Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030f.jpg" align="left" border="0" height="265" width="353">
The news this month for the EU/EMU region is bad. The EU
reading is in the bottom 10% of its range of value. The EMU reading is
a bit better, in the bottom 17% of its range. Both are quite weak. The
drop in the index is the largest since the data have been collected in
1991. All sectors made larger
falls in Oct compared to Sept. The
main EMU countries also saw large drops in their respective overall
sentiment indices.
By sector, services is relatively the hardest hit standing at
the lowest point of its range since that survey began. But that only
goes back to October of 1996 instead of 1991 as for the other surveys.
Still this result parallels the sort of readings we have been getting
in the US with a very weak service sector checking in.
Is this more than coincidence? You bet! This crisis is
hitting intrinsically domestic sectors harder like real estate and
finance. Typically banks populate every community; the same with real
estate businesses. These sectors are not like mining or autos or
textiles that may have a particular regional representation. The
troubled sectors in this cycle are spread everywhere and the troubled
asset class &#8216;housing&#8217; is everywhere, as well. It&#8217;s as true in Europe as
in the US.INDUSTRY 
 

Europe&#8217;s industry reading at -18 (EMU) is only in the 32nd
percentile of its range (bottom third of its range) and so is weak but
not desperately weak. Germany and France carry percentile positions for
their respective readings in the high thirty percentiles while Spain&#8217;s
is at the 33rd percentile and the UK is at the 27Th
percentile; Italy is looking desperate at the 17Th
percentile. These are weak readings but the most troubling for Italy.
The components of the industry index show that the production
trend is the weakest relative reading standing in the bottom 3% of its
historic range. Production
expectations are better but still weak in their 12th
percentile. For some reason Europeans think that a worse time lies
behind it not ahead of it. That explains a lot about the government
attitudes. Europe has been in and seem to remain in DENIAL. Order volumes are still relatively
firm in their 44th range percentile; export
orders are in about the same relative range position and that is also
where the expected selling price resides. Contrarily workers are more
exposed with employment expectations in the bottom 16 percentile of
their range. If worker readings are RIGHT then the rest of the readings
are too high.CONFIDENCE
By main countries confidence readings are all over the map
except that they are limited being to all over intrinsically weak
territory. The EU&#8217;s UK reading is in the bottom 2.9% of its all-time
range. Among large EMU nations Spain is weakest posting the lowest
confidence reading ever. It is followed by France with a bottom 5
percentile reading. Germany&#8217;s percentile reading at the 43% mark and is
similar to its industrial sector reading but at 37.5 Italy&#8217;s percentile
reading is way above its industry percentile. So, Italian consumer
confidence is more upbeat than it is for Italian industry.
As for the reason for this angst, ee find over all EMU
responses on &#8216;time to buy&#8217; are at the very worst for making major
purchases now or in the next 12 months. The economic situation in the
past 12-months is rated as the worst ever but looking ahead for the
next 12-months the out look is &#8216;only&#8217; a bottom 13% ordeal. Respondents
may want to rethink that one. The financial situation for this past and
this next 12-months each rate in their respective 12th
percentile. In short the readings really are weak. Unemployment
expectations are &#8216;only up to the 58th percentile
of their range &#8211; elevated, but not by much.RETAIL
The retail readings across EU countries are weakest in the UK,
residing in their bottom 3 range percentile followed by Spain (bottom
13%), Germany (bottom 26%), France (bottom 43%), and Italy (63rd
percentile &#8211; still above its range midpoint). Retailers are not as
downbeat as consumers and that could spell some troubles for them and
for their inventories. Retail orders are put in the bottom 14% of their
range. The expected business situation is only a bottom 38% rating
similar to the present business situation. And maybe the retailers are
just putting up a brave front since their orders are so weak. They may
be planning for something even weaker than what they say they expect&#8230; SERVICES
Service sector reading span the gamut form bad to worst. The
UK and Italy have the worst service sector readings ever. Spain&#8217;s
reading is in the bottom 6% of its range. German is a bottom 25%
reading; for France the reading is a bottom one-third of range reading.
All of theses are weak. For
EMU the overall reading is the worst ever. The business climate is a
bottom 7% affair, but expected demand is worse in the bottom 2% of its
range. Current demand is rated as in only the 16th percentile. Current
and expected employment readings are in the 20th
percentile of their respective ranges, and the reading is lower for
expected unemployment. Things will get worse. Maybe industry workers
are better protected by unions that service sector workers.CONSTRUCTION
The construction sector is the least impacted off all. For
overall sentiment, construction stands in the 49th
percentile of its range. Of course that implies a raw reading of -20.
One issue for construction it that its participants have considered it
sub-par all along. So now the outlook is being impacted construction
respondents are not looking for things to get that much worse. Spain is
an exception having had a boom its current reading; it is a bottom 19th
percentile reading. For the UK the residential property bubble busting
has helped to drag its reading to the 31st
percentile. France and Germany still carry mid range readings at or
above their expected range midpoints. Italy&#8217;s sector has a relatively
strong construction reading in the 60th
percentile.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="12" scope="col"> EU
Sectors and Country level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Oct 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Jul 
08</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-SQ 
w/Overall</td>
</tr>
<tr class="even">
<td class="firstcol">Overall</td>
<td>77.5</td>
<td>84.9</td>
<td>86.7</td>
<td>88.8</td>
<td>9.8</td>
<td>209</td>
<td>116</td>
<td>73</td>
<td>43</td>
<td>99</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-19</td>
<td>-13</td>
<td>-10</td>
<td>-7</td>
<td>23.5</td>
<td>204</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-23</td>
<td>-19</td>
<td>-19</td>
<td>-20</td>
<td>13.8</td>
<td>205</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-11</td>
<td>0.83</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-16</td>
<td>-13</td>
<td>-14</td>
<td>-11</td>
<td>18.5</td>
<td>214</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td>0.51</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-25</td>
<td>-20</td>
<td>-18</td>
<td>-17</td>
<td>37.8</td>
<td>150</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-17</td>
<td>0.41</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-10</td>
<td>-4</td>
<td>-2</td>
<td>0</td>
<td>0.0</td>
<td>145</td>
<td>32</td>
<td>-10</td>
<td>42</td>
<td>16</td>
<td>0.81</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td>
Oct 
08</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>-8.1%</td>
<td>-1.1%</td>
<td>-1.1%</td>
<td>80.4</td>
<td>16.8</td>
<td>206</td>
<td>117</td>
<td>73</td>
<td>44</td>
<td>99</td>
<td>0.94</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-5.1%</td>
<td>-1.4%</td>
<td>-2.7%</td>
<td>88.6</td>
<td>23.5</td>
<td>186</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>99</td>
<td>0.61</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>-7.0%</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>86.5</td>
<td>31.6</td>
<td>196</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-6.9%</td>
<td>0.6%</td>
<td>2.7%</td>
<td>82.1</td>
<td>21.6</td>
<td>206</td>
<td>121</td>
<td>71</td>
<td>50</td>
<td>99</td>
<td>0.78</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-5.0%</td>
<td>-2.0%</td>
<td>-4.3%</td>
<td>66.1</td>
<td>0.0</td>
<td>220</td>
<td>118</td>
<td>66</td>
<td>52</td>
<td>99</td>
<td>0.62</td>
</tr>
<tr>
<td class="firstcol">Memo: UK</td>
<td>-7.5%</td>
<td>-5.2%</td>
<td>-6.1%</td>
<td>70.4</td>
<td>3.4</td>
<td>219</td>
<td>118</td>
<td>69</td>
<td>50</td>
<td>100</td>
<td>0.42</td>
</tr>
<tr>
<td colspan="12" class="firstcol">Since 1990
except Services (Oct
1996) 247-Count; Services: 145-Count</td>
</tr>
<tr>
<td colspan="12" class="firstcol">Sentiment
is an index, sector
readings are net balance diffusion measures.</td>
</tr>
</tbody>
</table>
</body></html>

The news this month for the EU/EMU region is bad. The EU reading is in the bottom 10% of its range of value. The EMU reading is a bit better, in the bottom 17% of its range. Both are quite weak. The drop in the index is the largest [...]

EU Indices Are Scraping Low Levels: It Will Get Worse…

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030d.jpg" width="353">
Initial claims for jobless insurance were stable last week at 479,000, near the high for this cycle. The figure was about as expected. The four-week moving average of initial claims fell slightly to 475,500 (44.2% y/y), still just off the cycle high.
The largest increases in initial claims for the week ending Oct. 18 were in Tennessee (+1,956), Oregon (+1,802), Indiana (+1,297), Virginia (+898), and Florida (+543), while the largest decreases were in New York (-6,080), Michigan (-5,894), Illinois (-3,795), Ohio (-2,923), and Kentucky (-2,494).
Continuing claims for unemployment insurance during the week of October 18 fell 12,000 after a revised 7,000 increase during the prior week, initially reported as a slight decline. The four-week average of continuing claims rose further to this cycle&#39;s high of 3,709,500, the highest level since early 2003. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030e.jpg" width="353">
The insured rate of unemployment was stable for the third week at 2.8%. That was this cycle&#39;s high and the highest since mid-2003. The high in that recessionary period was 3.0% reached in late June 2003.
What Exactly Is a Recession&#151;and Are We in One? from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/trends/2008/1108/01ecoact.cfm">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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">10/25/08</th>
<th scope="col">10/18/08</th>
<th scope="col">10/11/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>478</td>
<td>&nbsp;479</td>
<td>463</td>
<td>44.3%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,715</td>
<td>3,727</td>
<td>43.0</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance were stable last week at 479,000, near the high for this cycle. The figure was about as expected. The four-week moving average of initial claims fell slightly to 475,500 (44.2% y/y), still just off [...]

U.S. Initial Claims for Unemployment Insurance Stable But High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030a.jpg" width="353">
U.S. real GDP fell a modest 0.3% (AR) last quarter after 2.8% growth during 2Q. Consensus expectations had been for a decline at a 0.5% rate. The decline last quarter mirrored a 0.2% decline during the fourth quarter of last year. The y/y rate of growth of 0.8% was the weakest since the end of the 2001 recession.
Real final sales to domestic purchasers were notably weak in 3Q as they posted a 1.8% (AR) decline. That was the largest quarterly decline since the end of the 1990-91 recession. The year-to-year dip of 0.1%, while modest, was the first since 1991.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030b.jpg" width="353">
Real personal consumption declined at a 3.1% (0.0% y/y) annual rate, reversing a 1.2% rise during 2Q. The 2Q gain presumably was fueled by tax rebate checks but the lift seems to have been slight. Spending on autos &amp; light trucks fell at a 25.6% (-14.7% y/y) annual rate after declining at a 19.7% rate during 2Q. Spending on furniture &amp; other household equipment fell at a 7.6% rate (+2.7% y/y) and the decline reversed roughly half of the 2Q increase. Spending on apparel fell at an 11.0% rate (-0.4% y/y) and that reversed all of the 2Q jump. Spending on consumer services also weakened to a 0.6% growth rate. That about matched the 2Q rise but the y/y change of 1.3% was the weakest since 1981. Growth in real PCE subtracted 2.3 percentage points from 3Q real GDP growth after a 0.9 point add during 2Q.
Residential construction fell again, last quarter at a 19.1% (-21.3% y/y) annual rate after a 13.3% rate of decline during 2Q. The 3Q drop subtracted 0.7 percentage points from GDP growth.
Growth in business fixed investment fell for the first time since fourth quarter, 2006. The 1.0% decline (+1.8% y/y) followed 2.5% growth during 2Q, a 4.9% rise during 2007 and roughly 7.5% growth in 2006 and 2005. Equipment investment repeated its 2Q performance and declined at a 5.5% rate (-2.6% y/y). Conversely, structures investment was firm again and rose at a 7.9% annual rate (10.8% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030c.jpg" width="353">
An improved foreign trade deficit again was the main source of lift to GDP growth, though the 1.1 percentage point addition was almost a third of that in 2Q. Exports grew at a slower 5.9% rate (6.9% y/y), half that in 2Q. Growth in imports weakened with the slowdown in overall economic growth. They fell at a 1.9% rate (-3.1% y/y).
Inventory accumulation added 0.6 percentage points to GDP growth after three consecutive quarters of subtraction.
Spending by governments was strong again and the 5.8% (3.1% y/y) rise was the quickest since early 2003.
The GDP chain price index surged at a 4.2% annual rate. The accelerated rate of increase owed to a 5.4% jump in the PCE price index which was fueled by higher energy prices. Capital spending prices rose at an accelerated 4.2% rate (2.2% y/y) while the residential investment price deflator declined for the fourth straight quarter (-1.8% y/y).
Fed, Central Banks in Brazil, Mexico, Korea and Singapore, Announce Swap Lines and the Fed&#39;s announcement can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081029b.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;08 (Advance)</th>
<th scope="col">2Q &#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">GDP</td>
<td>-0.3</td>
<td>2.8</td>
<td>0.8</td>
<td>2.0</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.6</td>
<td>-1.5</td>
<td>-0.4</td>
<td>-0.4</td>
<td>0.0</td>
<td>-0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.8</td>
<td>4.4</td>
<td>1.3</td>
<td>2.4</td>
<td>2.8</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>1.1</td>
<td>2.9</td>
<td>1.7</td>
<td>0.6</td>
<td>0.2</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-1.8</td>
<td>1.3</td>
<td>-0.1</td>
<td>1.8</td>
<td>2.6</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>4.2</td>
<td>1.1</td>
<td>2.7</td>
<td>2.7</td>
<td>3.2</td>
<td>3.3</td>
</tr>
</tbody>
</table>


</html>

U.S. real GDP fell a modest 0.3% (AR) last quarter after 2.8% growth during 2Q. Consensus expectations had been for a decline at a 0.5% rate. The decline last quarter mirrored a 0.2% decline during the fourth quarter of last year. The [...]

U.S. 3Q'08 GDP Fell Modestly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030a.jpg" align="left" border="0" height="265" width="353">
U.S. real GDP fell a modest 0.3% (AR)
last quarter after 2.8%
growth during 2Q. Consensus expectations had been for a decline at a
0.5% rate. The decline last quarter mirrored a 0.2% decline during the
fourth quarter of last year. The y/y rate of growth of 0.8% was the
weakest since the end of the 2001 recession.
Real final sales to domestic purchasers
were notably weak in
3Q as they posted a 1.8% (AR) decline. That was the largest quarterly
decline since the end of the 1990-91 recession. The year-to-year dip of
0.1%, while modest, was the first since 1991.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030b.jpg" align="right" border="0" height="265" width="353">
Real personal consumption declined at a
3.1% (0.0% y/y)
annual rate, reversing a 1.2% rise during 2Q. The 2Q gain presumably
was fueled by tax rebate checks but the lift seems to have been slight.
Spending on autos &amp; light trucks fell at a 25.6% (-14.7% y/y)
annual rate after declining at a 19.7% rate during 2Q. Spending on
furniture &amp; other household equipment fell at a 7.6% rate
(+2.7%
y/y) and the decline reversed roughly half of the 2Q increase. Spending
on apparel fell at an 11.0% rate (-0.4% y/y) and that reversed all of
the 2Q jump. Spending on consumer services also weakened to a 0.6%
growth rate. That about matched the 2Q rise but the y/y change of 1.3%
was the weakest since 1981. Growth in real PCE subtracted 2.3
percentage points from 3Q real GDP growth after a 0.9 point add during
2Q.
Residential construction fell again, last
quarter at a 19.1%
(-21.3% y/y) annual rate after a 13.3% rate of decline during 2Q. The
3Q drop subtracted 0.7 percentage points from GDP growth.
Growth in business fixed investment fell
for the first time
since fourth quarter, 2006. The 1.0% decline (+1.8% y/y) followed 2.5%
growth during 2Q, a 4.9% rise during 2007 and roughly 7.5% growth in
2006 and 2005. Equipment investment repeated its 2Q performance and
declined at a 5.5% rate (-2.6% y/y). Conversely, structures investment
was firm again and rose at a 7.9% annual rate (10.8% y/y).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030c.jpg" align="left" border="0" height="265" width="353">
An improved foreign trade deficit again
was the main source
of lift to GDP growth, though the 1.1 percentage point addition was
almost a third of that in 2Q. Exports grew at a slower 5.9% rate (6.9%
y/y), half that in 2Q. Growth in imports weakened with the slowdown in
overall economic growth. They fell at a 1.9% rate (-3.1% y/y).
Inventory accumulation added 0.6 percentage
points to GDP growth after three consecutive quarters of subtraction.
Spending by governments was strong again
and the 5.8% (3.1% y/y) rise was the quickest since early 2003.
The GDP chain price index surged at a 4.2%
annual rate. The
accelerated rate of increase owed to a 5.4% jump in the PCE price index
which was fueled by higher energy prices. Capital spending prices rose
at an accelerated 4.2% rate (2.2% y/y) while the residential investment
price deflator declined for the fourth straight quarter (-1.8% y/y).
Fed, Central Banks in Brazil, Mexico, Korea and
Singapore, Announce Swap Lines and the Fed's announcement
can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081029b.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained
2000$, % AR</a></th>
<th scope="col">3Q '08 (Advance)</th>
<th scope="col">2Q '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">GDP</td>
<td>-0.3</td>
<td>2.8</td>
<td>0.8</td>
<td>2.0</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>0.6</td>
<td>-1.5</td>
<td>-0.4</td>
<td>-0.4</td>
<td>0.0</td>
<td>-0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.8</td>
<td>4.4</td>
<td>1.3</td>
<td>2.4</td>
<td>2.8</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>1.1</td>
<td>2.9</td>
<td>1.7</td>
<td>0.6</td>
<td>0.2</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-1.8</td>
<td>1.3</td>
<td>-0.1</td>
<td>1.8</td>
<td>2.6</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>4.2</td>
<td>1.1</td>
<td>2.7</td>
<td>2.7</td>
<td>3.2</td>
<td>3.3</td>
</tr>
</tbody>
</table>
U.S. Initial Claims for
Unemployment Insurance Stable But High 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 30, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030d.jpg" align="left" border="0" height="265" width="353">
Initial claims for jobless insurance were stable last week at
479,000, near the high for this cycle. The figure was about as
expected. The four-week moving average of initial claims fell slightly
to 475,500 (44.2% y/y), still just off the cycle high.
The largest increases in initial claims for the week ending
Oct. 18
were in Tennessee (+1,956), Oregon (+1,802), Indiana (+1,297), Virginia
(+898), and Florida (+543), while the largest decreases were in New
York (-6,080), Michigan (-5,894), Illinois (-3,795), Ohio (-2,923), and
Kentucky (-2,494).
Continuing claims for unemployment insurance during the week
of
October 18 fell 12,000 after a revised 7,000 increase during the prior
week, initially reported as a slight decline. The four-week average of
continuing claims rose further to this cycle's high of 3,709,500, the
highest level since early 2003. Continuing claims provide some
indication of workers' ability to find employment and they lag the
initial claims figures by one week.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030e.jpg" align="right" border="0" height="265" width="353">
The insured rate of unemployment was stable for the third week
at
2.8%. That was this cycle's high and the highest since mid-2003. The
high in that recessionary period was 3.0% reached in late June 2003.
What Exactly Is a Recession&#8212;and Are We in One? from
the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/trends/2008/1108/01ecoact.cfm">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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">10/25/08</th>
<th scope="col">10/18/08</th>
<th scope="col">10/11/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>478</td>
<td>&nbsp;479</td>
<td>463</td>
<td>44.3%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,715</td>
<td>3,727</td>
<td>43.0</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
EU Indices Are Scraping Low
Levels: It Will Get Worse&#8230; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 30, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030f.jpg" align="left" border="0" height="265" width="353">
The news this month for the EU/EMU region is bad. The EU
reading is
in the bottom 10% of its range of value. The EMU reading is a bit
better, in the bottom 17% of its range. Both are quite weak. The drop
in the index is the largest since the data have been collected in 1991. All sectors made larger falls in Oct
compared to Sept. The main
EMU countries also saw large drops in their respective overall
sentiment indices.
By sector, services is relatively the hardest hit standing at
the
lowest point of its range since that survey began. But that only goes
back to October of 1996 instead of 1991 as for the other surveys. Still
this result parallels the sort of readings we have been getting in the
US with a very weak service sector checking in.
Is
this more than coincidence? You bet! This crisis is hitting
intrinsically domestic sectors harder like real estate and finance.
Typically banks populate every community; the same with real estate
businesses. These sectors are not like mining or autos or textiles that
may have a particular regional representation. The troubled sectors in
this cycle are spread everywhere and the troubled asset class &#8216;housing&#8217;
is everywhere, as well. It&#8217;s as true in Europe as in the US.INDUSTRY 
 

Europe&#8217;s industry reading at -18 (EMU) is only in the 32nd
percentile of its range (bottom third of its range) and so is weak but
not desperately weak. Germany and France carry percentile positions for
their respective readings in the high thirty percentiles while Spain&#8217;s
is at the 33rd percentile and the UK is at the 27Th
percentile; Italy is looking desperate at the 17Th
percentile. These are weak readings but the most troubling for Italy.
The components of the industry index show that the production
trend
is the weakest relative reading standing in the bottom 3% of its
historic range. Production
expectations are better but still weak in their 12th
percentile. For some reason Europeans think that a worse time lies
behind it not ahead of it. That explains a lot about the government
attitudes. Europe has been in and seem to remain in DENIAL. Order volumes are still relatively
firm in their 44th
range percentile; export orders are in about the same relative range
position and that is also where the expected selling price resides.
Contrarily workers are more exposed with employment expectations in the
bottom 16 percentile of their range. If worker readings are RIGHT then
the rest of the readings are too high.CONFIDENCE
By main countries confidence readings are all over the map
except
that they are limited being to all over intrinsically weak territory.
The EU&#8217;s UK reading is in the bottom 2.9% of its all-time range. Among
large EMU nations Spain is weakest posting the lowest confidence
reading ever. It is followed by France with a bottom 5 percentile
reading. Germany&#8217;s percentile reading at the 43% mark and is similar to
its industrial sector reading but at 37.5 Italy&#8217;s percentile reading is
way above its industry percentile. So, Italian consumer confidence is
more upbeat than it is for Italian industry.
As for the reason for this angst, ee find over all EMU
responses on
&#8216;time to buy&#8217; are at the very worst for making major purchases now or
in the next 12 months. The economic situation in the past 12-months is
rated as the worst ever but looking ahead for the next 12-months the
out look is &#8216;only&#8217; a bottom 13% ordeal. Respondents may want to rethink
that one. The financial situation for this past and this next 12-months
each rate in their respective 12th percentile.
In short the readings really are weak. Unemployment expectations are
&#8216;only up to the 58th percentile of their range &#8211;
elevated, but not by much.RETAIL
The retail readings across EU countries are weakest in the UK,
residing in their bottom 3 range percentile followed by Spain (bottom
13%), Germany (bottom 26%), France (bottom 43%), and Italy (63rd
percentile &#8211; still above its range midpoint). Retailers are not as
downbeat as consumers and that could spell some troubles for them and
for their inventories. Retail orders are put in the bottom 14% of their
range. The expected business situation is only a bottom 38% rating
similar to the present business situation. And maybe the retailers are
just putting up a brave front since their orders are so weak. They may
be planning for something even weaker than what they say they expect&#8230; SERVICES
Service sector reading span the gamut form bad to worst. The
UK and
Italy have the worst service sector readings ever. Spain&#8217;s reading is
in the bottom 6% of its range. German is a bottom 25% reading; for
France the reading is a bottom one-third of range reading. All of
theses are weak. For EMU the
overall reading is
the worst ever. The business climate is a bottom 7% affair, but
expected demand is worse in the bottom 2% of its range. Current demand
is rated as in only the 16th percentile. Current and expected
employment readings are in the 20th percentile
of their
respective ranges, and the reading is lower for expected unemployment.
Things will get worse. Maybe industry workers are better protected by
unions that service sector workers.CONSTRUCTION
The construction sector is the least impacted off all. For
overall sentiment, construction stands in the 49th
percentile of its range. Of course that implies a raw reading of -20.
One issue for construction it that its participants have considered it
sub-par all along. So now the outlook is being impacted construction
respondents are not looking for things to get that much worse. Spain is
an exception having had a boom its current reading; it is a bottom 19th
percentile reading. For the UK the residential property bubble busting
has helped to drag its reading to the 31st
percentile. France and Germany still carry mid range readings at or
above their expected range midpoints. Italy&#8217;s sector has a relatively
strong construction reading in the 60th
percentile.

<table border="0" cellspacing="0" width="100%"> <colgroup></colgroup>
<thead><tr>
<th colspan="12" scope="col"> EU
Sectors and Country level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Oct 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Jul 
08</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-SQ 
w/Overall</td>
</tr>
<tr class="even">
<td class="firstcol">Overall</td>
<td>77.5</td>
<td>84.9</td>
<td>86.7</td>
<td>88.8</td>
<td>9.8</td>
<td>209</td>
<td>116</td>
<td>73</td>
<td>43</td>
<td>99</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-19</td>
<td>-13</td>
<td>-10</td>
<td>-7</td>
<td>23.5</td>
<td>204</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-23</td>
<td>-19</td>
<td>-19</td>
<td>-20</td>
<td>13.8</td>
<td>205</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-11</td>
<td>0.83</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-16</td>
<td>-13</td>
<td>-14</td>
<td>-11</td>
<td>18.5</td>
<td>214</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td>0.51</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-25</td>
<td>-20</td>
<td>-18</td>
<td>-17</td>
<td>37.8</td>
<td>150</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-17</td>
<td>0.41</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-10</td>
<td>-4</td>
<td>-2</td>
<td>0</td>
<td>0.0</td>
<td>145</td>
<td>32</td>
<td>-10</td>
<td>42</td>
<td>16</td>
<td>0.81</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td>
Oct 
08</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>-8.1%</td>
<td>-1.1%</td>
<td>-1.1%</td>
<td>80.4</td>
<td>16.8</td>
<td>206</td>
<td>117</td>
<td>73</td>
<td>44</td>
<td>99</td>
<td>0.94</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-5.1%</td>
<td>-1.4%</td>
<td>-2.7%</td>
<td>88.6</td>
<td>23.5</td>
<td>186</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>99</td>
<td>0.61</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>-7.0%</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>86.5</td>
<td>31.6</td>
<td>196</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-6.9%</td>
<td>0.6%</td>
<td>2.7%</td>
<td>82.1</td>
<td>21.6</td>
<td>206</td>
<td>121</td>
<td>71</td>
<td>50</td>
<td>99</td>
<td>0.78</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-5.0%</td>
<td>-2.0%</td>
<td>-4.3%</td>
<td>66.1</td>
<td>0.0</td>
<td>220</td>
<td>118</td>
<td>66</td>
<td>52</td>
<td>99</td>
<td>0.62</td>
</tr>
<tr>
<td class="firstcol">Memo: UK</td>
<td>-7.5%</td>
<td>-5.2%</td>
<td>-6.1%</td>
<td>70.4</td>
<td>3.4</td>
<td>219</td>
<td>118</td>
<td>69</td>
<td>50</td>
<td>100</td>
<td>0.42</td>
</tr>
<tr>
<td colspan="12" class="firstcol">Since 1990
except Services (Oct
1996) 247-Count; Services: 145-Count</td>
</tr>
<tr>
<td colspan="12" class="firstcol">Sentiment
is an index, sector
readings are net balance diffusion measures.</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029f.jpg" width="353">
The Federal Open Market Committee today cut the Federal funds rate, as expected, to 1.00% from 1.50%. The discount rate also was cut to 1.25%. The latest Fed funds rate was its lowest since 2004.
The Fed indicated three specific reasons for lowering interest rates today. 1) A slowdown in U.S. economic growth due to slower consumer spending and weaker business investment spending 2) Financial market turmoil and 3) an expectation for moderation in inflation due to lower energy and other commodity prices as well as slower economic growth.
Credit market conditions were expected by the Fed to improve due to interest rate cuts around the world, &quot;extraordinary liquidity measures&quot; and actions to strengthen financial systems.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029g.jpg" width="353">
The decision was unanimous amongst FOMC voters.
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081029a.htm">link</a>.
How Economic News Moves Markets from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci14-6.pdf">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">September</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>1.00</td>
<td>1.50</td>
<td>2.00</td>
<td>5.05</td>
<td>4.96</td>
<td>3.19</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>1.25</td>
<td>1.75</td>
<td>2.25</td>
<td>5.86</td>
<td>5.96</td>
<td>4.19</td>
</tr>
</tbody>
</table>
</body>
</html>

The Federal Open Market Committee today cut the Federal funds rate, as expected, to 1.00% from 1.50%. The discount rate also was cut to 1.25%. The latest Fed funds rate was its lowest since 2004. The Fed indicated three specific [...]

FOMC Cut Funds Rate to 1.00%; The Lowest Since 2004

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029d.jpg">
The total number of mortgage applications rose 28.5% last week and that recovered all of the prior period&#39;s decline, according to the Mortgage Bankers Association. Nevertheless, the October average fell 20.0% from September and applications were two-thirds below their peak reached this past January.
Last week, applications for a mortgage to purchase a home made up most of the prior week&#39;s decline with an 8.5% rise. For October so far, however, purchase applications reversed most of the prior month&#39;s gain with a 13.3% decline. During the latest week purchase applications were down 43% from their 2005 peak.
During the last ten years there has been a 61% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales. Figures covering sales of existing single-family home will be available this Friday while single-family home sales will be published early next week.
Applications to refinance a home mortgage recovered most of the prior week&#39;s decline with a 28.5% increase but applications in October overall remained 20% below September. During September, applications to refinance had risen 61.9% from August as 15-year mortgage rates fell briefly to 5.54%.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029e.jpg">
The effective interest rate on a conventional 15-year mortgage slipped last week to 6.30% following an average of 6.01% last month. For a 30-year mortgage, rates slipped w/w to 6.48%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10-year Treasury securities. For an adjustable rate 1-Year mortgage the rate also slipped w/w to 6.95% after having averaged 6.70% last month.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
The figures for weekly mortgage applications are available in Haver&#39;s SURVEYW database.

<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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">10/24/08</th>
<th scope="col">10/17/08</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 Market Index</td>
<td>476.7</td>
<td>408.1</td>
<td>-30.1%</td>
<td>652.6</td>
<td>584.2</td>
<td>708.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>303.1</td>
<td>279.3</td>
<td>-26.6%</td>
<td>424.9</td>
<td>406.9</td>
<td>470.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,489.4</td>
<td>1,158.8</td>
<td>-33.8%</td>
<td>1,997.9</td>
<td>1,634.0</td>
<td>2,092.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications rose 28.5% last week and that recovered all of the prior period's decline, according to the Mortgage Bankers Association. Nevertheless, the October average fell 20.0% from September and [...]

U.S. Mortgage Applications Recovered Last Week; Off Two-Thirds From Peak

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029b.jpg" width="353">
During September, new orders for durable goods ticked up 0.8% after falling 5.5% during August, a decline revised from the -4.5% figure reported initially. Though the September rise in orders beat Consensus expectations for a 1.0% decline, there where few, if any, areas of strength. The gain mostly reflected a 21.8% (-16.6% y/y) jump in new orders for aircraft &amp; parts that offset most of a decline during August. (Nondefense aircraft orders rose 29.7% (-34.1% y/y).
Highlighting the weakness in durable goods orders last month was a 1.1% decline in new orders less the transportation sector altogether. That followed a 4.1% drop during August, initially reported at down 3.0%. The September decline about matched Consensus expectations but during the last three months, orders less the transportation sector fell at a 19.0% annual rate.
The rise in aircraft orders did lift overall orders for nondefense capital goods by 0.8%, but that followed a little-revised 7.7% plunge during August. Without aircraft, nondefense capital goods orders fell 1.4% after 2.2% drop during August. These declines lowered the three-month growth rate to -12.4%, the worst since early last year. During the last ten years there has been an 80% correlation between the y/y gain in nondefense capital goods orders and the rise in equipment &amp; software spending in the GDP accounts. The correlation of the GDP figure with capital goods shipments is, as one would expect, a larger 92%.
The industry detail highlights the recent weakness in factory orders. Orders for machinery ticked up just 0.5% after a 6.4% drop during August. That left the three-month growth rate at -9.5%.Primary metals orders fell sharply for the second consecutive month with a 4.5% (+1.6% y/y) drop which followed a downwardly revised 12.5% August plunge. New orders for electrical equipment increased 1.5% (1.1% y/y) after a 3.5% August decline. On a three-month basis these orders were down at a 35.0% annual rate.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029c.jpg" width="353">
New orders for computers &amp; electronic products continued on their weaker trend-line with a 1.4% drop last month. On a three-month basis these orders fell at a 15.0% annual rate after their 2.1% decline during all of last year. Orders for just computers &amp; related products fell 2.8% and on a three-month basis they were off at a 47.9% annual rate. New orders for communications equipment also have been quite weak and they fell 14.6% last month. Three-month growth was -36.6% (AR) after last year&#39;s 7.5% decline.
Reflecting past weakness in new orders was a 0.2% rise in overall shipments of durable goods which made up little of a 4.2% August fall. During the last three months growth was a negative 7.6% (AR) after last year&#39;s negligible 0.1% uptick. For comparison, industrial production of durable goods during the last three months fell at a 13.5%. During the last ten years there has been a 62% correlation between the three-month change in shipments of durable goods and the change in durables industrial production. Less transportation, shipments of durable goods fell 0.4% following a 2.9% August drop. Three-month growth fell to -4.8% (AR).
Inventories of durable goods rose just 0.4% (8.1% y/y), the weakest monthly increase since last October. Three-month growth eased slightly to a still strong 8.8%. Less transportation, inventories rose a weaker 0.5% and the three-month growth rate eased slightly to 9.4% (AR) after the 1.4% rise during 2007.
Addressing the Credit Crisis is a speech given earlier this month by Dallas Fed President Richard W. Fisher and it can be found <a href="http://dallasfed.org/news/speeches/fisher/2008/fs081012.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</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">Durable Goods Orders</td>
<td>0.8</td>
<td>-5.5</td>
<td>-3.6</td>
<td>1.4</td>
<td>6.2</td>
<td>10.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.1</td>
<td>-4.1</td>
<td>-0.6</td>
<td>-0.3</td>
<td>9.1</td>
<td>9.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>0.8</td>
<td>-7.7</td>
<td>-7.2</td>
<td>3.5</td>
<td>9.4</td>
<td>17.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-1.4</td>
<td>-2.2</td>
<td>0.5</td>
<td>-2.7</td>
<td>10.7</td>
<td>11.6</td>
</tr>
</tbody>
</table>
</body>
</html>

During September, new orders for durable goods ticked up 0.8% after falling 5.5% during August, a decline revised from the -4.5% figure reported initially. Though the September rise in orders beat Consensus expectations for a 1.0% [...]

U.S. Durable Goods Orders Ticked Up

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029a.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s IP fell sharply by 3.5% in August, but it has made a
substantial rebound in September. Still the trends for IP all are
lower, as the sequential growth rates in the table below show. The
rebounds by sector in September are only about one-third of the drop
made in August.
Year-over-year, Japan&#8217;s IP is still rising at a 2.7% pace.
Consumer goods output is up by a strong 3.9% while investment goods
output is up by 0.5% at an annual rate. The investment goods side is
slowing down faster than the consumer goods side.
That trend is in place for the quarter as well. With the
September figures just in to complete the quarter, Q3 reveals that
overall IP is falling at a 5% pace in MFG. Investment goods output is
dropping at a sizeable 13.2% pace while the output of consumer goods is
still up at a 4.1% pace. Since consumers are showing weakness around
the world in terms of lower confidence and reduced spending and since
Japan is a strong exporter of consumer goods this sector is due to get
hit much harder.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">Japan Industrial Production Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
<td>Qtr-to-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">seas adjusted</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>Yr-Ago</td>
<td>% AR</td>
</tr>
<tr>
<td class="firstcol">Mining &amp; Mfg</td>
<td>1.2%</td>
<td>-3.5%</td>
<td>1.3%</td>
<td>-4.1%</td>
<td>-1.3%</td>
<td>-1.9%</td>
<td>2.7%</td>
<td>-4.8%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>1.1%</td>
<td>-3.6%</td>
<td>1.5%</td>
<td>-4.1%</td>
<td>-1.3%</td>
<td>-2.1%</td>
<td>3.0%</td>
<td>-4.5%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>1.1%</td>
<td>-3.5%</td>
<td>1.2%</td>
<td>-4.8%</td>
<td>-1.7%</td>
<td>-2.1%</td>
<td>2.8%</td>
<td>-5.0%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>-1.4%</td>
<td>-0.2%</td>
<td>-2.9%</td>
<td>-16.6%</td>
<td>-13.7%</td>
<td>-10.6%</td>
<td>-6.8%</td>
<td>-16.2%</td>
</tr>
<tr>
<td class="firstcol">T-port</td>
<td>4.4%</td>
<td>-9.8%</td>
<td>4.0%</td>
<td>-7.9%</td>
<td>-1.2%</td>
<td>-1.3%</td>
<td>10.4%</td>
<td>-7.4%</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Product Group</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.9%</td>
<td>-3.3%</td>
<td>3.6%</td>
<td>4.5%</td>
<td>4.3%</td>
<td>0.6%</td>
<td>3.9%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.5%</td>
<td>-2.3%</td>
<td>-0.2%</td>
<td>-7.8%</td>
<td>-3.6%</td>
<td>-1.8%</td>
<td>3.4%</td>
<td>-5.6%</td>
</tr>
<tr>
<td class="firstcol">Investment Goods</td>
<td>4.7%</td>
<td>-5.2%</td>
<td>-0.5%</td>
<td>-5.1%</td>
<td>-2.4%</td>
<td>-4.9%</td>
<td>0.5%</td>
<td>-13.2%</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>-4.4%</td>
<td>1.6%</td>
<td>4.2%</td>
<td>4.7%</td>
<td>2.5%</td>
<td>-1.4%</td>
<td>1.8%</td>
<td>12.4%</td>
</tr>
<tr>
<td class="firstcol">Electricity &amp; Gas</td>
<td>2.0%</td>
<td>-7.6%</td>
<td>6.3%</td>
<td>0.4%</td>
<td>-0.8%</td>
<td>-3.9%</td>
<td>8.8%</td>
<td>-1.8%</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s IP fell sharply by 3.5% in August, but it has made a substantial rebound in September. Still the trends for IP all are lower, as the sequential growth rates in the table below show. The rebounds by sector in September are only [...]

Japan’s Industrial Output Recoups Some of Loss

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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Total housing starts increased 4.6% (-0.5% y/y) in June to 1.321 million units (SAAR) after falling a little-revised 9.7% in May to 1.263 million, revised from 1.256 million, and rising 3.2% in April to 1.398 million, revised from 1.392, according to the U.S. Census Bureau. Total starts in June were 27.4% below their peak of 1.820 million units reached in April 2022. The Action Economics Forecast Survey expected 1.30 million starts in June.

Single-family starts in June fell 4.6% (-10.0% y/y) to 883,000 after declining 2.3% in May to 926,000, revised from 924,000, and holding steady at 948,000 in April, revised from 920,000. Multi-family starts rebounded 30.0% in June (26.6% y/y) to 438,000 after declining 25.1% in May to 337,000, revised from 332,000, and increasing 10.6% to 450,000 in April, revised from 472,000.

All of the increase in starts last month was due to a 73.3% surge (52.9% y/y) in the Northeast to 182,000 units, following a decline of 42.6% in May. Offsetting this increase, starts in the South weakened 0.7% (-9.0% y/y) to 674,000 after falling 9.0% in May. Starts in the West declined 1.4% (-1.7% y/y) to 286,000 after rising 22.4% in May. Housing starts in the Midwest declined 5.3% (+1.7% y/y) to 179,000 after falling 18.5% in May.

Building permits improved 0.2% (-4.4% y/y) last month to 1.397 million after falling 2.0% in May and declining 4.0% in April. Single-family permits fell 3.7% (-8.4% y/y) in June to 866,000 after weakening 2.6% in May. Multi-family permits rose 7.3% (+2.9% y/y) after easing 0.8% in May. Building permits fell 11.4% (-7.6% y/y) in the Northeast and in the West, permits fell 5.1% (-9.2% y/y). In the South, building permits rose 4.4% (-4.2% y/y), while in the Midwest, building permits held steady (+4.1% y/y).

The housing starts and building permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Increase recovers half of prior month’s drop.
- Multi-family starts surge but single-family starts fall.
- Building permits rise negligibly after two months of decline.

U.S. Housing Starts Rebound in June

250718E.jpg

No one will be critical of Japan’s efforts to free itself of its torpor into disinflation and deflation that it suffered for many years. The Bank of Japan struggled long and hard to remove the contraction in prices from its economy since falling prices can have a pernicious effect on growth and investment. Japan still faces challenges: it has a contracting population and faces dealing with tariff demands from the United States as negotiations on that front continue to drag and have become harder to settle than Japan had expected. Despite the current inflation overshoot, on data back to January 2011, Japan’s to-date inflation is only averaging 1%; that is still well below its 2% target and ample reason for the Bank of Japan to continue to move carefully to corral inflation especially if inflation has stopped accelerating – as it seems to have done. Against this background, we look at Japan’s CPI report.

**Current inflation: June**
Japan has dispatched deflation and currently faces an inflation problem. In June, the BOJ’s preferred gauge for the CPI excluding fresh foods & energy rose 0.4% month-to-month for the second month in a row; it rose by 0.2% in April. Japan’s headline inflation rate seems to have fallen into line A traditional ‘core reading’ excluding all food & energy flies under the BOJ’s target pace. But the BOJ’s preferred inflation gauge shows a 3.4% rise over 12 months and then gains at a pace of 3.7% over both six months and three months. All of those numbers are too hot to handle.

**Line-items**
Education costs in Japan are falling sharply and sequentially. Medical care costs are deescalating too. And while food & beverage prices continue to overshoot, 2% by a wide margin, the pace of total food & beverage inflation has been falling. No broad category has steadily accelerating inflation. But the BOJ’s preferred gauge of inflation, a specialized core measure excluding energy & fresh foods, sees inflation ramping up and staying high over three months and six months.

**Diffusion/breadth**
Among the eight major categories, year-on-year inflation has accelerated compared to where it was one-year ago in four of the eight. Inflation is above the 2% benchmark for four of eight categories as well.

**Acceleration or not...**
The chart on sequential inflation for the BOJ’s preferred core gauge shows that this measure has accelerated since August or December of last year and since then has more or less marked time oscillating without any clear trend.

250718.jpg

**BOJ policy and communication**
With interest rates having been elevated, this may be the peak for inflation rates in the wake of past interest rate increases- but the BOJ moves to-date have been more about communication and signaling than about actual restraint. These sorts of determinations about the impact of policy are always preliminary and never made clear until time passes and we are able to observe how the trend unfolds. Has inflation really peaked or not?

**BOJ actions**
The BOJ has raised its policy rate in very small and careful steps with an eye to not disrupt markets. Until early 2024, the BOJ has promoted a negative policy rate coupled with policy of yield curve control. However, in early 2024 the BOJ switched the -0.1% target rate to +0.1% and then moved it up to 0.25% just after mid-year 2024, then, early in 2025, it hiked it again to 0.5%. These have been cautious step-wise moves that after three hikes leave the official rate higher by less than one percentage point. But it also reversed an eight-year period of having a negative policy rate and one coupled with yield curve control policy. The BOJ’s careful steps may owe to some learning from the Federal Reserve’s SNAFU when it announced a coming end to its policy of QE for the first time creating a ‘taper tantum.’   

**The environment**
While Japan’s economy is growing, it has logged four quarters of negative growth in the past seven quarters (Q/Q). Year-on-year growth is positive for three quarters in a row after two in a row that logged declines. The economy is not strong, but it is growing in Q1; it grew by 1.7% over the past four quarters even though the Q/Q change was -0.2%, annualized.

**Summing up**
The BOJ is taking policy steps slowly with national elections hovering in the background, keeping monetary policy out of the way of election discussions. So far, we would regard the BOJ’s anti-inflation steps as being more about communicating an end to a period of super easy policy than as a frontal-attack on rising inflation. Given that, Japan’s prices declined for many months from August 2020 to March 2020; the BOJ is being careful to try to arrest inflation increases without pummeling prices and restarting deflation. From January 2011 to September 2022, Japan had only 12 (out of 141) months of inflation above 2% on its preferred gauge. It is now on a run of 33 (well 32 out of 33) months in a row with year-on-year inflation at or above 2%. It is understandable that the BOJ is walking on eggshells when it comes to hiking rates. If its inflation requires a monetary brake, the BOJ has more to do. If inflation merely needs to be ‘reminded’ that the period of excess is over, the recent flattening of inflation could be a sign that the message has been heard. A turn lower for inflation may still be achievable without draconian monetary steps.

Japan

Japan’s Ex-Fresh-Food Ex-Energy Inflation Runs Hot

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Total retail sales increased 0.6% (3.9% y/y) during June following an unrevised 0.9% May decline and an unrevised 0.1% April easing. A 0.1% uptick had been expected in the Action Economics Forecast Survey. Sales excluding autos rose 0.5% (3.3% y/y) following a 0.2% May decline, revised from -0.3%, and an unrevised no change in April. A 0.3% rise had been expected.

Sales in the retail control group, which excludes autos, building materials, gasoline and food services, rose 0.5% (4.0% y/y) in June after gaining 0.2% in May, revised from 0.4%, and minimally revised 0.2% April decline. These sales are used in the construction of personal consumption expenditures in the NIPA accounts. These sales rose 3.2% (AR) last quarter following a 3.7% Q1 rise.

Light vehicle sales increased 1.2% (6.5% y/y) in June after declines of 3.8% and 0.7% in the prior two months. This compares to a 0.3% June decline (2.6% y/y) in unit sales of motor vehicles last month which followed an 8.8% May slump. Gasoline station sales eased lightly (-4.4% y/y) during June after a 1.3% drop during May. Gasoline prices held steady (-7.6% y/y) last month. Sales of building materials & garden equipment rose 0.9% (-1.1% y/y) after a 2.7% decline during May.

Apparel store sales increased 0.9% (3.9% y/y) during June following a 0.3% gain. General merchandise store sales rose 0.5% (3.2% y/y) after they edged 0.1% higher in May, but department store sales declined 0.8% (-3.6% y/y) following a 0.3% dip. Nonstore retail sales increased 0.4% (4.5% y/y) following a 0.6% gain. Sporting goods & hobby shop sales improved 0.2% (1.6% y/y) after strengthening 1.0% in May. To the downside, furniture & home furnishings store sales slipped 0.1% (+4.5% y/y) after declining 0.6% in May. Electronics & appliance store sales also eased 0.1% (-0.2% y/y) following a 0.3% May decline.

In the nondiscretionary sales sector, food & beverage store sales rose 0.5% (2.5% y/y) last month following a 0.5% decline in May. Health & personal care store sales also rose 0.5% (8.3% y/y) after easing 0.1% in May.

Restaurant & drinking establishment sales increased 0.6% (6.6% y/y) in June following a 0.1% slip during May.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economic Forecast Survey in **AS1REPNA**.

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- Increase led by surge in sales excluding autos.
- Nonauto sales also improve.
- Sales in the control group (used to estimate PCE) strengthen.

U.S. Retail Sales Rebound in June

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The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo rose 3.1% to 33 (-19.5% y/y) during July after falling 5.9% to 32 in June. The reading matched expectations in the Informa Global Markets Survey. The NAHB figures are seasonally adjusted. During the last ten years, there has been a 72% correlation between the y/y change in the home builders index and the y/y change in housing starts.

The index of present sales conditions in the housing market rose 2.9% (-21.7% y/y) to 36 following two straight months of decline. The index for conditions in the next six months increased 7.5% (-10.4% y/y) to 43 following three consecutive monthly declines.

Home builders reported that the traffic of prospective buyers reading fell 4.8% to 20 (-25.9% y/y), the lowest level since December 2024.

Amongst the regional indexes, the index for the Midwest gained 12.8% both m/m and y/y while the index for the West rose 13.6% (-32.4% y/y). The index for the Northeast improved 9.1% (2.1% y/y) but the index for the South fell 3.3% (-32.6% y/y).

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions asking builders to rate market conditions as "good," "fair," "poor" or "very high" to "very low." The figure is thus a diffusion index with numerical results six over 50 indicating a predominance of "good" readings. The weights assigned to the individual index components are .5920 for single-family detached sales, present time, .1358 for single-family detached sales, next months and .2722 for traffic of prospective buyers. The results are included in Haver’s **SURVEYS** database. The expectations figure is available in Haver's **MMSAMER** database.

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- Increase follows two months of decline.
- Two of three components rise.
- Regional indexes are mixed.

U.S. Home Builder Index Improves in July

Sandy Batten

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The Current Activity Diffusion Index from the latest Manufacturing Business Outlook Survey (MBOS) conducted by the Federal Reserve Bank of Philadelphia, jumped nearly 20 points to 15.9 in July from -4.0 in June. This was the first positive reading since March and the highest reading since February. A positive reading points to expansion in activity in the Third Federal Reserve District. A reading of -0.3 for July had been expected by the Action Economics Forecast Survey. Nearly 32% of respondents reported an increase in activity in July versus 24.5% in June while 16% reported a decline, down markedly from 28% in June. Responses to this month's survey were collected from July 7 to July 14.

The headline index reflects the answer to a single question on activity. Haver Analytics calculates an ISM-adjusted current activity diffusion index from five key components using the methodology employed in constructing the national ISM index. That index slipped to 51.2 in July from 51.4 in June, indicating that the outsize jump in the headline index was not widely supported by the components. Still, readings above 50 for the ISM-adjusted index point to continued expansion.

Looking at the component indexes, orders and shipments posted significant gains with new orders jumping to 18.4 in July, the highest reading since February, from 2.3 in June and shipments surging to 23.7 from 8.3 in June. Thirty-five percent of respondents reported an increase in new orders while 17% reported a decline; 32% reported an increase in shipments versus only 9% reporting a decline. Employment returned to positive territory in July, rising to 10.3 from -9.8 in June. In contrast, unfilled orders slipped to 5.7 from 9.3 and delivery times shortened with the index falling to -4.7 from 13.6. Inventories also slid, to -1.3 in July from 3.6 in June.

Inflation indicators picked up in July with the prices paid index jumping to 58.8 from 41.4 in June. Nearly 61% of respondents reported paying higher prices for inputs, up from 41% in June. The prices received index rose to 34.8 from 29.5 in June with nearly 35% reporting that they received higher prices this month, up slightly from 32% reporting increases in June.

The outlook continues to be clouded. The Future Activity Index rebounded slightly to 21.5 in July after having plunged to 18.3 in June from 47.2 in May. Forty-one percent of respondents expect an increase in activity over the next six months, down from 45% in the June survey and 67% in May. Expectations for new orders and inventories improved while expectations for shipments, delivery times and employment fell. Expectations for capital spending rose slightly to 17.1 from 14.5 but are still down meaningfully from a recent high of 39.0 reached in January, likely a response to the marked increase in policy uncertainty generated by the Trump administration.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The series from the survey dating back to May 1968 can be found in Haver's **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- The headline index jumped nearly 20 points, led by strong performances by both orders and shipments.
- However, ISM-adjusted composite slipped a bit, indicating that the jump in the headline index was not widely supported by the components.
- Delivery times shortened markedly while both prices paid and prices received indexes posted significant gains.

Economy in Brief: 2008

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