Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031007c.jpg" width="353">
Total manufacturing orders in Germany increased 0.5% in August. The composition of orders reflects an improved outlook for exports as export orders rose 2.3% and a continued subdued outlook for the domestic economy as domestic orders declined 1.1%.
Increased global demand has apparently offset the dampening effects of the rising Euro on the demand for German exports since exports have continued to show strength.
While orders for domestic goods are not encouraging, there was an increase in German retail sales in August that may be a sign that consumer, if not industry, demand may at last be improving.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Aug 03</th>
<th scope="col"> July 03</th>
<th scope="col"> Aug 02</th>
<th scope="col"> July 02</th>
<th scope="col"> M/M %</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">New orders (2000=100)</td>
<td>97.8</td>
<td>97.3</td>
<td>98.9</td>
<td>97.8</td>
<td>0.51</td>
<td>-1.11</td>
<td>98.2</td>
<td>98.3</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>92.5</td>
<td>93.6</td>
<td>94.8</td>
<td>94.6</td>
<td>-1.10</td>
<td>-2.43</td>
<td>94.6</td>
<td>97.6</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>104.4</td>
<td>102.0</td>
<td>103.9</td>
<td>101.9</td>
<td>2.35</td>
<td>0.48</td>
<td>102.8</td>
<td>99.1</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">Retail Sales (2000=100)</td>
<td>102.4</td>
<td>100.8</td>
<td>102.0</td>
<td>101.8</td>
<td>1.59</td>
<td>0.31</td>
<td>101.3</td>
<td>102.1</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Export of goods (Bil.Euros)</td>
<td>n.a.</td>
<td>55.06</td>
<td>53.63#</td>
<td>52.26</td>
<td>2.67</td>
<td>5.36</td>
<td>54.28*</td>
<td>53.43*</td>
<td>49.72*</td>
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</tbody>
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Total manufacturing orders in Germany increased 0.5% in August. The composition of orders reflects an improved outlook for exports as export orders rose 2.3% and a continued subdued outlook for the domestic economy as domestic orders [...]

German Manufacturing Orders Increase

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031007a.jpg" width="353">
Chain store sales surged 1.3% last week and recovered much of the 2.5% decline during the prior three weeks, according to the BTM-UBSW survey.
Despite the late-month recovery, sales for the full month of September fell 0.7% versus August. The level of sales in early October was slightly below the September average.
Weakness in September also was indicated by the Redbook Survey of general merchandise store sales which fell 1.3% (+3.2% y/y) 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. Using the Redbook tally there has been a 72% correlation with 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.The Redbook Survey samples same-store sales at general merchandise retailers representing about 9,000 stores. 

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">10/04/03</th>
<th scope="col">9/27/03</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>424.0</td>
<td>418.7</td>
<td>4.8%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
  Small Business Optimism Faded 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 7, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031007b.jpg" width="353">
The Small Business Optimism Index published by the National Federation of Independent Business fell last month to the lowest level since March.
The decline reflected a drop to 10% in the percent of small business owners planning to increase employment. That figure still is up versus readings in the 1-8% range earlier this year. Nineteen percent of firms had one or more jobs open. That is near the middle of the range in place since early last year.
The percent of owners planning to raise capital expenditures in the next 3-6 months fell sharply to 26%.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM"> Nat&#39;l Federation of Independent Business</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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>101.9</td>
<td>104.6</td>
<td>0.9%</td>
<td>101.2</td>
<td>98.4</td>
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Chain store sales surged 1.3% last week and recovered much of the 2.5% decline during the prior three weeks, according to the BTM-UBSW survey. Despite the late-month recovery, sales for the full month of September fell 0.7% versus [...]

September Chain Store Sales Down Despite Last Week's Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031006b.jpg" width="353">
Contrary to a consensus estimate of a 0.5% decline, the volume of retail sales, excluding autos, in the Euro-zone actually rose in July, albeit, at a very slight gain of 0.11%.
The consensus estimate of a decline appears to have been influenced by a sharp decline in the volume of sales excluding autos in Germany in July. (Reports of German retail sales precede those of the whole Euro-zone by about a week.) However, retail sales in the rest of the Euro-zone held their own or improved enough to overcome the decline in German sales.
The August data that were released last week for German retail sales excluding autos, showed a 0.9% rise and suggest that Germany may be beginning to join the rest of the Euro-zone where sales have improved.

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<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Volume of Retail Trade (2000=100)</th>
<th scope="col">Aug 03</th>
<th scope="col"> July 03 </th>
<th scope="col"> June 03 </th>
<th scope="col"> July 02 </th>
<th scope="col"> M/M </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">Euro-zone</td>
<td>&nbsp;&nbsp; n. a.</td>
<td>102.12</td>
<td>102.02</td>
<td>102.13</td>
<td>0.11</td>
<td>0.00</td>
<td>101.6</td>
<td>101.6</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>&nbsp;&nbsp; 99.4</td>
<td>98.5</td>
<td>101.7</td>
<td>100.9</td>
<td>-2.67</td>
<td>-2.38</td>
<td>100.0</td>
<td>101.5</td>
<td>100.0</td>
</tr>
</tbody>
</table>
Inflation Rates Low in Taiwan, Philippines 
by <a href="/comment/Stone.html">Carol Stone</a> October 6, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031006c.jpg" width="353">
As in many other nations, inflation is running low in Taiwan and the Philippines, which both reported their September CPI data today. Taiwan, in fact, is experiencing mild deflation, while in the Philippines, the year-on-year inflation rate is maintaining a range that&#146;s the lowest since early 1988.
In Taiwan, food prices have shown little change for several years, housing costs are falling and clothing prices, though historically low, are drifting upward. Housing costs are declining, which is likely due to falling prices for appliances and furniture. Turns in the rate of price change frequently coincide with swings in petroleum prices. 
In the Philippines, inflation has eased in several sectors. Food and clothing price inflation is trending consistently lower, serving as a main component of the overall slowing in consumer prices. Housing costs have recently trended right along with the total CPI, and service price inflation runs consistently faster than the total, although it is relatively steady. A separate category &#147;fuel, light and water&#148; has shown an accelerating 12-month pace, corresponding to recent oil price patterns. 
These price trends are important for workers in the Philippines, where nonagricultural wages are governed by a &#147;legislated daily wage rate&#148;. Since it is changed only infrequently, lower inflation provides significant help to Philippine consumers, compared with periods of double-digit inflation as recently as 1999. Earnings of Taiwanese workers have been virtually flat since 1999. But the slightly downward drift to CPI inflation keeps the purchasing power of those workers&#146; incomes on an even keel. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Year/Year % Changes</th>
<th scope="col">Aug 03</th>
<th scope="col"> July 03 </th>
<th scope="col"> June 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">Taiwan</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">CPI</td>
<td>-0.2</td>
<td>-0.6</td>
<td>-1.0</td>
<td>-0.2</td>
<td>0.0</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Nominal Earnings</td>
<td>N.A.</td>
<td>N.A.</td>
<td>-0.2</td>
<td>-0.3</td>
<td>-1.5</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Philippines</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">CPI</td>
<td>2.9</td>
<td>3.0</td>
<td>3.3</td>
<td>3.1</td>
<td>6.1</td>
<td>4.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Nominal Earnings</td>
<td>N.A.</td>
<td>N.A.</td>
<td>0.0*</td>
<td>10.3</td>
<td>7.2</td>
<td>12.3</td>
</tr>
</tbody>
</table>


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Contrary to a consensus estimate of a 0.5% decline, the volume of retail sales, excluding autos, in the Euro-zone actually rose in July, albeit, at a very slight gain of 0.11%. The consensus estimate of a decline appears to have been [...]

July Retail Sales in the Euro-zone Exceed Consensus

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031006a.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) slipped in the last full week of September.
Despite the dip, the six-month growth rate of the weekly leading index remained strong at 12.3%. During the last ten years there has been a 59% correlation between the six-month growth in the leading index and the two quarter growth in real GDP.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. Nevertheless there has been a 75% correlation between the y/y percent change in the two series over the last 20 years.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months. The sideways movement of the leading index in 2002 may or may not signal something about the economy&#39;s growth rate.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</a>.
A report titled &quot;How Did Leading Indicator Forecasts Perform During the 2001 Recession?&quot; by James H. Stock &amp; Mark W. Watson from the Federal Reserve Bank of Richmond can be found <a href="http://www.rich.frb.org/pubs/eq/search.cfm/article=185.">here</a>.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM"> ECRI Leading Index</a></th>
<th scope="col">9/26/03</th>
<th scope="col">9/21/03</th>
<th scope="col">Growth Rate</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">Weekly</td>
<td>128.3</td>
<td>128.7</td>
<td>12.3%</td>
<td>1.2%</td>
<td>-5.3%</td>
<td>-0.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">&nbsp;</td>
<td>Sept</td>
<td>Aug</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Monthly</td>
<td>128.7</td>
<td>127.9</td>
<td>12.3%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) slipped in the last full week of September. Despite the dip, the six-month growth rate of the weekly leading index remained strong at [...]

ECRI Weekly Leading Indicators Signal Above-Trend Economic Growth

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/031003c.jpg" width="353">
Employment conditions at large Italian companies back-tracked in July, according to data reported on 3 October by Istat, the Italian statistical agency. The number of employees in the industrial sector fell 0.9% in the month and was down 3.7% from July 2002. This measure, an index of the number of jobs, had seemed to be stabilizing in June and accompanied a downtick in the second quarter&#39;s unemployment rate. So the setback in July&#39;s jobs is disappointing. However, it is partially countered by a gain in average hours worked by these employees, which went up 0.5%. Thus, aggregate hours fell just 0.4% in the month. The number of jobs and total hours are both down by roundly 3.5% from a year ago. But productivity of Italian workers is evidently increasing, so that through the second quarter, gross value added in industry had edged lower by only 0.3%.
Service companies and jobs fared better in July. The number of service workers held steady in the month and is even a bit higher than a year ago. The workweek in the service sector is shortening slightly, though, generating a 0.9% decrease in total hours worked since July 2002. Nonetheless, as in the industrial sector, implied productivity gains remain sizable, since value added in services is up some 4.8% over the past year (second quarter 2003/second quarter 2002). This said, these data are collected from &quot;large firms&quot; with over 500 employees; in services, small firms are probably a significant presence in Italy as elsewhere. So employment conditions could be better among those firms, accounting for more of the large gains in value added, rather than such dramatic productivity gains as are suggested by the comparisons described here.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Seasonally Adjusted</th>
<th scope="col">July&nbsp; 2003</th>
<th scope="col">June 2003</th>
<th scope="col">May&nbsp; 2003</th>
<th scope="col">July 2002</th>
Annual Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">Employment in Industry*</td>
<td>89.9</td>
<td>90.7</td>
<td>90.8</td>
<td>93.4</td>
<td>93.5</td>
<td>97.6</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Hours Worked per Employee in Industry*</td>
<td>98.5</td>
<td>98.0</td>
<td>98.0</td>
<td>98.4</td>
<td>98.5</td>
<td>98.9</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">Employment in Services*</td>
<td>98.8</td>
<td>98.8</td>
<td>98.7</td>
<td>98.6</td>
<td>98.5</td>
<td>99.4</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Hours Worked per Employee in Services*</td>
<td>98.6</td>
<td>98.4</td>
<td>98.8</td>
<td>99.6</td>
<td>100.1</td>
<td>100.1</td>
<td>100.0</td>
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Employment conditions at large Italian companies back-tracked in July, according to data reported on 3 October by Istat, the Italian statistical agency. The number of employees in the industrial sector fell 0.9% in the month and was [...]

Employment Decreases in Italy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031003b.jpg" width="353">
Nonfarm payrolls rose unexpectedly by 57,000 (0.04%) in September. It was the first m/m gain in payrolls since January. The previously reported sharp drop in August payrolls was more than halved to 41,000 but July&#39;s decline was deepened slightly. Consensus estimates had been for a 20,000 worker decline in September payrolls.
For 3Q03 the index of aggregate hours worked in private industries (employment times hours worked) fell at a 0.9% annual rate versus 2Q, about half that quarter&#39;s rate of decline. Hours worked were unchanged in September.
The one-month diffusion index for private nonfarm payrolls improved to 47.1 but a level below 50 bodes poorly for a meaningful pickup in hiring activity.
Declines in manufacturing sector payrolls continued. They have fallen in every month since July 2000 and are down 2.762 million (15.9%) during that period. The one-month diffusion index for factory payrolls rose to a still quite low 28.6.
Service producing jobs rose 74,000 (0.1% y/y). The gains were fairly broad based amongst industries though professional &amp; business services jobs rose a hefty 66,000 (0.4%). Half of that gain was in the temporary help services category. Government sector jobs fell 15,000 (-0.4% y/y).
From the separate household survey, the unemployment rate was stable at 6.1% versus expectations for 6.2%. Employment fell 52,000 (0.2% y/y) following a 147,000 August gain. The labor force rose 15,000 (0.6% y/y).
Average hourly earnings fell an unexpected 0.1%. The decline was due to earnings drops in several private service industries.

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<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">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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>57,000</td>
<td>-41,000</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>0.0%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-29,000</td>
<td>-46,000</td>
<td>-4.2%</td>
<td>-6.9%</td>
<td>-4.8%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.7</td>
<td>33.9</td>
<td>33.9</td>
<td>34.0</td>
<td>34.3</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>2.7%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>6.1%</td>
<td>6.1%</td>
<td>5.7%</td>
<td>5.8%</td>
<td>4.8%</td>
<td>4.0%</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Fell Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 3, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031003a.jpg" width="353">
The Institute for Supply Management reported that in September, the index of activity in the nonmanufacturing sector was down slightly from the record August to 63.3. Consensus expectations were for a decline to 63.0.
The seasonally adjusted orders index fell sharply to 59.9 from the August record high of 67.6.
The employment index fell to 49.1 from 51.0 in August. Since the series&#39; inception there has been an 85% correlation between the level of the ISM nonmanufacturing employment index and the y/y change in payroll employment in the service producing and construction industries.
Business activity for the nonmanufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted prices index rose sharply for the second month in a row to 60.1.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The nonmanufacturing 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">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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>63.3</td>
<td>65.1</td>
<td>55.4</td>
<td>55.1</td>
<td>49.0</td>
<td>59.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>60.1</td>
<td>55.7</td>
<td>54.2</td>
<td>53.9</td>
<td>51.6</td>
<td>63.5</td>
</tr>
</tbody>
</table>


</html>

Nonfarm payrolls rose unexpectedly by 57,000 (0.04%) in September. It was the first m/m gain in payrolls since January. The previously reported sharp drop in August payrolls was more than halved to 41,000 but July's decline was [...]

U.S. Nonfarm Payrolls Rose

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031002d.jpg">
Producer prices in the Euro-Zone rose 0.2% from July to August, following a 0.1% move the month before. August compared to a year ago is up 1.4%, extending approximately that yearly pace through a fourth month.
The month-to-month increase in August was accounted for by energy prices, which were up 1.2 from July. Excluding that segment, the total PPI was flat, including unchanged levels for capital goods and durable consumer items. The largest advance was in the Netherlands, 1.3%, but that reversed a similar magnitude fall in July. Portugal experienced a 0.3% rise, and most other countries experienced the 0.2% increase of the overall total.
The accompanying graph suggests that the Euro exchange rate exerts some influence on these wholesale prices. The PPI excluding energy is plotted with a broad, trade-weighted Euro index. Shifts in that widely defined exchange rate appear to presage by several months a turn in the trend of wholesale prices. Thus, even though these are purely domestic prices, covering goods traded only within local markets, that is, excluding imports, they are seen to follow moves in exchange rates, as might be expected with such open economies. This pattern hints that continuation of the recent softer tone in the euro would foster an uptrend in these producer prices.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Euro-Zone Industrial Producer Prices, % Changes </th>
<th scope="col">Aug 2003</th>
<th scope="col">July 2003</th>
<th scope="col">&nbsp;June&nbsp; 2003</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 colspan="3">(Dec/Dec)</td>
</tr>
<tr>
<td class="firstcol">All industry ex construction</td>
<td>0.2</td>
<td>0.1</td>
<td>-0.3</td>
<td>1.4</td>
<td>1.6</td>
<td>-0.7</td>
<td>5.3</td>
</tr>
<tr class="odd">
<td class="firstcol">All industry ex construction &amp;&nbsp;&nbsp;&nbsp; energy</td>
<td>0.0</td>
<td>-0.1</td>
<td>-0.1</td>
<td>0.6</td>
<td>1.1</td>
<td>0.3</td>
<td>3.0</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>1.2</td>
<td>0.7</td>
<td>0.5</td>
<td>4.5</td>
<td>3.9</td>
<td>-5.8</td>
<td>14.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Exchange Rate*</td>
<td>-1.1</td>
<td>-1.4</td>
<td>0.2</td>
<td>9.2</td>
<td>9.3</td>
<td>4.2</td>
<td>-4.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Producer prices in the Euro-Zone rose 0.2% from July to August, following a 0.1% move the month before. August compared to a year ago is up 1.4%, extending approximately that yearly pace through a fourth month. The month-to-month [...]

Euro-Zone PPI Up 0.2% in August, Index ex-Energy Is Flat

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031002c.jpg" width="353">
Initial claims for jobless insurance rose 13,000 to 399,000 last week. The gain mostly reversed a 15,000 decline the prior week which was revised shallower from the initial report. Consensus expectations had been for claims of 395,000.
The four-week moving average of initial claims fell to 403,500 (-3.2% y/y). That&#39;s down roughly 10% from the recent high in early May.
Continuing claims for unemployment insurance rose a sharp 62,000 to 3,673,000. The claimant the prior week was revised down 20,000.
The insured rate of unemployment held steady at 2.9%. The rate has averaged 2.9% since 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">9/27/03</th>
<th scope="col">9/20/03</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>399.0</td>
<td>386.0</td>
<td>-5.7%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,673</td>
<td>1.0%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
U.S. Light Vehicle Sales Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031002a.jpg" width="353">
Light vehicle sales fell slightly more than expected last month from the heady August selling rate. The 12.0% m/m decline to 16.72M contrasted with Consensus expectations for sales of 17.3M.
Light trucks more than reversed the August sales spike with a 14.6% m/m decline to 9.18M units.
Cars completely undid the sales gains of the prior two months with an 8.7% decline to 7.54M units.
Sales of domestic light vehicles slid 13.5% to a 13.42M unit selling rate as sales of both cars and light trucks fell.
Imported vehicle sales fell a more moderate 5.4% following the 6.3% August gain. Imports captured 19.7% of the US market in September and 19.0% in 3Q03 versus a 19.5% share last year.
The CPI for new vehicles has been deflating since early 1997.

<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/@ED09/@ED0901/@ED0901.HTM"> Light Vehicle Sales (SAAR, Mil.Units)</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.72</td>
<td>19.00</td>
<td>2.4%</td>
<td>16.81</td>
<td>17.26</td>
<td>17.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.54</td>
<td>8.26</td>
<td>-4.3%</td>
<td>8.07</td>
<td>8.48</td>
<td>8.83</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>9.18</td>
<td>10.75</td>
<td>8.6%</td>
<td>8.74</td>
<td>8.78</td>
<td>8.56</td>
</tr>
</tbody>
</table>
Factory Orders Skid 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031002b.jpg" width="353">
Factory orders fell a greater than expected 0.8% in August. The decline followed a 2.0% jump in July that was revised up from 1.6%.
Durable goods orders were revised to show a 1.1% m/m decline versus the 0.8% fall indicated in last week&#39;s advance report. Non-durable goods orders fell 0.5% (+5.0% y/y) following a 2.4% gain in July. (Non-durable goods orders equal shipments in this report on factory sector activity.)
The y/y strength in non-durable goods derives mostly from higher prices for petroleum products and for industrial chemicals.
Manufacturing inventories fell 0.2% in August for the fourth consecutive monthly decline. The ISM inventory index in September remained low at 42.7 suggesting further decumulation last month. Declines in inventories continued widespread.
New research from the Federal Reserve Bank of Philadelphia titled &quot;The Role of Inventories in the Business Cycle&quot; can be found <a href="http://www.phil.frb.org/files/br/brq303ak.pdf"> here</a>.
A 1.8% slide in factory shipments undid much of the prior month&#39;s gain, but lower shipments of autos &amp; light trucks account for much of the weakness. Less the transportation sector altogether shipments fell a more moderate 0.8% (+2.9% y/y) on the heels of a 2.3% gain in July and a 1.2% gain in June. Shipments of computers &amp; electronic products have been strong, up 8.0% y/y.

<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">Aug</th>
<th scope="col">July</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">Inventories</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>-0.7%</td>
<td>-1.8%</td>
<td>-6.1%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>-0.8%</td>
<td>2.0%</td>
<td>1.2%</td>
<td>-1.9%</td>
<td>-6.7%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-1.8%</td>
<td>2.6%</td>
<td>1.6%</td>
<td>-2.0%</td>
<td>-5.4%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.6%</td>
<td>-0.3%</td>
<td>-2.5%</td>
<td>-6.1%</td>
<td>-5.9%</td>
<td>8.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance rose 13,000 to 399,000 last week. The gain mostly reversed a 15,000 decline the prior week which was revised shallower from the initial report. Consensus expectations had been for claims of [...]

Initial Jobless Insurance Claims Rose

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.

260713T1.jpg

**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.

260713T2.jpg

**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.

260713T3.jpg

**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.

260713T4.jpg

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.

260713T5.jpg

**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. 

260713T6.jpg

Asia

Economic Letter from Asia: The AI Underbelly

Robert Brusca

260714E.jpg

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% since January 2020, a duration of time during which, 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.