Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041102a.jpg" width="353">
Chain store sales fell for the third consecutive period. A 0.3% decline last week placed the October average 0.1% below September, according to the International Council of Shopping Centers (ICSC)-UBS.
During the last ten years there has been a 60% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041102b.jpg" width="353">
Retail spending weakness last month also was evident in the Redbook Research survey of chain store sales. Through the third full week of October same store sales were 0.7% below September.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart. 

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/30/04</th>
<th scope="col">10/23/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>432.4</td>
<td>433.9</td>
<td>2.9%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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</tbody>
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Chain store sales fell for the third consecutive period. A 0.3% decline last week placed the October average 0.1% below September, according to the International Council of Shopping Centers (ICSC)-UBS. During the last ten years there [...]

U.S. Chain Store Sales Down For Third Week

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101e.jpg" width="353">
Export data released today show that the trend that began in early 2003 toward increased Australian exports to Asia relative to the US and Europe has continued. In September, 2004, exports to Asian countries were significantly above the monthly average of 2003, while exports to the European Union and the United States were only moderately above the monthly average for 2003. Chart 1 shows exports to China versus those to the European Union.
In terms of the types of commodities exported, Australia is now exporting fewer of its agricultural natural resources and more of its vast store of nonagricultural natural resources. Much of the shift is due to the rapid industrialization of China with its demands for such base materials as copper, nickel, lead and zinc and iron ore, coal and liquid natural gas.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101d.jpg" width="353">
The increased demand for base metal and nonrural commodities relative to that of rural commodities is reflected in the relative prices as shown in Chart 2.

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<th scope="col" class="firstcol">Exports (Millions A$)</th>
<th scope="col">Sep 04</th>
<th scope="col">Aug 04</th>
<th scope="col">Sep 03</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2003 Mo Avg</th>
<th scope="col">&nbsp;2002&nbsp;Mo Avg</th>
<th scope="col">2001&nbsp;Mo Avg&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Rural Goods 1</td>
<td>2352</td>
<td>2287</td>
<td>1858</td>
<td>2.84</td>
<td>26.59</td>
<td>1866</td>
<td>2407</td>
<td>2538</td>
</tr>
<tr>
<td class="firstcol">Non-rural Goods 2</td>
<td>8092</td>
<td>7745</td>
<td>6882</td>
<td>4.47</td>
<td>17.58</td>
<td>7190</td>
<td>7553</td>
<td>7730</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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<tr>
<td class="firstcol">To China</td>
<td>961</td>
<td>921</td>
<td>857</td>
<td>4.34</td>
<td>12.64</td>
<td>757</td>
<td>697</td>
<td>632</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Japan</td>
<td>2076</td>
<td>2073</td>
<td>1631</td>
<td>0.14</td>
<td>27.28</td>
<td>1640</td>
<td>1848</td>
<td>1977</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ASEAN</td>
<td>1234</td>
<td>1157</td>
<td>898</td>
<td>7.43</td>
<td>38.42</td>
<td>1008</td>
<td>1215</td>
<td>1282</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; EU</td>
<td>1235</td>
<td>1225</td>
<td>1257</td>
<td>0.82</td>
<td>-1.75</td>
<td>1283</td>
<td>1243</td>
<td>1228</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; US</td>
<td>811</td>
<td>845</td>
<td>709</td>
<td>-4.02</td>
<td>14.39</td>
<td>787</td>
<td>962</td>
<td>993</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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<tr>
<td class="firstcol">Reserve Bank of Australia-Index of Commodity Prices&nbsp; (Jul 2000 to Jun 2001=100)</td>
<td>Oct 04</td>
<td>Sep 04</td>
<td>Oct 03</td>
<td>M/M %</td>
<td>Y/Y %</td>
<td>2003 Mo Avg</td>
<td>&nbsp;2002&nbsp;Mo Avg</td>
<td>2001 Mo Avg &nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Base Metals</td>
<td>119</td>
<td>117.8</td>
<td>94.9</td>
<td>1.02</td>
<td>25.40</td>
<td>93.8</td>
<td>98.3</td>
<td>106.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rural Component</td>
<td>89.7</td>
<td>94.3</td>
<td>93.5</td>
<td>-4.88</td>
<td>-4.06</td>
<td>96.1</td>
<td>103.9</td>
<td>101.8&nbsp;</td>
</tr>
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<td class="firstcol">&nbsp; Non-rural Component</td>
<td>100.7</td>
<td>102.7</td>
<td>82.8</td>
<td>-1.95</td>
<td>21.62</td>
<td>85.8</td>
<td>96.2</td>
<td>100.0</td>
</tr>
</tbody>
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Export data released today show that the trend that began in early 2003 toward increased Australian exports to Asia relative to the US and Europe has continued. In September, 2004, exports to Asian countries were significantly above [...]

Australian Exports Continue Trend Toward More Asian Orientation and Commodity Prices Reflect Relative Demands of [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101c.jpg" width="353">
The total value of construction put in place dipped slightly in September as residential building fell for the first month since February 2003. The Consensus expectation for a 0.4% gain.
As hurricanes hit Florida, private residential building activity fell 0.2%. New single family building slid 0.8% (+17.3% y/y) after a 2.3% spurt in August.
Nonresidential building rose 0.2% (+5.7% y/y) as construction activity on shopping malls ballooned 30.7% (6.4% y/y).
Public construction rose 0.3% though spending on highways &amp; streets, nearly one third of the value of public construction spending, fell for the fifth consecutive month (-1.3% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</a></th>
<th scope="col"> Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">Total</td>
<td>-0.0%</td>
<td>0.9%</td>
<td>8.9%</td>
<td>5.1%</td>
<td>1.5%</td>
<td>3.5%</td>
</tr>
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<td class="firstcol">Private</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>10.9%</td>
<td>6.0%</td>
<td>-0.2%</td>
<td>1.4%</td>
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<td class="firstcol">&nbsp; Residential</td>
<td>-0.2%</td>
<td>1.8%</td>
<td>13.1%</td>
<td>13.1%</td>
<td>8.4%</td>
<td>3.3%</td>
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<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.2%</td>
<td>0.7%</td>
<td>5.7%</td>
<td>-7.1%</td>
<td>-12.8%</td>
<td>-1.3%</td>
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<td class="firstcol">Public</td>
<td>0.3%</td>
<td>-1.0%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>7.0%</td>
<td>10.7%</td>
</tr>
</tbody>
</table>
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The total value of construction put in place dipped slightly in September as residential building fell for the first month since February 2003. The Consensus expectation for a 0.4% gain. As hurricanes hit Florida, private residential [...]

U.S. Construction Spending Down in September

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101a.jpg" width="353">
The Institute of Supply Management reported that its Purchasing Managers&#146; Composite Index (PMI) fell in October to 56.8 versus Consensus expectations for no change at 58.5.
During the last twenty years there has been a 70% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The Composite Index reflected declines in each of the components except new orders. The employment index (54.8) dropped to the lowest since January and production cratered to the lowest in over a year.
The separate index of export orders rose sharply to 56.6, the highest level since June.
The prices paid index recouped much of the prior month&#39;s decline and rose to 78.5.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Composite Index</td>
<td>56.8</td>
<td>58.5</td>
<td>57.1</td>
<td>53.3</td>
<td>52.4</td>
<td>43.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>58.3</td>
<td>58.1</td>
<td>64.6</td>
<td>58.1</td>
<td>56.6</td>
<td>46.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>78.5</td>
<td>76.0</td>
<td>58.5</td>
<td>59.6</td>
<td>57.6</td>
<td>42.9</td>
</tr>
</tbody>
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The Institute of Supply Management reported that its Purchasing Managers Composite Index (PMI) fell in October to 56.8 versus Consensus expectations for no change at 58.5. During the last twenty years there has been a 70% correlation [...]

ISM Factory Index Slipped Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101b.jpg" width="353">
Personal income grew just 0.2% In September following a downwardly revised 0.1% rise in August. Consensus expectations had been for a 0.3% September increase.
A third consecutive monthly decline in proprietors&#39; income, down 0.4% (+4.9% y/y), generated the disappointment in total personal income growth. Wages &amp; salaries rose 0.4% (+4.6% y/y), the third firm consecutive monthly gain. Manufacturing wages rose 0.3% (2.0% y/y) and wages in private service producing industries rose 0.4% (5.4% y/y).
Personal disposable income rose a scant 0.1% (4.6% y/y) following downwardly revised gains in months prior that have been weak since June. Adjusted for inflation disposable income was unchanged (2.5% y/y). Personal taxes rose 0.6% (5.3% y/y).
&quot;Public Officials and Job Creation&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20040901/cover.pdf"> here</a>.
Consumer spending rose 0.6% following a slight dip in August that was initially reported as unchanged. Durables purchases recovered most of the prior month&#39;s drop with a 1.6% jump as light vehicle sales jumped 5.5% to the second highest level of the year. Purchases of non-durable goods rose 0.5% (7.3% y/y) and services spending rose 0.4% (5.6% y/y). 
The PCE chain price index ticked up 0.1% as did prices less food &amp; energy (+1.5% y/y).
A recent speech by Fed Vice Chairman Roger W. Ferguson, Jr. titled &quot;Equilibrium Real Interest Rate: Theory and Application&quot; is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/20041029/default.htm"> here</a>.

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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">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</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">Personal Income</td>
<td>0.2%</td>
<td>0.3%</td>
<td>4.6%</td>
<td>3.2%</td>
<td>1.8%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.6%</td>
<td>-0.1%</td>
<td>5.9%</td>
<td>5.2%</td>
<td>4.6%</td>
<td>4.7%</td>
</tr>
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<td class="firstcol">Savings Rate</td>
<td>0.2%</td>
<td>0.7%</td>
<td>1.4%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.4%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body>
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Personal income grew just 0.2% In September following a downwardly revised 0.1% rise in August. Consensus expectations had been for a 0.3% September increase. A third consecutive monthly decline in proprietors' income, down 0.4% [...]

U.S. Personal Income Gain Light

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101b.jpg" width="353">
Personal income grew just 0.2% In September following a downwardly revised 0.1% rise in August. Consensus expectations had been for a 0.3% September increase.
A third consecutive monthly decline in proprietors&#39; income, down 0.4% (+4.9% y/y), generated the disappointment in total personal income growth. Wages &amp; salaries rose 0.4% (+4.6% y/y), the third firm consecutive monthly gain. Manufacturing wages rose 0.3% (2.0% y/y) and wages in private service producing industries rose 0.4% (5.4% y/y).
Personal disposable income rose a scant 0.1% (4.6% y/y) following downwardly revised gains in months prior that have been weak since June. Adjusted for inflation disposable income was unchanged (2.5% y/y). Personal taxes rose 0.6% (5.3% y/y).
&quot;Public Officials and Job Creation&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20040901/cover.pdf"> here</a>.
Consumer spending rose 0.6% following a slight dip in August that was initially reported as unchanged. Durables purchases recovered most of the prior month&#39;s drop with a 1.6% jump as light vehicle sales jumped 5.5% to the second highest level of the year. Purchases of non-durable goods rose 0.5% (7.3% y/y) and services spending rose 0.4% (5.6% y/y). 
The PCE chain price index ticked up 0.1% as did prices less food &amp; energy (+1.5% y/y).
A recent speech by Fed Vice Chairman Roger W. Ferguson, Jr. titled &quot;Equilibrium Real Interest Rate: Theory and Application&quot; is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/20041029/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">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</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">Personal Income</td>
<td>0.2%</td>
<td>0.3%</td>
<td>4.6%</td>
<td>3.2%</td>
<td>1.8%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.6%</td>
<td>-0.1%</td>
<td>5.9%</td>
<td>5.2%</td>
<td>4.6%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>0.2%</td>
<td>0.7%</td>
<td>1.4%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.4%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
ISM Factory Index Slipped Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101a.jpg" width="353">
The Institute of Supply Management reported that its Purchasing Managers&#146; Composite Index (PMI) fell in October to 56.8 versus Consensus expectations for no change at 58.5.
During the last twenty years there has been a 70% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The Composite Index reflected declines in each of the components except new orders. The employment index (54.8) dropped to the lowest since January and production cratered to the lowest in over a year.
The separate index of export orders rose sharply to 56.6, the highest level since June.
The prices paid index recouped much of the prior month&#39;s decline and rose to 78.5.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;03</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">Composite Index</td>
<td>56.8</td>
<td>58.5</td>
<td>57.1</td>
<td>53.3</td>
<td>52.4</td>
<td>43.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>58.3</td>
<td>58.1</td>
<td>64.6</td>
<td>58.1</td>
<td>56.6</td>
<td>46.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>78.5</td>
<td>76.0</td>
<td>58.5</td>
<td>59.6</td>
<td>57.6</td>
<td>42.9</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Down in September 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101c.jpg" width="353">
The total value of construction put in place dipped slightly in September as residential building fell for the first month since February 2003. The Consensus expectation for a 0.4% gain.
As hurricanes hit Florida, private residential building activity fell 0.2%. New single family building slid 0.8% (+17.3% y/y) after a 2.3% spurt in August.
Nonresidential building rose 0.2% (+5.7% y/y) as construction activity on shopping malls ballooned 30.7% (6.4% y/y).
Public construction rose 0.3% though spending on highways &amp; streets, nearly one third of the value of public construction spending, fell for the fifth consecutive month (-1.3% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</a></th>
<th scope="col"> Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</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</td>
<td>-0.0%</td>
<td>0.9%</td>
<td>8.9%</td>
<td>5.1%</td>
<td>1.5%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>10.9%</td>
<td>6.0%</td>
<td>-0.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.2%</td>
<td>1.8%</td>
<td>13.1%</td>
<td>13.1%</td>
<td>8.4%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.2%</td>
<td>0.7%</td>
<td>5.7%</td>
<td>-7.1%</td>
<td>-12.8%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.3%</td>
<td>-1.0%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>7.0%</td>
<td>10.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029f.jpg" width="353">
The People&#39;s Bank of China surprised world markets yesterday with a hike in its prime lending rate to 5.58% from 5.31%. The former level had been in place since February 2002. The move concludes an 8-1/2 year span of rate cuts. While a surprise in terms of exact timing, the Bank&#39;s action was not totally unexpected. In the spring it had used moral suasion to talk commercial banks into restraining their own loan growth; several Asian economists were forecasting a rate hike to make the attitude of restraint more concrete. (The Bank also raised its companion &quot;deposit rate&quot; to 2.25% from 1.98%.)
Further, in an additional step, the central bank removed a cap on rates commercial banks may charge their own customers. Previously, they were limited to rates no higher than 1.7 times the central bank lending rate. For the last couple of years this was equivalent to 9.03%. But in the face of the recent policy of qualitative restraint on lending, companies are said to have been resorting to &quot;underground&quot; channels for financing, and according to press sources, have been paying 15% to 20% for loans. Now, a more active and open bank credit market should develop.
Undesirably high inflation is prompting these actions, as well as a desire, bank officials indicated, to encourage behavior in the Chinese banking system that more closely resembles practices in international banking markets. Perhaps this evolutionary and philosophical move toward freer markets is the real surprise in this monetary policy action.
Meantime, inflation has indeed risen. The 12-month change in the consumer price index has been above 5% since June and was 5.2% in September. These last four months have seen the strongest pace since early 1997. Producer prices and corporate goods prices suggest continuing cost pressures, with the PPI up 7.9% for the 12 months ending September, the highest rate in the nearly eight-year history of the data. Corporate goods prices, another wholesale price measure, show strong gains in most types of products, with the total up 9.6%. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">12-Month % Changes, NSA</th>
<th scope="col">Sept 2004</th>
<th scope="col">Aug 2004</th>
<th scope="col">Jul 2004</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Consumer Price Index</td>
<td>5.2</td>
<td>5.3</td>
<td>5.3</td>
<td>3.2</td>
<td>-0.4</td>
<td>-0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Producer Price Index</td>
<td>7.9</td>
<td>6.8</td>
<td>6.4</td>
<td>3.0</td>
<td>0.4</td>
<td>-4.0</td>
</tr>
<tr>
<td class="firstcol">Corporate Goods Price Index</td>
<td>9.6</td>
<td>9.5</td>
<td>9.4</td>
<td>6.3</td>
<td>-0.5</td>
<td>-2.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The People's Bank of China surprised world markets yesterday with a hike in its prime lending rate to 5.58% from 5.31%. The former level had been in place since February 2002. The move concludes an 8-1/2 year span of rate cuts. While [...]

People's Bank of China Raises Lending Rate; Removes Cap on Bank Rates in Major Monetary Policy Shift

PMIs showing widespread revival of global economy

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

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Andrew Cates

**Growth Surprises Continue to Underpin Equity Resilience**
Global equity markets have proved remarkably resilient in recent weeks, shrugging off intermittent bouts of geopolitical and policy uncertainty to grind higher. Chart 1 below helps explain why: it tracks the relationship between global growth-versus-inflation surprises and world equity markets, and on that measure the recent run of global growth data has continued to surprise on the upside relative to inflation outturns — a combination that has historically been supportive for risk assets. Whether that resilience persists will depend on whether the growth-surprise advantage evident in the chart below can be sustained in the face of the inflationary pressures explored below.

260709Z1.jpg

**PMIs Confirm a Broadly Solid Global Expansion**
This week's final composite PMI readings for June reinforced the broader impression of resilient global growth. As chart 2 below shows, most major economies posted readings comfortably in expansionary territory, with India continuing to lead the pack and the US not far behind. Even the laggards in the sample are hovering close to the expansion threshold rather than falling decisively below it, suggesting stabilisation rather than outright contraction (and with the UK a notable exception).

260709Z2.jpg

**Inflation Surprises Are Creeping Back, and Bond Yields Are Taking Notice**
The US growth picture painted by Haver's surprise indices broadly echoes the message from the global PMI data. Chart 3 below shows the combined growth-and-inflation surprise index drifting higher this week, and closer inspection suggests growth is doing most of that work, with activity data continuing to outperform expectations. That is, on the face of it, good news. But it has not stopped bond markets from taking notice: short-dated Treasury yields have remained elevated in recent weeks, as stronger growth keeps alive the possibility that the Federal Reserve holds rates higher for longer or even lifts them in coming weeks.

260709Z3.jpg

**Supply Chains Are Tightening** 
Latest data show that global supply chain pressures tightened by less in June than they had the month before, likely reflecting the easing of Middle East tensions through much of the period. Chart 4 below shows that pressures troughed in the middle of last year and have been building gradually since, though June's slower pace of tightening suggests that easing had started to feed through. Still, today's flare-up threatens to undo that improvement, particularly if it affects shipping routes or energy flows through the region once again.

260709Z4.jpg

**Extreme Weather: An Old Supply-Side Risk Returns**
Geopolitics is not the only source of supply-side risk currently in play. Large parts of Europe have been gripped this week by another intense and prolonged heatwave, with temperatures in several major cities running well above seasonal norms. Extreme heat of this kind carries real economic costs: it depresses labour productivity, particularly in outdoor and manufacturing-adjacent sectors, strains electricity grids as air-conditioning demand spikes, and can disrupt agricultural output and river-based transport when water levels fall. Episodes like this have become more frequent in recent years, and while any single heatwave rarely shifts the macro picture on its own, the cumulative effect of more frequent and more severe weather events could start showing up in productivity and inflation data across the advanced economies. It is a reminder that the supply side of the global economy faces structural as well as cyclical challenges, and that climate-related disruption deserves a permanent place alongside geopolitics and demographics in any assessment of medium-term inflation risk.

260709Z5.jpg

**AI Investment: The Other Side of the Supply Equation**
Set against these supply-side headwinds is a genuinely positive structural development: the extraordinary scale of private investment now flowing into artificial intelligence. Chart 6 below shows just how sharply that investment has grown in recent years, reaching a fresh high last year. If even a fraction of that investment translates into genuine productivity gains, it could provide a meaningful long-run offset to the energy, climate and geopolitical constraints highlighted elsewhere in this week's charts. The scale of the bet now being placed on AI is large enough that it is beginning to show up in aggregate investment and capital expenditure data across the advanced economies, and it is likely to remain one of the defining structural themes shaping the global growth outlook over the remainder of this decade.

260709Z6.jpg

Global markets head into this week’s closing stages digesting a mixed set of signals. Last week's US non-farm payrolls report undershot expectations, adding to questions about the durability of the US labour market even as broader activity data have continued to hold up well. Compounding that picture, news broke today of renewed instability in the Middle East, reintroducing a geopolitical risk premium into markets just as investors had begun to look past it. Global equity markets have nonetheless remained resilient, continuing to track the broadly encouraging tone of incoming activity data (chart 1). That resilience was reinforced by a solid set of global PMIs across most major economies over the past few days (chart 2). Haver's surprise indices tell a similar story of positive growth momentum in the US, but with an important caveat: incoming inflation data have also been surprising to the upside, driven largely by higher oil prices (chart 3). These inflation risks could persist moreover, as global supply chain pressures have picked up in recent months and today's flare-up in the Middle East threatens to add further strain (chart 4). The world economy remains vulnerable to other supply-side shocks too, such as the extreme heat gripping much of Europe this week (chart 5). Still, on the other side of the ledger the enormous scale of investment now flowing into artificial intelligence could be a genuine source of supply-side potential (chart 6).

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Charts of the Week: Growth Holds Firm

Robert Brusca

260710E.jpg

Manufacturing output in the countries of the European Monetary Union continues to underperform. The median change for the 11 countries reporting on the table is a 0.5% decline in May following a 0.3% increase in April. However, only 41.7% of the reporters are accelerating in May, compared to 25% in April, although in March over half of the reporters had showed some acceleration, with output at 61.5%.

In May, of these eleven early reporters, seven showed month-to-month declines in output. This compares to four showing declines in April and four showing declines in March.

**Sequential trends**
Over 12 months, output is declining in four of these eleven countries: Germany, Luxembourg, Ireland, and Portugal. Over six months, output declines in five of the eleven countries. Over three months, output declines in four of the eleven countries. Over these broader sequential periods, output is increasing in most cases; only one country, Ireland, shows consistent declines in output over three months, six months, and 12 months. However, among EMU countries, only Italy shows output expanding on all three timelines, although Sweden, an EU member country, also shows output increasing in all three periods.

Amid the output weakness in May, the quarter-to-date calculation for industrial production growth is also broadly weak. In May, seven of the eleven quarter-to-date changes in industrial production are negative. Positive results, increases in the quarter-to-date, are registered by Germany, Luxembourg, Greece, and Portugal.

The ranking of the year-over-year growth rates shows seven countries with output growth rate rankings below 50%, marking them as below their respective medians. The comparisons for output growth are taken back to 2006, a period of about 20 years.

Four EMU countries rank above their twenty-year medians: France, Italy, Luxembourg, and Greece.

The snapshot of industry in the monetary union is consistent, showing little momentum, little strength, and relatively low rankings for current growth rates; only a minority of reporters show an acceleration in growth in May compared to April. With the situation in the Strait of Hormuz deteriorating again, the outlook for industrial production has to remain guarded.

260710.jpg

Europe

Industrial Sector Remains Under Pressure in EMU

Winnie Tapasanun

260709F57.jpg

260709G57.jpg

Existing home sales unexpectedly fell 2.4% m/m (+2.8% y/y) to 4.09 million units (SAAR) in June, the first monthly decline since March, following an upwardly revised 3.7% increase to 4.19 million in May (previously +3.2%; 4.17 mil.), according to the National Association of Realtors (NAR). The Action Economics Forecast Survey had expected June sales of 4.20 million units. Sales remained 36.4% below a high of 6.43 million in January 2022 and 38.0% below a peak of 6.60 million in January 2021. The June decline coincided with a rise in the average 30-year fixed mortgage rate to 6.49% in June, the highest since August 2025, after increasing to 6.44% in May, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales fell 2.4% (+3.3% y/y) to 3.73 million units in June, the first m/m fall in three months, following a 4.1% gain to 3.82 million in May, remaining 34.6% below a high of 5.70 million in January 2022. Sales of condos and co-ops decreased 2.7% (-2.7% y/y) to 360,000 in June, the lowest level since May 2025, after being unchanged m/m for the third successive month at 370,000, remaining 50.7% below a high of 730,000 in January 2022.

Regionally, June existing home sales declined m/m in all regions except the Northeast. Sales in the South dropped 3.6% (+3.8% y/y) to 1.89 million in June, a three-month low, after a 3.2% rise in May, and sales in the Midwest slid 3.0% (+2.1% y/y) to 980,000 following a 7.4% May advance; both posted the first m/m decrease in three months. Sales in the West fell 1.3% (+2.8% y/y) to 740,000, the lowest level since January, after being flat m/m at 750,000 in May. In contrast, sales in the Northeast increased 2.1% (0.0% y/y) to 480,000 after a 4.4% May gain. Notably, the South remained the dominant region, accounting for 46.2% of total U.S. existing home sales.

The median price of all existing homes (NSA) rose 2.2% (1.8% y/y) to $440,600 in June, the fifth consecutive m/m rise, on top of an upwardly revised 3.3% increase to $431,200 in May ($429,300 previously). Prices were 22.1% above a low of $360,800 in January 2023. The median price of an existing single-family home climbed 2.3% (1.8% y/y) to $446,400 in June, the fifth straight m/m increase, after a 3.4% advance to $436,400 in May. The median price of condos and co-ops, up for the sixth time in seven months, grew 0.6% (1.6% y/y) to $380,000 following a 1.0% May gain to $377,800. Regionally, overall prices rose m/m and y/y in June in the Northeast (+5.6%; +3.9% y/y), Midwest (+2.1%; +2.7% y/y), South (+1.0%; +0.9% y/y), and West (+0.8%; +0.9% y/y). All these price series were at their record highs.

Inventories of homes for sale fell m/m in June for the first time since December. The number of existing homes for sale (NSA) declined 0.6% (+1.3% y/y) to 1.56 million units following an upwardly revised 4.7% May rise to 1.57 million (the highest level since November 2019). The supply of homes on the market at the current selling rate (NSA) increased to 4.6 months in June from 4.5 months in May and April, matching the highest level since August 2025. A record low in supply of 1.6 months was in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

260709H57.jpg

260709I57.jpg

- June sales -2.4% m/m to 4.09 mil., first drop in three mths.; +2.8% y/y, third straight y/y rise.
- Sales m/m down in the South (-3.6%), Midwest (-3.0%), and West (-1.3%); up in the Northeast (+2.1%).
- Sales y/y up in all regions except the Northeast w/ a flat reading.
- Median sales price +2.2% (+1.8% y/y) to $440,600, a record high.
- Unsold inventory -0.6% (+1.3% y/y) to 1.56 mil. units, first m/m decline since Dec.; 4.6 months' supply, highest since Aug. ’25.

U.S. Existing Home Sales Unexpectedly Fall in June from a Five-Month High

Kathleen Stephansen, CBE

260709A1.jpg

260709B1.jpg

Initial claims for unemployment insurance declined 2,000 to 215,000 in the week ending July 4, from 217,000 in the week ending June 27, revised from 215,000. The four-week average was 218,750 in the July 4 week, down from 222,500 in the week ending June 27. The Action Economics/Haver Analytics Survey looked for 218,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 8,000 to 1.814 million in the week ending June 27, from 1.806 million in the week ending June 20, revised from 1.814 million. The four-week moving average rose to 1.808 million in the June 27 week from 1.801 million in the June 20 week. The insured unemployment rate was unchanged at 1.2% in the week of June 27. Except for a one-week dip to 1.1% in the week of April 25, the insured unemployment rate has been at 1.2% since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending June 20, the highest unemployment rates were in Washington (2.03%), New Jersey (2.11%), Minnesota (2.15%), and Puerto Rico (2.45%). The lowest rates were in South Dakota (0.28%), Florida (0.35%), Alabama and North Carolina (both 0.41%), Louisiana (0.42%), and Arkansas (0.49%). Rates in other notable states include California (1.88%), Pennsylvania (1.63%), Illinois (1.58%), New York (1.52%), and Texas (1.12%). These state data are not seasonally adjusted.

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

260709C1.jpg

260709D1.jpg

- New claims declined by 2,000 to 215,000 in the week ending July 4.
- Continuing claims rose by 8,000 to 1.814 million in the week ending June 27.
- The insured unemployment rate was unchanged at 1.2% in the week of June 27.

U.S. Initial Unemployment Claims Declined in the Week of July 4

260709E.jpg

The German trade surplus surged in May to €19.1 billion from €14.7 billion in April. Exports rose by 0.9% in May while imports fell by 2.5%, creating a jump in the surplus month-to-month. In April, exports increased by 0.8% while imports rose by 1.1%.

Details on exports and imports lag by one month. In April, exports for motor vehicles and consumer goods declined, while exports of capital goods and other exports rose. On the import side, there were increases in imports ranging from 2.8% to 4.3% month-to-month across capital goods, motor vehicles, and consumer goods, but for the catch-all category ‘other’ imports fell by 2.7% month-to-month.

Flows adjusted for inflation showed an increase in exports of 0.4% in May while real imports fell by 3.3%. In April, real exports were flat while real imports fell by 0.2%.

The sequential behavior of real exports and real imports show independent activity. Imports log a clear weakening, rising 0.1% over 12 months, falling at a 5% annual rate over six months, and then falling at a 10.3% annual rate over three months. On the export side, real exports rose by 2.6% over 12 months, accelerated to a 7.2% annual rate over six months, but over three months have pulled back and fallen at a 1.6% annual rate. However, export growth still exceeds import growth over each of these horizons: 12 months, six months, and three months.

Trade trends paint a darkening picture of the German economy, with imports weak in real terms and trending even weaker, while activity on the export side of the equation pops over 12 months and six months but takes a hit over three months.

260709.jpg

The situation in the Strait of Hormuz continues to muddy the waters for the future. Passage through the strait has been sharply stopped, stabilized, revived, and now is back to being destabilized. That makes the strait a major uncertainty zone; it's hard to tell how these effects are going to play out over the coming months for German trade results and everyone else's. The deterioration of conditions in the Strait of Hormuz is now unknowable because Iran has decided to start shooting at ships, further destabilizing the outlook.

Economy in Brief

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