Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031103c.jpg" width="353">
The PMI index for the manufacturing sector of the Euro-zone rose for the fourth consecutive month in October. Moreover, the index was above 50 in September and October. A reading above 50 means that activity in the manufacturing sector is in an expansionary phase whereas a reading below 50 means that business is in a contractionary phase.
The PMI index tends to lead the manufacturing sector of the Industrial Production index.
Although the data suggest that the area, as a whole, is only in the early stages of expansion, indexes, available* for France, Germany, Italy, Ireland, the Netherlands, Austria, Spain and Greece, show that the move to an expansionary stage is widespread. The indexes for Greece, Austria and Spain declined slightly in October, but they remained above the 50 mark.

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<th scope="col" class="firstcol">Purchasing Managers Survey</th>
<th scope="col">AUG 2003</th>
<th scope="col">JULY 2003</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro-zone</td>
<td>51.32</td>
<td>50.09</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>50.96</td>
<td>48.60</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>51.18</td>
<td>20.22</td>
</tr>
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<td class="firstcol">Italy</td>
<td>51.79</td>
<td>49.79</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td>51.43</td>
<td>51.31</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>52.40</td>
<td>50.44</td>
</tr>
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<td class="firstcol">Spain</td>
<td>50.28</td>
<td>50.69</td>
</tr>
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<td class="firstcol">Austria</td>
<td>54.31</td>
<td>54.41</td>
</tr>
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<td class="firstcol">Greece</td>
<td>50.21</td>
<td>51.36</td>
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The PMI index for the manufacturing sector of the Euro-zone rose for the fourth consecutive month in October. Moreover, the index was above 50 in September and October. A reading above 50 means that activity in the manufacturing [...]

More Indicators of Optimism in the Euro-zone

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031103a.jpg" width="353">
The Purchasing Managers&#146; Composite Index (PMI) released by the Institute of Supply Management rose more than expected to 57.0 in October from 53.7 in September. Consensus expectations were for a reading of 55.5.
During the last twenty years there has been a 63% correlation between the level of the PMI Composite Index and quarterly growth in real GDP.
The index for new orders (64.3) surged nearly four points to the highest level since 1994. The production index (62.6) jumped more than five points to the highest level since 1997.
The employment index (47.7) rose moderately to the highest level this year. This index has not been above 50, the dividing line between rising and falling payrolls, since September 2000. There has been a 71% correlation during the last ten years between the ISM employment index and the one-month change in factory sector payrolls.
The prices paid index rose last month to 58.5. There has been a 28% correlation between the prices paid index and the y/y change in the finished goods PPI over the last ten years. The correlation with the intermediate materials PPI has been a higher 62%.
A report from the Federal Reserve Bank of San Francisco asking &quot;Is Our IT Manufacturing Edge Drifting Overseas?&quot; can be found <a href="http://www.frbsf.org/publications/economics/letter/2003/el2003-30.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> Oct &#39;03</th>
<th scope="col">Sep &#39;03</th>
<th scope="col">Oct &#39;02</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Composite Index</td>
<td>57.0</td>
<td>53.7</td>
<td>49.7</td>
<td>52.4</td>
<td>44.0</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>64.3</td>
<td>60.4</td>
<td>52.2</td>
<td>56.7</td>
<td>46.2</td>
<td>52.0</td>
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<td class="firstcol">Prices Paid Index (NSA)</td>
<td>58.5</td>
<td>56.0</td>
<td>59.5</td>
<td>57.6</td>
<td>42.9</td>
<td>64.8</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Strong 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 3, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031103b.jpg" width="353">
The value of total construction put in place jumped 1.3% in September and prior months&#39; figures were revised up sharply due to raised figures for private sector building. A 0.3% gain had been expected by the Consensus.
Private residential building activity surged 1.4% following strong gains in the prior two months. The gain was led by a 2.0% (15.9% y/y) jump in single family home building.
Nonresidential building activity recovered 2.5% following a 1.5% August drop that was revised shallower from the initial report. Office building activity rose 1.7% (-13.7% y/y) but it has moved in a tight, depressed range for all of this year. Commercial construction slumped 1.5% (+0.1% y/y) and gave back all of the strong gains in the prior two months.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total</td>
<td>1.3%</td>
<td>0.7%</td>
<td>6.5%</td>
<td>1.1%</td>
<td>2.7%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>1.7%</td>
<td>0.7%</td>
<td>7.6%</td>
<td>-0.2%</td>
<td>1.4%</td>
<td>8.0%</td>
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<td class="firstcol">&nbsp; Residential</td>
<td>1.4%</td>
<td>1.7%</td>
<td>10.7%</td>
<td>8.6%</td>
<td>3.3%</td>
<td>7.4%</td>
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<td class="firstcol">&nbsp; Nonresidential</td>
<td>2.5%</td>
<td>-1.5%</td>
<td>1.5%</td>
<td>-13.0%</td>
<td>-1.3%</td>
<td>8.9%</td>
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<td class="firstcol">Public</td>
<td>0.0%</td>
<td>0.8%</td>
<td>3.1%</td>
<td>5.3%</td>
<td>7.4%</td>
<td>9.5%</td>
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The Purchasing Managers Composite Index (PMI) released by the Institute of Supply Management rose more than expected to 57.0 in October from 53.7 in September. Consensus expectations were for a reading of 55.5. During the last twenty [...]

ISM Factory Index Higher, Orders Strong

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/031031d.jpg" width="353">
Earlier this week, we described improving business confidence in several European countries, especially Germany and the Netherlands. Indeed, this trend seems to prevail in much of Europe, as the EC&#39;s gauge of the &quot;business climate&quot; for October sees its best reading since May 2001. Again, the &quot;improvement&quot; is relative, as the indicator remains negative, but considerably less than anytime in the last two years. Even so, every major sector of business participated in the October move. Confidence gained outright in services, to +9 from +7 in September. The other divisions all showed smaller negative values, with industry up to -8 from -9. retailing to -10 from -12 and construction to -21 from -23.
At the same time, consumer confidence looks to have stalled out. That measure fell steeply from last October through March, bottoming out at -21; it has struggled to pull up since then. For the last three months, it has been stuck at -17, which apart from the first seven months this year, is itself the worst reading since several months at -18 in 1996. The recent flat pattern results from a mildly favorable trend in people&#39;s expectations for the overall economic situation and unemployment, offset by modest deteriorations in their general financial condition and their outlook for savings.
Perhaps a link between these mixed results for business and consumer confidence can be found in similarly mixed readings for employment prospects among businesses. Retailing executives said their expectations for employment sagged in October back to -4 from an improved -1 in September. Construction looked to be a bit better, climbing to -14 from -16. Finally service industries saw current employment conditions fall to 0 from +2 and prospects drop to -7 from -3. These lackluster assessments of the job market from those doing the hiring support consumers&#39; skepticism about their own financial condition, even as they look for unemployment to become a less severe drag. 

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<th scope="col" class="firstcol">Euro-Zone Confidence Indicators</th>
<th scope="col">Oct 2003</th>
<th scope="col">Sept 2003</th>
<th scope="col">Oct 2002</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Euro-Zone Business Climate</td>
<td>-0.18</td>
<td>-0.42</td>
<td>-0.32</td>
<td>-0.50</td>
<td>-0.17</td>
<td>+1.37</td>
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<tr>
<td class="firstcol">Euro-Zone Consumer Confidence (% Balance)</td>
<td>-17</td>
<td>-17</td>
<td>-12</td>
<td>-11</td>
<td>-5</td>
<td>1</td>
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Earlier this week, we described improving business confidence in several European countries, especially Germany and the Netherlands. Indeed, this trend seems to prevail in much of Europe, as the EC's gauge of the "business climate" [...]

Business Confidence Improves in Europe, but Consumers Remain Wary

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031031a.jpg" width="353">
Personal disposable income fell 1.0% (+4.4% y/y) in September, reversing all of the 1.0% jump the prior month. The decline occurred as the mailing of rebate checks subsided and personal tax payments rose. Tax payments in September still were below the June level.
A report titled &quot;Earnings Inequality and Earnings Mobility in the U.S.&quot; from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2003/el2003-28.html"> here</a>.
Wages and salaries rose just 0.1% (1.8% y/y) following an upwardly revised 0.2% August gain. During the last twenty years there has been a 73% correlation between the y/y growth in wages and the growth in personal consumption expenditures.
Consumer spending fell a greater than expected 0.3% (5.8% y/y) as personal spending on durable goods slumped 5.1% (+6.1% y/y). Sales of light vehicles fell 12.0% m/m to 16.59M units. Spending on nondurable goods rose 0.3% (7.8% y/y) and services spending rose 0.4% (4.8% y/y).
The PCE price deflator gained 0.2%. Less food and energy prices rose 0.1% (1.2% y/y) for the second month. The durables&#39; price deflator fell 0.5% (-3.7% y/y) and continued a slide that began in early 1995. Nondurables prices rose 0.6% (2.3% y/y) for the second month and services prices rose 0.2% (3.0% y/y).
Research from the Federal Reserve Bank of New York &quot;On Both Sides of the Quality Bias in Price Indexes&quot; is available <a href="http://www.newyorkfed.org/research/staff_reports/sr157.pdf"> here</a>.
The savings rate fell to 2.9% as disposable income fell.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM"> Disposition of Personal Income</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
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<td class="firstcol">Personal Income</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.2%</td>
<td>2.7%</td>
<td>3.3%</td>
<td>8.0%</td>
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<tr>
<td class="firstcol">Personal Consumption</td>
<td>-0.3%</td>
<td>1.1%</td>
<td>5.8%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>2.9%</td>
<td>3.5%</td>
<td>4.0%</td>
<td>3.7%</td>
<td>2.3%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">PCE Price Deflator</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>2.5%</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 31, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031031b.jpg" width="353">
The Chicago Purchasing Managers Business Barometer for October rose to 55.0 from 51.2 in September. The rise matched Consensus expectations for a reading of 55.0.
Most of the component indexes recovered from the declines of a month earlier. Production (62.0) and orders (59.2) were strong and employment (53.1) rose to the highest level since January 2000.
During the last twenty years there has been a 57% correlation between the level of the Chicago PMI and quarterly growth in real GDP.
The index of prices paid jumped to 61.5, the highest level since March.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM"> Chicago Purchasing Managers Index, SA</a></th>
<th scope="col"> Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
<tbody>
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<td class="firstcol">Business Barometer</td>
<td>55.0</td>
<td>51.2</td>
<td>46.1</td>
<td>52.7</td>
<td>41.4</td>
<td>51.8</td>
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<td class="firstcol">&nbsp; New Orders</td>
<td>59.2</td>
<td>53.2</td>
<td>51.3</td>
<td>56.3</td>
<td>42.3</td>
<td>53.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>61.5</td>
<td>51.8</td>
<td>63.8</td>
<td>56.9</td>
<td>50.4</td>
<td>65.6</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Up As Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 31, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031031c.jpg" width="353">
The University of Michigan&#146;s consumer sentiment index rose for the full month of October to 89.6 versus 87.7 in September. That reading was marginally better than the mid-month reading of 89.4 and Consensus expectations for 89.5.
The m/m increase was comparable to the gain in the Conference Board&#39;s Index of Consumer Confidence.
During the last ten years there has been a 70% correlation between the level of consumer sentiment and the y/y change in real PCE.
The current conditions index rose to a revised 99.9 from 98.4 in September. The expectations index rose to 83.0 from 80.8. Mid month, the current conditions index was reported at 102.2, and the expectations index was reported at 81.2.
The University of Michigan survey is not seasonally adjusted.It is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM"> University of Michigan</a></th>
<th scope="col"> &nbsp;Oct</th>
<th scope="col"> Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
<tbody>
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<td class="firstcol">Consumer Sentiment</td>
<td>89.6</td>
<td>87.7</td>
<td>89.3</td>
<td>11.2%</td>
<td>89.6</td>
<td>89.2</td>
<td>107.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>99.9</td>
<td>98.4</td>
<td>99.7</td>
<td>8.1%</td>
<td>97.5</td>
<td>100.1</td>
<td>115.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>83.0</td>
<td>80.8</td>
<td>82.5</td>
<td>13.5%</td>
<td>84.6</td>
<td>82.3</td>
<td>102.7</td>
</tr>
</tbody>
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Personal disposable income fell 1.0% (+4.4% y/y) in September, reversing all of the 1.0% jump the prior month. The decline occurred as the mailing of rebate checks subsided and personal tax payments rose. Tax payments in September [...]

U.S. After Tax Income Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031030a.jpg" width="353">
The US economy grew at a 7.2% annual rate last quarter, the fastest since early 1984. Consensus expectations had been for 6.0% growth.
Domestic final demand jumped at a 6.6% rate, the fastest since 3Q97, led by a 15.4% (6.0% y/y) spike in business investment in equipment &amp; software. Residential investment also surged at a 20.4% rate (11.5% y/y).
Consumer spending grew at a 6.6% (3.5% y/y) rate while government spending slowed to a 1.3% (3.7% y/y) rate of gain.
Inventories and foreign trade had roughly offsetting effects on GDP growth last quarter. Continued inventory decumulation subtracted 0.7 percentage points but improvement in the net exports added 0.8 percentage points to GDP growth. Exports jumped at a 9.3% rate (0.1% y/y), outpacing imports which rose at just a 0.1% (2.3% y/y) rate.
Inflation picked up somewhat to 1.8% last quarter due to higher energy prices which boosted growth in the PCE price deflator to a 2.4% growth rate. The price index for domestic final demand grew at a 1.9% rate (1.9% y/y).
A report from the Federal Reserve Bank of St. Louis titled &quot;The Less Volatile U.S. Economy&quot; is available <a href="http://research.stlouisfed.org/publications/net/20031001/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM"> Chained &#39;96 $, % AR</a></th>
<th scope="col"> 3Q&#39;03 (Advance)</th>
<th scope="col">2Q&#39;03</th>
<th scope="col"> Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>7.2%</td>
<td>3.3%</td>
<td>&nbsp;3.3%</td>
<td>2.4%</td>
<td>0.3%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.7%</td>
<td>-0.7%</td>
<td>-0.5%</td>
<td>0.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>7.8%</td>
<td>4.0%</td>
<td>3.8%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>0.8%</td>
<td>-1.3%</td>
<td>-0.1%</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>-0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>6.6%</td>
<td>5.1%</td>
<td>3.9%</td>
<td>2.4%</td>
<td>1.6%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Deflator</td>
<td>1.8%</td>
<td>1.0%</td>
<td>1.7%</td>
<td>1.1%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 30, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031030b.jpg" width="353">
Initial claims for jobless insurance fell 5,000 to 386,000 last week. The modest decline reported initially for last week was revised to a slight increase. Consensus expectations had been for claims of 385,000.
The four-week moving average of initial claims fell to 388,750 (-5.9% y/y).
Continuing claims for unemployment insurance rose 57,000 but the 84,000 decline initially reported for the prior week was deepened to a decline of 116,000.
The insured rate of unemployment was stable at 2.8%.

<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">10/25/03</th>
<th scope="col">10/18/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>386.0</td>
<td>391.0</td>
<td>-7.2%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,566</td>
<td>-0.4%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
Employment Cost Index Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 30, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031030c.jpg" width="353">
The employment cost index for workers in private industry rose 1.0% last quarter. That pulled the y/y rate of growth in compensation to 4.0%, a recovery from the weak 3.2% y/y growth at year end 2002.
Benefit costs again paced the gain in total compensation, up 1.4% (6.5% y/y). Growth in blue-collar benefit costs surged 1.3% q/q and were up 7.3% y/y. That was led by a 1.6% gain in factory sector benefits, up 8.6% y/y.
Wages and salaries, which account for roughly 70% of the compensation index, rose 0.9% (3.0% y/y). Wage growth in blue-collar occupations has decelerated to 2.6% y/y from 4.0% in early 2001. Wage growth in white-collar occupations was 3.3% y/y last quarter versus 4.5% in early 2001.

<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/@EB08/@EB08.HTM"> ECI- Private Industry Workers</a></th>
<th scope="col">3Q&#39;03</th>
<th scope="col">2Q&#39;03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>1.0%</td>
<td>0.8%</td>
<td>4.0%</td>
<td>3.2%</td>
<td>4.2%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.9%</td>
<td>0.6%</td>
<td>3.0%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>1.4%</td>
<td>1.3%</td>
<td>6.5%</td>
<td>4.7%</td>
<td>5.1%</td>
<td>5.6%</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Still Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 30, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031030d.jpg" width="353">
The Conference Board&#146;s National Index of Help-Wanted Advertising remained at 37 last month, the midpoint of a depressed range of readings in place since March.
During the last ten years there has been a 93% correlation between the level of help-wanted advertising and the year-to-year change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume fell to 41% from an upwardly revised August reading of 49%.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col"> Sept</th>
<th scope="col">Aug</th>
<th scope="col">Sept &#39;02</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>37</td>
<td>37</td>
<td>43</td>
</tr>
</tbody>
</table>
</body>
</html>

The US economy grew at a 7.2% annual rate last quarter, the fastest since early 1984. Consensus expectations had been for 6.0% growth. Domestic final demand jumped at a 6.6% rate, the fastest since 3Q97, led by a 15.4% (6.0% y/y) [...]

3Q U.S. GDP Growth Surged To 7.2%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031029c.jpg" width="353">
Producer price inflation is generally weak, and even weakening in some countries. Those reporting September data today, Canada and South Africa, both show outright declines year-on-year for September, that is, deflation in wholesale prices.
In Canada, this is the continuation of a trend that has run through the overall industrial price index since April and in the segment excluding petroleum and coal products since March. A pick-up in industrial price inflation that developed in the summer of 2002 has been erased as prices turned lower for electronics, transport equipment, machinery, metal products and some foods.
In South Africa, production prices accelerated rapidly throughout 2002, but have slowed progressively this year. Food and metals and metal products are the main sources of the slowdown. In addition, it appears that the South African PPI has responded to swings in the Rand currency. A nominal effective exchange rate compiled by the South African Reserve Bank had declined sharply from late 2001 through much of last year; it then turned significantly higher beginning in November 2002 and has climbed gradually but persistently since then, relieving upward pressure on import prices. 
US PPI data are shown in the table below for comparison. As noted here when the September data were released, food and energy prices lifted the total index, but the so-called &quot;core rate&quot; has changed very little. With Canada, it shares weakness in car and truck prices and machinery as restraints on wholesale price inflation.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Percent Changes *</th>
Year/Year
Dec/Dec
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sept</td>
<td>Aug</td>
<td>July</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">Canada Industrial Prices, All Commodities </td>
<td>-2.6 </td>
<td>-1.9 </td>
<td>-1.6 </td>
<td>2.8</td>
<td>-2.4 </td>
<td>3.5 </td>
</tr>
<tr class="odd">
<td class="firstcol">Canada Industrial Prices, excluding Petroleum &amp; Coal Products </td>
<td>-2.9 </td>
<td>-2.4 </td>
<td>-2.0 </td>
<td>1.8 </td>
<td>-0.3 </td>
<td>1.6 </td>
</tr>
<tr>
<td class="firstcol">South Africa Production Price Index</td>
<td>-1.0 </td>
<td>0.2 </td>
<td>1.5 </td>
<td>12.4 </td>
<td>8.4 </td>
<td>10.2 </td>
</tr>
<tr class="odd">
<td class="firstcol">US Producer Price Index, Total Finished Goods </td>
<td>3.5 </td>
<td>3.4 </td>
<td>3.0 </td>
<td>1.2 </td>
<td>-1.6 </td>
<td>3.6 </td>
</tr>
<tr>
<td class="firstcol">US PPI, Finished Goods excluding Food &amp; Energy</td>
<td>0.1</td>
<td>0.4</td>
<td>0.2</td>
<td>-0.5</td>
<td>0.9</td>
<td>1.3</td>
</tr>
</tbody>
</table>


</html>

Producer price inflation is generally weak, and even weakening in some countries. Those reporting September data today, Canada and South Africa, both show outright declines year-on-year for September, that is, deflation in wholesale [...]

Producer Prices Weak and Weaker in Canada, South Africa

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031029a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association fell 0.5% (-28.7% y/y) last week following the slight 0.5% uptick the week prior.
Purchase applications fell a sharp 5.7% following the 7.5% rise the prior week. Purchase applications last week were up 7.5% y/y but the level so far in October is down 5.6% versus September.
During the last ten years there has been a 53% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Applications to refinance rose 4.9% and gained back most of the prior week&#39;s decline. Applications to refinance are down 45.5% y/y and the level so far in October is down 3.9% versus September.
The effective interest rate on a conventional 30-Year mortgage fell sharply w/w to 6.11%. The effective rate on a 15-year mortgage also fell w/w to 5.50%.
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 accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.
The Federal Reserve Bank of San Francisco&#39;s Economic Letter titled &quot;Mortgage Refinancing&quot; is available <a href="http://www.frbsf.org/publications/economics/letter/2003/el2003-29.html"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><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">10/24/03</th>
<th scope="col">10/17/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>649.6</td>
<td>652.8</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>363.9</td>
<td>386.1</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,311.8</td>
<td>2,204.1</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Fell Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 29, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031029b.jpg" width="353">
Chain store sales fell a sharp 0.9% last week following little change during the week prior, according to the BTM-UBSW survey.
So far in October sales are down 0.6% from the September average which fell 0.8% versus August.
During the last five years there has been a 61% correlation between the year-to-year percent change in the BTM-UBSW measure of chain store sales and the change in non-auto retail sales less gasoline.
The BTM-UBSW retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<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/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">10/25/03</th>
<th scope="col">10/18/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>418.4</td>
<td>422.0</td>
<td>5.8%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The index of mortgage applications compiled by the Mortgage Bankers Association fell 0.5% (-28.7% y/y) last week following the slight 0.5% uptick the week prior. Purchase applications fell a sharp 5.7% following the 7.5% rise the [...]

Mortgage Applications Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031028a.jpg" width="353">
Recent indicators of business confidence for three countries of the Eurozone suggest business men are becoming more optimistic.
Business confidence in West Germany rose sharply in October. The IFO index was up 2.39% from September and 7.66% from October of last year. Although the rise in confidence in East Germany was only 0.67% in October, it was 7.06% above October 2002. In both cases, the indexes of confidence were the highest since March, 2001.
In the Netherlands confidence among producers also improved in October. The balance of opinion rose from a negative 4.8% to a negative 3.0%. The balance, however, was 0.6 percentage points below a October, 2002.
In Italy, although the ISAE business confidence index (1995=100) declined slightly in September and in October, the level of confidence is only 0.74% below the high of 95 reached in August of this year and is well above the low point of 90.3 reached in March, 2003.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Confidence</th>
<th scope="col">OCT 2003</th>
<th scope="col">SEP 2003</th>
<th scope="col">OCT 2002</th>
<th scope="col"> M/M&nbsp; %</th>
<th scope="col">Y/Y&nbsp; %</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">West Germany (1991=100)</td>
<td>94.2</td>
<td>92.0</td>
<td>87.5</td>
<td>2.39</td>
<td>7.66</td>
<td>89.0</td>
<td>89.8</td>
<td>99.3</td>
</tr>
<tr>
<td class="firstcol">East Germany (1991=100)</td>
<td>104.7</td>
<td>104.0</td>
<td>97.8</td>
<td>.067</td>
<td>7.06</td>
<td>98.6</td>
<td>101.4</td>
<td>106.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands (%balance)</td>
<td>-3.0</td>
<td>-4.8</td>
<td>-2.4</td>
<td>1.8</td>
<td>-0.6</td>
<td>-1.6</td>
<td>-1.1</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">Italy (1995=100</td>
<td>94.3</td>
<td>94.6</td>
<td>95.0</td>
<td>-0.32</td>
<td>-0.74</td>
<td>94.0</td>
<td>91.9</td>
<td>106.4</td>
</tr>
</tbody>
</table>
Japanese Retail Sales Extend Hesitant Improvement 
by <a href="/comment/Stone.html">Carol Stone</a> October 28, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031028b.jpg" width="353">
Japanese retail sales continued their erratic progress in September, as reported today by the Ministry of Economy, Trade and Industry.
Total retail sales held steady in September after August&#146;s 2.8% rise. The year/year decline eroded a bit from August, but still generally extended the stabilizing trend thathas been in place for about a year.
More notably this month, some individual sectors showed clearer firming tendencies. &#147;Fabric, apparel and accessories&#148; outlets continued a rising trend that began in January; it&#146;s not strong, but those stores are at least seeing steady sales instead of the persistent erosion that had gone on for at least 10 years. Motor vehicle dealers have fared better than that all along, but in particular in the last few months, they rebounded from a sinking spell back in the spring. Household &#147;equipment&#148; sales have similarly advanced, and in September held above year ago levels for a second straight month. These are the first two months of positive year-on-year results since March 2001. 
Several days ago in this space we described an &#147;improving&#148; performance in October consumer confidence in Japan. The &#147;pessimism gap&#148;, as we termed it, is narrowing. These September sales figures suggest that people are tending to act on their better expectations by spending money on such major items as vehicles and household appliances. This would seem a good omen for further recovery, particularly if the stock market there is able to hold to its recent higher range.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;Percent Changes </th>
Month/ Month *
Year/Year **
<h2>Dec/Dec </h2>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sept</td>
<td>Aug</td>
<td>Sept</td>
<td>Aug</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">Retail Sales, Total </td>
<td>0.0 </td>
<td>2.8 </td>
<td>-2.2 </td>
<td>-2.1 </td>
<td>-3.3 </td>
<td>-5.9 </td>
<td>-1.1 </td>
</tr>
<tr class="odd">
<td class="firstcol">Fabric, apparel &amp; accessories </td>
<td>1.92 </td>
<td>-2.23 </td>
<td>-7.9 </td>
<td>-4.4 </td>
<td>-13.8 </td>
<td>-3.0 </td>
<td>-6.6 </td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles </td>
<td>5.4 </td>
<td>4.4 </td>
<td>1.9 </td>
<td>-3.1 </td>
<td>1.8 </td>
<td>-7.6 </td>
<td>11.1 </td>
</tr>
<tr class="odd">
<td class="firstcol">Household machinery/equipment </td>
<td>-0.7 </td>
<td>11.4 </td>
<td>1.8 </td>
<td>0.7 </td>
<td>-5.3 </td>
<td>-9.8 </td>
<td>0.5 </td>
</tr>
</tbody>
</table>


</html>

Recent indicators of business confidence for three countries of the Eurozone suggest business men are becoming more optimistic. Business confidence in West Germany rose sharply in October. The IFO index was up 2.39% from September and [...]

Businessmen Becoming More Optimistic in Germany, the Netherlands and in Italy

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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Tian Yong Woon

In this week's Letter, we examine the underbelly of the AI boom, the risks that sit beneath its optimism. Start with the public mood: American concern about AI has grown alongside adoption over the past three to four years (chart 1). Those worries span mass job displacement, misuse of top-end models by bad actors, and fears of being left behind. The first of these is already surfacing: in June, AI was again the most cited reason for announced US layoffs, with year-to-date AI-linked cuts above 100,000 (chart 2). Technology led all sectors in overall cuts, though the data do not isolate how many were AI-driven. Among those hit, the young are arguably the most exposed to these labour effects. They enter a labour pool swollen by displaced professionals, just as AI masters the entry-level tasks where they would start. India and Indonesia illustrate the stakes on youth NEET, the share not in education, employment, or training, both above 20% and among Asia's highest (chart 3). Beyond the labour market, the same optimism reshapes asset prices. The rally has lifted AI-related valuations to historic highs and concentrated a few names in cap-weighted indexes (chart 4). That raises correlation and the risk of a sharper index fall should the rally unravel. The same concentration runs through economies via exports, from Taiwan's advanced chips to South Korea's memory (chart 5). Its footprint is physical too, and cuts both ways: data-centre investment has lifted growth in Johor, Malaysia (chart 6) while straining local power and water. None of this argues against riding the AI wave, which still promises real productivity and welfare gains. Rather, these are caveats that investors and policymakers must keep in view, since the story is not all upside.

**AI-related concerns**
AI adoption has exploded over the past three to four years, and Americans' concerns have risen alongside it (chart 1). That is understandable, given how advanced and broad AI's proven applications have become. They now span everyday tasks and subject-specific work across fields such as finance and production, as well as tech and development, the sector AI was born in. Major concerns run from mass AI-induced job displacement to a more recent fear, that top-end models fall into the wrong hands and are used by bad actors. A further worry is distributional: AI advances are powerful and could deliver leaps in productivity, yet they may also leave many people behind. Those most exposed include workers already displaced from their jobs and people facing scarcer basic resources as AI demand competes for them. Others simply lack equitable access to AI tools or their benefits.

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**AI-driven job displacement**
Some of the fears US workers first had about AI-driven job displacement are already playing out. In June, AI was again the most cited reason for announced job cuts in the US (chart 2). That pushed year-to-date job cuts attributed to AI above 100,000, more than half of all AI-tagged cuts since AI became a selectable reason in 2023. The data come from the latest survey by Challenger, Gray & Christmas. This likely reflects AI's disproportionately heavy impact on certain industries such as technology, which again led all sectors in cuts. At the same time, announced hiring plans stayed subdued, leaving laid-off workers with limited opportunities to find new roles. All of this is occurring even as market valuations remain elevated on the broader wave of AI optimism.

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**AI and youth unemployment**
Arguably among those bearing the brunt of these labour-related effects are the youth. Many have graduated on a curriculum built largely for a pre-AI era. They now enter a labour pool swollen by experienced professionals whom AI has displaced. At the same time, AI is proving especially capable at the entry-level tasks on which young workers usually start. An elevated youth unemployment rate only intensifies the competition young people face for gainful employment. On the broader NEET measure, which also captures youth who are neither working nor studying, India and Indonesia stand out. On the latest available WDI data, both have youth NEET rates above 20%, among the highest in Asia and above the global average (chart 3). Should employers in these economies adopt AI aggressively across processes and production, including physical AI such as humanoid robots, the problem could worsen. Yet firms that stay purely labour-intensive risk losing out to rivals using more efficient, and perhaps cheaper, AI-driven methods.

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**Concentration risk**
The recent wave of AI optimism has pushed the equity valuations of major AI developers and AI-related goods producers to historically high levels. These gains are partly backed by strong earnings and upbeat forward guidance. Most major indexes are weighted by market capitalisation, so a counter's weight tracks its price. As these counters have outperformed their peers (chart 4), their index weight has risen close to mechanically, when holding the number of shares constant. This raises concentration risk, since a small group of counters now carries more of the index and moves it more closely. So, if the rally in these counters were to unravel deeply, it would drag the broader index down more heavily with it.

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AI-related concentration risk is not confined to equity indexes; it also shows up in the growth of major economies. In Asia, that risk usually runs through a country's exports. Take Taiwan, the world's largest advanced semiconductor exporter, as an example. As chart 5 shows, its recent export growth has come more than entirely from integrated circuits and from infocomm and audiovisual equipment. Other goods categories have often contributed negatively in recent months. This is good news for the Taiwanese economy, which sits right at the centre of the global AI boom. Yet it is also a source of concentration risk, should AI-related goods demand collapse or substantial alternative supply emerge elsewhere. A similar story applies to South Korea, through its role in supplying high-end memory chips.

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**Data centres, energy, and water**
Finally, rapidly advancing AI promises major productivity gains and broad improvements to daily life. Yet AI infrastructure rests on resource-intensive inputs: the energy needed for data centre compute, and the water needed to cool those centres. Both may deprive real people of the very resources they need to survive. One recent hotspot is Malaysia, which has courted a wave of foreign direct investment to expand its data centre footprint in the state of Johor. These capital inflows are welcome, and have lifted state-level growth through the construction sector (chart 6). But they have also raised concerns about straining local grids and water supplies, possibly leaving less for residents. Among estimates, a recent one puts data centres at around 40% of Johor's electricity demand by 2035. That is pressuring the state to expand generation capacity and grid access to match the data centre pipeline already in place. Its neighbour Singapore faced similar strains earlier, and has since repositioned itself as a hub for the most advanced and efficient data centres, partly because of its severe land constraints. 

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Asia

Economic Letter from Asia: The AI Underbelly

Robert Brusca

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Industrial output in Norway fell by 1% in May after rising by 0.6 in April and falling by 1.1% in March. The seesaw act for output continues. Over broader horizons, however, output is falling. It falls by 0.1% over 12 months, falls at a 1.1% annual rate over six months, and falls at a 6.2% annual rate over three months, giving us a clear sequential trend toward falling and decelerating output. Utilities output has chaotic trends, as do mining and quarrying; however, manufacturing shows a clear trend toward output acceleration, with a 2.1% output increase over 12 months, a 2.6% annual rate rise over six months, and a 9% annual rate increase over three months.

Manufacturing sectors show consumer goods output increasing in May, also showing secular acceleration from 12 months to six months to three months. Durable goods, however, are the fly in the ointment, with output up 2.2% over 12 months, accelerating over six months, and then dropping at a 20.4% annual rate over three months. However, consumer nondurables show growth and acceleration, with a 12-month gain of 1.8%, rising to a 3.6% annual rate increase over six months and a 10.9% annual rate increase over three months. Intermediate goods output trends return to more difficult times and show declines over 12 months, six months, and three months, but not a clear path of deceleration. Capital goods output is up 5.4% over 12 months and at an 8.5% annual rate over three months, but there is an intervening soft spot with output up at only a 3.4% annual rate over six months.

Against this background, inflation in Norway showed solid increases in May, rising by 0.2% overall and by 0.3% for the core HICP. However, sequentially inflation gains 3% over 12 months, rises at a 3.8% annual rate over six months, and then backs down to a 1.2% annual rate over three months. The core HICP is steadier, with a 3.4% gain over 12 months, rising to a 3.8% annual rate over six months, and then backing down to 3.2% at an annual rate over three months. That's a set of growth rates that are more stable than either accelerating or decelerating.

In the quarter-to-date (QTD) basis, industrial production is falling 4.6%; this is two months into the second quarter. On the other hand, manufacturing output is rising QTD at a 4.9% annual rate, with consumer nondurables showing strong positive growth along with intermediate goods output. There is a solid gain of 3.1% at an annual rate from capital goods. The QTD inflation trends remain somewhat mixed, with a weak headline showing a 1.6% annual rate, against a core HICP at a 3.4% annual rate rise, the latter gain being well in step with its sequential results.

The far right-hand column compares industrial production over the broad period from just before COVID (in January 2020) looking at the ratio of the level of output in May 2026 to its index value in January 2020. Remember that IP data are inflation-adjusted, so these are real data. Over this span, industrial production excluding construction is up by approximately 10%, with utilities output up at about 21%, mining and quarrying up about 5%, and manufacturing up a little more than 7%. This is a 5½-year period. Consumer goods output is up by 2.7%, led by consumer nondurables which rise 4.1% on the period and against durable goods output where there is a decline of about 13% on that timeline. Intermediate goods output drops slightly on the timeline by less than half a percentage point, while capital goods output is up at a solid and strong 23% gain. Looking at prices over the same period, the headline HICP is higher by 27% while the core is higher by 24%.

The weakened output shows the stresses and strains of the period, with weak gains in place over the last 5½ years and with the consumer showing considerable wear and tear, leaving consumer goods output lower on balance over this 5½-year span. It hasn't been such a bad time for capital goods, where output rose by 23% over the period. Inflation got out-of-the-box and grew quite strongly. The headline HICP grew by 27% at a time when sticking to its target would have implied a gain in the price level of only 11.5%.

**Ongoing overshooting**
Even now central banks are trying to decide how to come to grips with the inflation pressures from that. Pressures continue to linger and threaten the economies. Of course, there are some new factors in place, but that's the nature of inflation: if it's not one thing, it's something else. And failing to respond to the one thing means that you're going to get hit even worse when it becomes something else. This is the lesson the central banks haven't learned during this period. 

**Have central banks learned their lesson?**
Noting that inflation is over target and then forecasting that it's going to come back down to target over some period ahead puts the inflation performance at risk to whatever happens between now and the end of that period ‘ahead.’ If that forecast isn't perfectly right and if there's something else that disturbs the path of prices, what will happen is that an inflation that is already over the top of the target will push even farther over the top of the target and the dilemma faced by the central bank will become even worse. This is why kicking the can down the road generally is not a very good strategy, but it's one that virtually all the central banks pursued in the wake of COVID. So, will central bankers come to see inflation that is here and now as a here-and-now problem to be addressed here and now, or as a candidate for tomorrow land? The ECB seems to be changing, and the Fed has formed task forces. What about Norway and the rest of the world? Norway did push its target rate up as the ECB hiked. But what is its plan?

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Norway

Norwegian IP Struggles, but Manufacturing Shows Some Strength

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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

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.

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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

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.