and a 0.7% rebound (0.0% y/y) in nondurable consumer goods. Business equipment output inched up 0.1% (3.2% y/y), the eighth straight m/m increase, on top of a 0.8% May rise.

In **special classifications**, factory output of selected high-tech industries rose 0.5% (13.2% y/y) in June, the sixth m/m rise in seven months, after an upwardly revised 1.9% gain in May (+0.4% initially). Manufacturing production excluding selected high-tech industries inched up 0.1% (0.5% y/y) in June, up for the fourth month in five, following a 0.3% increase in May; manufacturing production excluding selected high-tech and motor vehicles & parts rebounded 0.3% (0.7% y/y), up for the first time since March, following a 0.1% May easing.

Capacity utilization rebounded to 77.6% in June from a four-month-low 77.5% in May (77.4% previously). The Action Economics Forecast Survey forecasted 77.4%. The June reading was 2.0 percentage points below its long-run (1972–2024) average. Manufacturing capacity utilization increased to 76.9% in June, the highest since March, from 76.8% in May (76.7% initially); the June rate was 1.3 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- June IP +0.3% (+0.7% y/y), led by a 2.8% rebound in utilities output.
- June IP Index at the highest level since Dec. ’18.
- Mfg. IP +0.1%, w/ durables unchanged and nondurables up 0.3%.
- Mining activity -0.3%, the second m/m fall in three months.
- Key categories in market groups all increase.
- Capacity utilization up 0.1%pt. to 77.6%; mfg. capacity utilization up 0.1%pt. to a 3-month-high 76.9%.

U.S. Industrial Production Rises in June After Holding Steady for Two Months

Kathleen Stephansen, CBE

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Mortgage applications fell 10.0% (+18.4% y/y) in the week ending July 11, after rising 9.4% w/w (36.6% y/y) in the week ending July 4, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading broke the string of three consecutive w/w rises. Applications for loans to purchase a house fell 11.8% (+13.7% y/y) in the July 11 week, following a rise of 9.4% (25.4% y/y) in the July 4 week. Applications for loan refinancing dropped 7.4% (+25.2% y/y) after rising 9.2% (55.8% y/y) in the July 4 week.

The effective interest rate on a 30-year fixed-rate loan rose 5bps to 7.00% in the week ending July 11, from 6.95% in the week ending July 4; it was up from a low of 6.29% in the September 20 week but down from a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages rose 12bps to 6.32% in the latest week from 6.20% in the July 4 week; it was up from a low of 5.60% in the September 20 week. The rate on 30-year Jumbo loans rose 6bps to 6.94% in the July 11 week from 6.88% in the July 4 week; it was up from a low of 6.57% in the September 13 week. Meanwhile, the rate on a 5-year ARM edged down 4bps to 6.24% in the latest week from 6.28% in the July 4 week; it was above a low of 5.84% in the September 13 week.

The share of applications for refinancing an existing loan rose to 41.1% of total applications in the week ending July 11 up from 40.0% in the week ending July 4. The adjustable-rate mortgage (ARM) share of activity dropped to 7.1% in the July 11 week from 7.7% in the July 4 week.

The average size of a mortgage loan, down for the fourth week in five, fell 2.8% (+3.0% y/y) to $375,500 in the July 11 week, following a decline of 1.3% w/w (+4.5% y/y) to $386,400 in the July 4 week. The average size of a purchase loan edged down 0.9% (+2.9% y/y) to $428,900 in the July 11 week, after declining 2.5% (+1.8% y/y) to $432,600 in the July 4 week. The average size of a loan to refinance a mortgage dropped 5.6% (+6.1% y/y) to $299,200 in the latest week, after rising 1.1% (18.8% y/y) to $317,100 in the July 4 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Both purchase applications and refinancing loan applications fell in July 11 week.
- Effective interest rate on 30-year fixed-rate loans rose to 7.0%.
- Average loan size declines for the fourth time in five weeks.

U.S. Mortgage Applications Dropped 10.0% in the Latest Week

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Inflation in the United Kingdom is still running hot in June. The CPIH rose by 0.4% in the month with its core rate that excludes energy, food, alcoholic beverages & tobacco also rising 0.4% month-to-month. In both cases, these increases compare to a rise of 0.1% in May. On that perspective, the two-month trend is somewhat muted. However, in April the CPIH headline rose by 0.6% and the core rose by 0.4%, so the U.K. finds itself in another period of excess inflation.

**Sequential inflation**
The sequential inflation rate from 12-months to six-months to three-months shows the headline at 4.1% over 12 months, 4.2% over six months and 4.3% over three months, a very slight acceleration, but clearly inflation that is over 2 percentage points above the target set by the Bank of England across the entire span. The core rate for the CPIH is up 4.3% over 12 months, up at a 4.4% annual rate over six months and looks slightly muted at 4.2% over three months. Again, we are looking at a solid inflation overshoot that is more than 2 percentage points above the target set by the Bank of England.

**Inflation breadth**
In the month of June, inflation accelerated in 45% of the categories, the same proportion as in May; however, in April acceleration occurred in 54% of the categories. These sequential data show that over three months inflation in the U.K. accelerated across 54% of the categories, the same proportion as over six months although both of those marks were below the 63% acceleration breadth logged over 12 months. The data clearly show that there isn't any deceleration to any great extent in play over any of these horizons and that the monthly data offer only a modicum of solace for June and May.

The far-right hand column evaluates current inflation rates year-over-year compared to where they have been since January 2000, monthly. The comparison is a ranked percentage of the current inflation rate vs. this history. For example, the current CPIH 12-month inflation rate of 4.1% sits at the 88.6 percentile of its historic queue of data. This tells us that inflation has been this high or higher, less than 12% of the time over this period, clearly marking the 4.1% growth rate as high and as substantial by historic experience. The CPIH core has a slightly higher standing and it's 89th percentile. Looking across the components, all but two have rankings over this 50%. Rankings that are above 50% place them above their medians for the period. The exceptions here, are a 26.5 percentile standing for restaurants & hotels inflation where prices are running at 2.6%, and transportation where prices are running at 1.6%.  Furniture, household equipment & maintenance prices have a 56.2 percentile standing, only marginally above the category’s historic median. After that, there's only one category in its 60th percentile, two categories in their 70th percentile and the rest are higher.

**Summing up**
Needless to say, the U.K. has an entrenched inflation problem. It's lodged in the headline; it's lodged in the core; it's lodged across most of the commodity categories! The Bank of England simply has work to do and there isn't much evidence that the BOE is making any progress; in fact, the trends seem to suggest that there may be much more work to do.

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United Kingdom

U.K. CPIH Inflation Runs Hot

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

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

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

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

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

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

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

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

Economy in Brief: 2008

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