Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040903b.jpg" width="353">
Nonfarm payrolls grew 144,000 last month following upwardly revised gains in both July &amp; June which averaged 84,500 each month. Consensus expectations had been for a 150,000 job gain in August.
The fall in the unemployment rate to 5.4% from the separate household survey continued to suggest moderate labor market improvement. Employment growth eased to 21,000 (1.4% y/y) following a 629,000 rise the prior month and the labor force fell 152,000 (+0.7% y/y). The labor force participation rate slipped back to 66.0% from 66.2% in July.
Hiring in private service producing industries recovered modestly last month with an 84,000 (1.7% y/y) gain versus an upwardly revised 45,000 July rise, however, these gains are a fraction of the growth during the prior several months. Hiring in the financial sector did recover 18,000 m/m (0.8% y/y), but jobs in information services fell 10,000 (-0.3% y/y) and another 11,300 (+0.8% y/y) retailing jobs were lost. Hiring in professional &amp; business services grew 32,000 (3.4% y/y) and temporary help services jobs rose 9,800 (8.9% y/y).
Factory sector payrolls grew 22,000 (0.1% y/y) following a downwardly revised gain in July. Construction sector hiring grew 15,000 (2.8% y/y).
The breadth of increase amongst private non-farm payrolls confirmed modest job growth at 54.5% versus an upwardly revised 54.9 in July. The three month diffusion index of hiring fell to 57.9 versus a high of 74.5 in May.
The index of aggregate hours worked (employment times hours worked) grew 0.2% following an upwardly revised 0.7% July rise. The index so far in the third quarter is 2.8% (AR) above 2Q which rose a revised 2.2% (AR) versus 1Q.
Average hourly earnings rose 0.3% (2.3% y/y) following an upwardly revised 0.4% July gain.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Aug</th>
<th scope="col">July</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">Payroll Employment</td>
<td>144,000</td>
<td>73,000</td>
<td>1.3%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>22,000</td>
<td>6,000</td>
<td>0.1%</td>
<td>-4.8%</td>
<td>-7.2%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.6</td>
<td>33.7</td>
<td>33.8</td>
<td>34.0</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.4%</td>
<td>2.3%</td>
<td>2.7%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.4%</td>
<td>5.5%</td>
<td>6.1%</td>
<td>6.0%</td>
<td>5.8%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
</body>
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Nonfarm payrolls grew 144,000 last month following upwardly revised gains in both July & June which averaged 84,500 each month. Consensus expectations had been for a 150,000 job gain in August. The fall in the unemployment rate to [...]

U.S. Job Growth Recovered Some, Unemployment Rate Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040903a.jpg" width="353">
The Business Activity Index for the non-manufacturing sector from the Institute for Supply Management slipped to 58.2 in August from 64.9 in July. Consensus expectations had been for a more moderate decline to 63.0.
Since the series&#39; inception in 1997 there has been a 60% correlation between the Business Activity Index and the q/q change in GDP services plus construction.
Despite the decline in the Business Index, the employment index recovered 2.5 points of the sharp 7.4 point July drop. Higher employment was reported by the same 18% of firms as in July. Since the series&#39; inception in 1997 there has been a 61% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
The new orders index slipped to 58.6 from the record high of 66.4 in July.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
The seasonally adjusted prices index fell to 70.0 versus 73.1 in July and the record high of 74.6 sin June.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>58.2</td>
<td>64.8</td>
<td>63.8</td>
<td>58.1</td>
<td>55.1</td>
<td>48.9</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>70.0</td>
<td>73.1</td>
<td>56.2</td>
<td>56.7</td>
<td>53.9</td>
<td>51.5</td>
</tr>
</tbody>
</table>


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The Business Activity Index for the non-manufacturing sector from the Institute for Supply Management slipped to 58.2 in August from 64.9 in July. Consensus expectations had been for a more moderate decline to 63.0. Since the series' [...]

ISM Nonmanufacturing Index Slipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040903b.jpg" width="353">
Nonfarm payrolls grew 144,000 last month following upwardly revised gains in both July &amp; June which averaged 84,500 each month. Consensus expectations had been for a 150,000 job gain in August.
The fall in the unemployment rate to 5.4% from the separate household survey continued to suggest moderate labor market improvement. Employment growth eased to 21,000 (1.4% y/y) following a 629,000 rise the prior month and the labor force fell 152,000 (+0.7% y/y). The labor force participation rate slipped back to 66.0% from 66.2% in July.
Hiring in private service producing industries recovered modestly last month with an 84,000 (1.7% y/y) gain versus an upwardly revised 45,000 July rise, however, these gains are a fraction of the growth during the prior several months. Hiring in the financial sector did recover 18,000 m/m (0.8% y/y), but jobs in information services fell 10,000 (-0.3% y/y) and another 11,300 (+0.8% y/y) retailing jobs were lost. Hiring in professional &amp; business services grew 32,000 (3.4% y/y) and temporary help services jobs rose 9,800 (8.9% y/y).
Factory sector payrolls grew 22,000 (0.1% y/y) following a downwardly revised gain in July. Construction sector hiring grew 15,000 (2.8% y/y).
The breadth of increase amongst private non-farm payrolls confirmed modest job growth at 54.5% versus an upwardly revised 54.9 in July. The three month diffusion index of hiring fell to 57.9 versus a high of 74.5 in May.
The index of aggregate hours worked (employment times hours worked) grew 0.2% following an upwardly revised 0.7% July rise. The index so far in the third quarter is 2.8% (AR) above 2Q which rose a revised 2.2% (AR) versus 1Q.
Average hourly earnings rose 0.3% (2.3% y/y) following an upwardly revised 0.4% July gain.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Aug</th>
<th scope="col">July</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">Payroll Employment</td>
<td>144,000</td>
<td>73,000</td>
<td>1.3%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>22,000</td>
<td>6,000</td>
<td>0.1%</td>
<td>-4.8%</td>
<td>-7.2%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.6</td>
<td>33.7</td>
<td>33.8</td>
<td>34.0</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.4%</td>
<td>2.3%</td>
<td>2.7%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.4%</td>
<td>5.5%</td>
<td>6.1%</td>
<td>6.0%</td>
<td>5.8%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040903a.jpg" width="353">
The Business Activity Index for the non-manufacturing sector from the Institute for Supply Management slipped to 58.2 in August from 64.9 in July. Consensus expectations had been for a more moderate decline to 63.0.
Since the series&#39; inception in 1997 there has been a 60% correlation between the Business Activity Index and the q/q change in GDP services plus construction.
Despite the decline in the Business Index, the employment index recovered 2.5 points of the sharp 7.4 point July drop. Higher employment was reported by the same 18% of firms as in July. Since the series&#39; inception in 1997 there has been a 61% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
The new orders index slipped to 58.6 from the record high of 66.4 in July.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
The seasonally adjusted prices index fell to 70.0 versus 73.1 in July and the record high of 74.6 sin June.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>58.2</td>
<td>64.8</td>
<td>63.8</td>
<td>58.1</td>
<td>55.1</td>
<td>48.9</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>70.0</td>
<td>73.1</td>
<td>56.2</td>
<td>56.7</td>
<td>53.9</td>
<td>51.5</td>
</tr>
</tbody>
</table>


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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040902f.jpg" width="353">
The German Federal Statistics Office and the Bundesbank today reported continuing lackluster labor market conditions in that nation. Employment in June edged down by 1,000, while unemployment rose in August by 24,000. The August unemployment rate for Germany as a whole held at July&#39;s 10.6% as the rate in West Germany ticked up to 8.6%, a new high in the current cycle. The rate in East Germany remained at 18.5% for a fourth straight month. 
About ten days ago in this space, Louise Curley described the labor reforms presently in process in Germany. She argued that these extensive structural changes, desirable though they are for the long-run health of the German economy, had likely been a restraint on domestic demand there in the second quarter. The still lower employment figures for June seem to underscore that tendency, and the behavior of the unemployment rates so far in the third quarter suggest that things have not improved much over the summer. One might take heart in the minimal size of the employment decrease in June and see it as a sign that jobs are stabilizing. In fact, some market forecasts had looked for a larger decline. At the same time, a larger forecast survey had pointed to a much smaller increase in August unemployment than occurred. This development, along with higher energy costs, makes it difficult to be optimistic about renewed vigor in the German economy anytime soon. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Jun 04</th>
<th scope="col">May 04</th>
<th scope="col">Jun 03 &nbsp;</th>
<th scope="col">M/M &nbsp;</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">Employment (thous, SA) &nbsp; </td>
<td>38204 &nbsp; </td>
<td>38205 </td>
<td>38293 </td>
<td>-1K &nbsp; </td>
<td>-89K &nbsp; </td>
<td>38316 &nbsp; </td>
<td>38699 &nbsp; </td>
<td>38923 &nbsp; </td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rates (%, SA)</td>
<td>Aug 04</td>
<td>Jul 04</td>
<td>Aug 03</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">All Germany &nbsp; </td>
<td>10.6</td>
<td>10.6</td>
<td>10.6</td>
<td>+24K*</td>
<td>+11K*</td>
<td>10.5</td>
<td>9.8</td>
<td>9.4</td>
</tr>
<tr class="odd">
<td class="firstcol">West Germany &nbsp; </td>
<td>8.6</td>
<td>8.5</td>
<td>8.4</td>
<td>+18K*</td>
<td>+26K*</td>
<td>8.4</td>
<td>7.7</td>
<td>7.2</td>
</tr>
<tr>
<td class="firstcol">East&nbsp; Germany &nbsp; </td>
<td>18.5</td>
<td>18.5</td>
<td>18.5</td>
<td>+6K*</td>
<td>-15K*</td>
<td>18.5</td>
<td>17.7</td>
<td>17.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The German Federal Statistics Office and the Bundesbank today reported continuing lackluster labor market conditions in that nation. Employment in June edged down by 1,000, while unemployment rose in August by 24,000. The August [...]

German Labor Market Remains in the Doldrums

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040902d.jpg" width="353">
Initial claims for unemployment insurance jumped 19,000 to 362,000 last week on the heels of a 10,000 rise the week prior. Roughly half of both week&#39;s increases were due to the impact of Hurricane Charley on claims in Florida, according to the Labor Department. The Consensus forecast had beenfor 335,000 claims.
The 4-week moving average of initial claims rose to 343,000 (-14.4% y/y).
Continuing claims for unemployment insurance fell 5,000 following a downwardly revised 5,000 decline the week prior.
The insured rate of unemployment remained at 2.3%, where it has hovered since the end of April.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">08/28/04</th>
<th scope="col">08/21/04</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">Initial Claims</td>
<td>362</td>
<td>343</td>
<td>-12.6%</td>
<td>399</td>
<td>403</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,882</td>
<td>-19.4%</td>
<td>3,516</td>
<td>3,564</td>
<td>2974</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance jumped 19,000 to 362,000 last week on the heels of a 10,000 rise the week prior. Roughly half of both week's increases were due to the impact of Hurricane Charley on claims in Florida, [...]

Initial Jobless Insurance Claims Again Raised Hurricane Charley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040902c.jpg" width="353">
Inventory accumulation in the factory sector is in high gear. Total inventories jumped 0.8% in July and the prior month&#39;s strong 0.7% gain was revised to 1.0%. Year to year growth of 3.9% is the strongest since early 2001.
Inventory accumulation has been widespread but notable amongst machinery (5.6% y/y) manufacturers as well as primary (5.9% y/y) &amp; fabricated metals (7.6% y/y) producers.
Unfilled orders again were strong rising 1.2% but the ratio of unfilled orders to shipments ticked up only slightly and remained well below the highs of 2001.
Factory orders surged 1.3% following an upwardly revised 1.2% gain in June. Durable goods orders jumped 1.6% versus the advance report of a 1.7% rise.Non-durable goods orders (which equal shipments) rose 1.0% (11.8% y/y).
Factory shipments surged 0.6% following an upwardly revised 1.1% jump in June. Excluding the transportation sector shipments added 1.3% (12.2% y/y) to the 1.2% June spike.

<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/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">July</th>
<th scope="col">June</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">Inventories</td>
<td>0.8%</td>
<td>1.0%</td>
<td>3.9%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>1.3%</td>
<td>1.2%</td>
<td>11.8%</td>
<td>3.7%</td>
<td>-1.9%</td>
<td>-6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.6%</td>
<td>1.1%</td>
<td>10.0%</td>
<td>2.6%</td>
<td>-2.0%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.2%</td>
<td>0.6%</td>
<td>9.8%</td>
<td>4.2%</td>
<td>-6.1%</td>
<td>-5.9%</td>
</tr>
</tbody>
</table>
</body>
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Inventory accumulation in the factory sector is in high gear. Total inventories jumped 0.8% in July and the prior month's strong 0.7% gain was revised to 1.0%. Year to year growth of 3.9% is the strongest since early 2001. Inventory [...]

Factory Inventories Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040902e.jpg" width="353">
Unit sales of light vehicles in August dropped 3.7% m/m to a 16.60M selling rate. Consensus expectations had been for sales of 17.0M.
Lower sales of both autos and light trucks pulled the total down. Auto sales fell 4.7% and truck sales fell 3.0%.
Domestic light vehicle sales fell 3.7% (-8.0% y/y) and imported vehicle sales dropped 3.7% (-5.5% y/y).
Imports&#39; share of the US market for new vehicles in August was stable at 19.1%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil.Units)</a></th>
<th scope="col">Aug</th>
<th scope="col">July</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>16.60</td>
<td>17.24</td>
<td>-7.5%</td>
<td>16.69</td>
<td>16.81</td>
<td>17.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.15</td>
<td>7.50</td>
<td>-8.8%</td>
<td>7.63</td>
<td>8.07</td>
<td>8.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.45</td>
<td>9.74</td>
<td>-6.6%</td>
<td>9.06</td>
<td>8.74</td>
<td>8.78</td>
</tr>
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Unit sales of light vehicles in August dropped 3.7% m/m to a 16.60M selling rate. Consensus expectations had been for sales of 17.0M. Lower sales of both autos and light trucks pulled the total down. Auto sales fell 4.7% and truck [...]

U.S. Light Vehicle Sales Fell in August

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Non-farm labor productivity growth last quarter was revised lower to 2.5% from 2.9% estimated last month. Consensus expectations for 2.7% growth.
The downward revision reflected slower output growth, now set at 3.5% (5.8% y/y) versus 3.8% estimated earlier. Growth in hours worked by all persons (employment times hours) was revised up slightly to 1.0% 91.2% y/y) from 0.8%.
Despite the revision to productivity, growth in unit labor costs was revised down slightly to a still-elevated 1.8% from 1.9%. Compensation growth was lowered to 4.3% from 4.9%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040902a.jpg" width="353">
In the nonfinancial corporate sector, productivity grew just 1.4% (3.9% y/y) following a slim 0.2% gain in 1Q and 6.6% growth in 2003. Compensation grew 4.0% (4.1% y/y). Slower productivity growth raised unit labor costs by 2.6% (0.2% y/y) following a 2.1% gain in 1Q and several quarters of decline. During the last ten years there has been an inverse 87% correlation between the y/y growth unit labor costs and the growth in nonfinancial corporate profits.
Productivity in the manufacturing sector was revised lower to 6.9% (5.8% y/y) from 7.5%. Unit labor costs in the factory sector were, however, revised to a 3.5% (-2.5% y/y) decline versus the 2.2% reported initially.

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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;04 (Revised)</th>
<th scope="col">2Q &#39;04 (Prelim)</th>
<th scope="col">1Q &#39;04 (Final)</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">Output per Hour</td>
<td>2.5%</td>
<td>2.9%</td>
<td>3.7%</td>
<td>4.6%</td>
<td>4.5%</td>
<td>4.3%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>4.3%</td>
<td>4.9%</td>
<td>4.0%</td>
<td>4.2%</td>
<td>4.0%</td>
<td>3.2%</td>
<td>4.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.8%</td>
<td>1.9%</td>
<td>0.3%</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>1.5%</td>
</tr>
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Non-farm labor productivity growth last quarter was revised lower to 2.5% from 2.9% estimated last month. Consensus expectations for 2.7% growth. The downward revision reflected slower output growth, now set at 3.5% (5.8% y/y) versus [...]

U.S. Productivity & Unit Labor Cost Growth Revised Down, Corporate Costs Up

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.

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**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).

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**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.

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**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.

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**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.

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**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

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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.

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Europe

Industrial Sector Remains Under Pressure in EMU

Winnie Tapasanun

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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.

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- 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

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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.

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- 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

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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.

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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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U.S. Job Growth Recovered Some, Unemployment Rate Fell

ISM Nonmanufacturing Index Slipped

U.S. Job Growth Recovered Some, Unemployment Rate Fell

German Labor Market Remains in the Doldrums

Initial Jobless Insurance Claims Again Raised Hurricane Charley

Factory Inventories Up

U.S. Light Vehicle Sales Fell in August

U.S. Productivity & Unit Labor Cost Growth Revised Down, Corporate Costs Up