Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030910a.jpg" width="353">
The OECD Index of Leading Indicators (Big 7) rose in July for the fourth consecutive month, but it was the magnitude of the increase that impressed. The 1.1% July gain followed like increases in the previous three months.
The three month growth in the leading index is comparable to strength early last year which preceded an acceleration in industrial production growth to above 5% (AR).
Gains amongst the member country leading indexes continued to broaden out. The leading index for the Euro-zone 12 rose 0.3% and the three month growth rate rose to 4.9% (AR), it&#39;s highest since last Spring.
The leaders in Germany surged 1.2%, bringing the three month growth rate up to 9.3%. In France the leaders rose for the fourth consecutive month with three month growth at 6.5%. In Italy, however, the leaders continued to suggest recession, down 1.4% in July for the third decline in the last four months. Real GDP in Italy fell at a 1.5% rate in 1Q03 and was unchanged last quarter. Industrial production has been falling since a peak in late 2000.
In the U.K. the leaders rose strongly for the fourth consecutive month and that brought the three month growth to 6.9% (AR). Last year, growth of this order in the UK leaders preceded an acceleration in real GDP growth from about 1% to nearly 4%. In Canada the July leading indicators were similarly strong rising 1.0%, the fourth consecutive gain that pulled the three month growth rate up to 12.1%; good news following a 0.3% decline in 2Q03 real GDP.
Leaders in Japan jumped 2.0% in July for the third strong gain in as many months. Share prices rose and the yield curve steepened, but higher overtime hours &amp; an increase in job vacancies added tangible umph to the leader&#39;s improvement.
Leading indicators in the United States surged further, up 1.2% in July for the fourth consecutive robust monthly gain.
Visit the OECD&#39;s website at <a href="http://www.oecd.org/home/">website</a>. There is coverage of Chief Economist Cotis&#39; presentation titled &quot;What is the economic outlook for OECD countries? An interim assessment.&quot;

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM"> OECD Main Economic Indicators</a></th>
<th scope="col">July</th>
<th scope="col">June</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">OECD Major Seven - Leading Index (Trend Restored)</td>
<td>121.7</td>
<td>120.3</td>
<td>3.0%</td>
<td>4.0%</td>
<td>-2.2%</td>
<td>3.1%</td>
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<tr>
<td class="firstcol">&nbsp; European Union</td>
<td>118.0</td>
<td>117.6</td>
<td>1.1%</td>
<td>3.1%</td>
<td>-1.8%</td>
<td>3.8%</td>
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<td class="firstcol">&nbsp; Japan</td>
<td>104.9</td>
<td>102.8</td>
<td>3.6%</td>
<td>0.7%</td>
<td>-2.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; United States</td>
<td>134.1</td>
<td>132.4</td>
<td>4.3%</td>
<td>5.6%</td>
<td>-2.6%</td>
<td>2.7%</td>
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Mortgage Applications Jumped as Interest Rates Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 10, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030910b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association jumped 22.8% last week as interest rates fell. The rise was the first in five weeks.
Interest rates on a conventional 30-Year mortgage fell 23 basis points with the effective rate at 6.27%. That was versus a low for 30-Year financing of 5.31% in the second week of June. The effective rate on a 15-year mortgage fell 25 basis points to 5.64%.
Applications to refinance surged 45.5% w/w, pulling the level of refinancing to it&#39;s highest in four weeks.
Purchase applications, up 3.2% w/w, rose for the second consecutive week. The level of purchase applications began September slightly ahead of the August average which was down 6.3% from July, the series&#39; peak.
During the last ten years there has been a 56% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
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> .

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<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">9/05/03</th>
<th scope="col">8/29/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total Market Index</td>
<td>771.8</td>
<td>628.7</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
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<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>408.8</td>
<td>396.1</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
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<td class="firstcol">&nbsp; Refinancing</td>
<td>2,883.6</td>
<td>1,981.5</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
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The OECD Index of Leading Indicators (Big 7) rose in July for the fourth consecutive month, but it was the magnitude of the increase that impressed. The 1.1% July gain followed like increases in the previous three months. The three [...]

OECD Leaders Build Upward Momentum

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030909a.jpg" width="353">
The Federal Reserve reported that consumer credit outstanding (which excludes mortgages) rose $6.0B (4.1% AR) in July. Consensus expectations had been for a $5.0B gain. June&#39;s increase was revised up slightly due to raised usage of nonrevolving credit. 
During the first seven months of this year, consumer credit usage rose at a 4.8% annual rate. The more comprehensive flow of funds figures published by the Federal Reserve indicated that through 2Q03, credit market debt owed by the household sector soared 11.0% y/y. That gain was led by a 13.8% y/y gain in outstanding liabilities on homes.
Nonrevolving credit (which includes auto loans) rose at a 6.6% annual rate in July following a 1.6% gain in June. Year to date, nonrevolving credit usage is up at a 5.7% annual rate. 
Revolving credit rose at a slight 0.5% annual rate in July following a 2.1% decline in June. Year to date, revolving credit usage is up at a 3.6% annual rate.
The August Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200308/default.htm">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E103/@E10308/@E10308.HTM"> Consumer Credit Outstanding</a></th>
<th scope="col">July m/m</th>
<th scope="col">June m/m</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>$6.0B</td>
<td>$0.1B</td>
<td>3.3%</td>
<td>3.6%</td>
<td>6.9%</td>
<td>10.2%</td>
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<td class="firstcol">&nbsp; Revolving</td>
<td>$0.3B</td>
<td>$-1.3B</td>
<td>1.7%</td>
<td>1.5%</td>
<td>5.1%</td>
<td>11.6%</td>
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<tr class="odd">
<td class="firstcol">&nbsp; Nonrevolving</td>
<td>$5.7B</td>
<td>$1.4B</td>
<td>4.5%</td>
<td>5.0%</td>
<td>8.2%</td>
<td>9.1%</td>
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</tbody>
</table>
Weekly Chain Store Sales Jumped 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 9, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030909b.jpg" width="353">
Chain store sales rose 0.5% during the week that contained the Labor Day holiday according to the BTM-UBSW survey. It was the largest w/w rise since the first week of August and followed four periods of roughly flat sales.
Sales began September 0.5% ahead of the August average which rose 0.9% from July.
During the last five years there has been a 62% correlation between the year-to-year percent change in chain store sales and the change in nonauto retail sales less gasoline.
The BTM-UBSW retail chain-store sales index is constructed from the sales results reported by seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">9/6/03</th>
<th scope="col">8/30/03</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">Total Weekly Retail Chain Store Sales</td>
<td>429.4</td>
<td>427.3</td>
<td>4.4%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
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The Federal Reserve reported that consumer credit outstanding (which excludes mortgages) rose $6.0B (4.1% AR) in July. Consensus expectations had been for a $5.0B gain. June's increase was revised up slightly due to raised usage of [...]

Consumer Credit Usage Up Moderately

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030908b.jpg" width="353">
Following the modest improvements in Japanese consumer sentiment in the second quarter and the moderately improved business expectations for the third quarter expressed in the latest Tankan Survey, the Economy Watchers Survey of Future Conditions reported that its diffusion index rose 3.4% from July to August to 48.9. While all of these indicators remain at relatively low levels, their recent trends are encouraging.
The Economy Watchers index is a relatively new one, starting in January, 2000. At that time, the index was based on the replies of 800 monitors in six regions of Japan. In October, 2000 the number of monitors was increased to 1500 and the coverage was extended nationwide. Since August 2001, the number of monitors is 2050.
Over its short existence the index has tended to anticipate movements in Japan&#39;s Industrial Production Index.

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<th scope="col" class="firstcol"></th>
<th scope="col"></th>
<th scope="col"></th>
<th scope="col"></th>
 Percent Change
<th scope="col"></th>
<th scope="col"></th>
<th scope="col"></th>
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</thead>
<tbody>
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<td class="firstcol">Economy Watchers Survey</td>
<td>Aug 03</td>
<td>July 03</td>
<td>Aug 02</td>
<td>M/M</td>
<td>Y/Y</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
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<td class="firstcol">Future Conditions</td>
<td>48.9</td>
<td>46.8</td>
<td>46.1</td>
<td>4.49</td>
<td>6.07</td>
<td>43.0</td>
<td>39.7</td>
<td>51.7</td>
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<td class="firstcol">Current Conditions</td>
<td>46.9</td>
<td>44.9</td>
<td>43.6</td>
<td>3.34</td>
<td>6.42</td>
<td>40.4</td>
<td>35.5</td>
<td>49.0</td>
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Following the modest improvements in Japanese consumer sentiment in the second quarter and the moderately improved business expectations for the third quarter expressed in the latest Tankan Survey, the Economy Watchers Survey of [...]

Another Japanese Leading Indicator Edges Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030908a.jpg" width="353">
The foreign exchange value of the US dollar against major currencies began the most recent decline before the release of the weak August jobs report.
On August 22nd the dollar was up more than 5% from the June low as data suggested improvement in the US economy. A 0.7% decline on Friday capped a succession of declines which have now totaled 1.7%.
The Euro had fallen roughly 8% during the dollar&#39;s ascent this Summer. On Friday it gained back 1.6%, its greatest one day advance in over a year. The Euro&#39;s value against the dollar is up by one third since early 2000.
Against the Canadian dollar the US currency has suffered similar declines, down 1.5% recently and by roughly 12% since early last year.
Versus the Japanese Yen, the dollar has traded more narrowly since the middle of last year. That followed dollar declines early in the year which came to over 10%.
Economists at the Federal Reserve Bank of St Louis ask &quot;Is the Current Account Deficit Weighing on the Dollar?&quot; <a href="http://research.stlouisfed.org/publications/iet/20030801/cover.pdf"> here</a>.

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The foreign exchange value of the US dollar against major currencies began the most recent decline before the release of the weak August jobs report. On August 22nd the dollar was up more than 5% from the June low as data suggested [...]

US Dollar Down Even Before the August Employment Report

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/030905c.jpg" width="353">
Canadian labor market conditions softened again in August, extending July&#146;s deterioration. Employment fell slightly, by 19,000, and the unemployment rate rose 0.2% to 8.0%, its highest since December 2001. In July, the employment decline, which totaled 13,300, was concentrated among youth aged 15-24. While that age-group saw a further decrease in August &#150; 2,600 &#150; the bulk of the fall was seen by adults, which went down 16,500, erasing a gain in July.
Among industries, the job loss was largest in &quot;management, administrative and other support&quot; (-23,800) and in &quot;health care and social assistance&quot; (-17,600). In contrast, jobs increased in public administration (13,500), construction (10,600), and accommodation and food services (8,500).
Last month in this space, we noted that employment in Canada has been stronger recently than in the US. While the US has had a so-called &quot;jobless recovery&quot; since November 2001, employment in Canada merely flattened during that US recession and climbed to a new peak in subsequent months, reaching an all-time high in June. The divergent behavior of US and Canada employment conditions is seen in the accompanying chart, which shows the employment ratios for each country. The data coverage is slightly different, with the Canadian labor force defined as those aged 15 and over, while US data begin at age 16. This detail hardly alters the story, though, in which Canadian jobs recovered vigorously during the mid- to late-1990s and again after the US recession, while the US has seen flat employment (by the labor force definition) during the post-November 2001 recovery, accompanied by a noticeable decrease in the employment/population ratio.
[As in the US, Canadian statistics officials explained prominently that the power outage in mid-August, afflicting Ontario, hurt hours worked severely, but did not affect the number of workers employed. Indeed, total hours worked fell 3.1% in August, the largest month-on-month decline in the 27-year history of the labor force data.]

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<th scope="col" class="firstcol"></th>
<th scope="col">August 2003</th>
<th scope="col">July 2003</th>
<th scope="col">June 2003</th>
<th scope="col">Year/ Year</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Change in Total Employment (thousands)</td>
<td>-19.0</td>
<td>-13.3</td>
<td>+48.8</td>
<td>+48.8</td>
<td colspan="3">Dec/Dec % Change</td>
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<tr>
<td class="firstcol">3.7%</td>
<td>0.1%</td>
<td>2.2%</td>
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<td class="firstcol">Unemployment Rate (%)</td>
<td>8.0%</td>
<td>7.8%</td>
<td>7.7%</td>
<td>7.5% (Aug.2002)</td>
<td colspan="3">Annual Average</td>
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<tr>
<td class="firstcol">7.6%</td>
<td>7.2%</td>
<td>6.8%</td>
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Canadian labor market conditions softened again in August, extending Julys deterioration. Employment fell slightly, by 19,000, and the unemployment rate rose 0.2% to 8.0%, its highest since December 2001. In July, the employment [...]

Canadian Employment Down, Unemployment Up in August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030905a.jpg" width="353">
Nonfarm payrolls fell 93,000 in August and the previously reported declines in June &amp; July were deepened. Consensus estimates had been for a modest 15,000 worker rise in August payrolls. It was the seventh monthly decline in payrolls this year. Since December payrolls have fallen 437,000 (0.3%).
Declines in manufacturing sector payrolls continued. They have fallen in every month since July 2000 and are down 2.729 million (15.8%) during that period. Service producing jobs fell 67,000 (-0.1%) for the fifth decline this year. Government sector jobs fell 26,000 and declines were widespread in other service industries.
From the separate household survey, the unemployment rate fell modestly to 6.1% versus expectations for no change. Employment rose 147,000 (0.6% y/y) and the labor force fell 10,000 (1.0% y/y) following the sharp 556,000 July drop.
The workweek was unchanged at 33.6 hours. The decline in employment and an unchanged workweek pulled the index of aggregate hours worked in private industries down 0.1% following a 0.4% decline in July. So far in 3Q, hours worked are down 0.5% from 2Q during which they declined by a similar amount.
The one-month diffusion index for private nonfarm payrolls fell to 38.5, near the cycle low. This low breadth of change measure bodes poorly for a near term pickup in hiring activity.
Average hourly earnings rose a less than expected 0.1%, the slowest increase since April.
New research from the Federal Reserve Bank of New York titled &quot;Has Structural Change Contributed to a Jobless Recovery?&quot; can be found <a href="http://www.newyorkfed.org/rmaghome/curr_iss/ci9-8.html"> here</a> .

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM"> Employment</a></th>
<th scope="col">Aug </th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
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<td class="firstcol">Payroll Employment</td>
<td>-93,000</td>
<td>-49,000</td>
<td>-0.4%</td>
<td>-1.1%</td>
<td>0.0%</td>
<td>2.2%</td>
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<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-44,000</td>
<td>-59,000</td>
<td>-4.2%</td>
<td>-6.9%</td>
<td>-4.8%</td>
<td>-0.3%</td>
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<td class="firstcol">Average Weekly Hours</td>
<td>33.6</td>
<td>33.6</td>
<td>33.9</td>
<td>33.9</td>
<td>34.0</td>
<td>34.3</td>
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<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.9%</td>
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<td class="firstcol">Unemployment Rate</td>
<td>6.1%</td>
<td>6.2%</td>
<td>5.8%</td>
<td>5.8%</td>
<td>4.8%</td>
<td>4.0%</td>
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</tbody>
</table>
Gasoline Prices At a Record, Crude Oil Prices Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 5, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030905b.jpg" width="353">
Retail gasoline prices were about unchanged last week at a record $1.74 per gallon, up 25.3% y/y.
Lean inventories of gasoline, supply disruptions at refineries due to the August Power Blackout and hot summer temperatures have contributed to the rise in gasoline prices.
Crude oil prices have moved in the other direction. The price of West Texas Intermediate crude was $29.43 per barrel last week (5.9% y/y) versus a June high near $32.00 and a March high near $37.00. Prices have fallen slightly further this week.
Wholesale natural gas prices were roughly stable last week at $5.04/mmbtu, down from the cold-weather spike over $12.00 in late February but still up by more than half from last year.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W4/@W403/@W40303/@W40303.HTM"> US Retail Gasoline Prices</a></th>
<th scope="col">04/07/03</th>
<th scope="col">12/30/02</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">All Formulations ($/Gal.)</td>
<td>$1.63</td>
<td>$1.44</td>
<td>15.4%</td>
<td>$1.34</td>
<td>$1.42</td>
<td>$1.48</td>
</tr>
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Nonfarm payrolls fell 93,000 in August and the previously reported declines in June & July were deepened. Consensus estimates had been for a modest 15,000 worker rise in August payrolls. It was the seventh monthly decline in payrolls [...]

U.S. Nonfarm Payrolls Fell Unexpectedly

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Labor market data for Germany and Italy show employment flat to down slightly in the two countries, but modestly divergent trends in the unemployment rates. Employment in Germany continues to drift lower, but looks to be stabilizing during the spring after a protracted decline. The last month to show an increase was November 2001, and the peak was 39,958 thousand in May 2001. In Italy, employment in large industrial companies continues to decrease, but service sector jobs turned higher beginning last November and have climbed gradually through June.
Correspondingly, unemployment is inching downward in Italy, and through June was extending a decreasing trend that began in early 1999. Germans, by contrast, are likely pleased that their unemployment rate seems to have stopped rising. From May 2001 through April this year, the rate was up 1.5 percentage points to 10.7%, but after a down-tick in May has been flat at 10.6% for the last four months. Perhaps the stabilization of both employment and unemployment in Germany point to better labor market conditions ahead.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Seasonally Adjusted</th>
<th scope="col">August &nbsp;2003</th>
<th scope="col">July &nbsp;2003</th>
<th scope="col">June 2003</th>
<th scope="col">&nbsp;Q2 &nbsp;2003</th>
<th scope="col">&nbsp;Q1 &nbsp;2003</th>
<th scope="col">Year-Ago &nbsp;Period</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany: Unemployment Rate</td>
<td>10.6%</td>
<td>10.6%</td>
<td>10.6%</td>
<td>10.6%</td>
<td>10.5%</td>
<td>9.7% (Aug 2002)</td>
</tr>
<tr>
<td class="firstcol">Germany: Employment (thous)</td>
<td>n.a.</td>
<td>n.a.</td>
<td>38,084</td>
<td>38,106</td>
<td>38,236</td>
<td>38,704 (June 2002)</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy: Unemployment Rate</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>8.8%</td>
<td>8.9%</td>
<td>9.0% (2nd Qtr 2002)</td>
</tr>
<tr>
<td class="firstcol">Italy: Employment in Industry*</td>
<td>n.a.</td>
<td>n.a.</td>
<td>90.7</td>
<td>90.8</td>
<td>91.6</td>
<td>93.1 (June 2002)</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy: Employment in Services*</td>
<td>n.a.</td>
<td>n.a.</td>
<td>98.8</td>
<td>98.7</td>
<td>98.7</td>
<td>98.5 (June 2002)</td>
</tr>
</tbody>
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Labor market data for Germany and Italy show employment flat to down slightly in the two countries, but modestly divergent trends in the unemployment rates. Employment in Germany continues to drift lower, but looks to be stabilizing [...]

Labor Markets Stabilize in Germany and Italy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030904f.jpg" width="353">
Labor market data for Germany and Italy show employment flat to down slightly in the two countries, but modestly divergent trends in the unemployment rates. Employment in Germany continues to drift lower, but looks to be stabilizing during the spring after a protracted decline. The last month to show an increase was November 2001, and the peak was 39,958 thousand in May 2001. In Italy, employment in large industrial companies continues to decrease, but service sector jobs turned higher beginning last November and have climbed gradually through June.
Correspondingly, unemployment is inching downward in Italy, and through June was extending a decreasing trend that began in early 1999. Germans, by contrast, are likely pleased that their unemployment rate seems to have stopped rising. From May 2001 through April this year, the rate was up 1.5 percentage points to 10.7%, but after a down-tick in May has been flat at 10.6% for the last four months. Perhaps the stabilization of both employment and unemployment in Germany point to better labor market conditions ahead.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Seasonally Adjusted</th>
<th scope="col">August2003</th>
<th scope="col">July&nbsp;2003</th>
<th scope="col">June2003</th>
<th scope="col">Q2&nbsp;2003</th>
<th scope="col">&nbsp;Q1&nbsp;2003</th>
<th scope="col">Year-Ago &nbsp;Period</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany: Unemployment Rate</td>
<td>10.6%</td>
<td>10.6%</td>
<td>10.6%</td>
<td>10.6%</td>
<td>10.5%</td>
<td>9.7% (Aug 2002)</td>
</tr>
<tr>
<td class="firstcol">Germany: Employment (thous)</td>
<td>n.a.</td>
<td>n.a.</td>
<td>38,084</td>
<td>38,106</td>
<td>38,236</td>
<td>38,704 (June 2002)</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany: Employment (thous)</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>8.8%</td>
<td>8.9%</td>
<td>9.0% (2nd Qtr 2002)</td>
</tr>
<tr>
<td class="firstcol">Italy: Employment in Industry*</td>
<td>n.a.</td>
<td>n.a.</td>
<td>90.7</td>
<td>90.8</td>
<td>91.6</td>
<td>93.1 (June 2002)</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy: Employment in Services*</td>
<td>n.a.</td>
<td>n.a.</td>
<td>98.8</td>
<td>98.7</td>
<td>98.7</td>
<td>98.5 (June 2002)</td>
</tr>
</tbody>
</table>
</body>
</html>

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?

260713.jpg

Norway

Norwegian IP Struggles, but Manufacturing Shows Some Strength

260710E.jpg

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

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

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

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

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

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

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

260710.jpg

Europe

Industrial Sector Remains Under Pressure in EMU

Andrew Cates

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

260709Z1.jpg

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

260709Z2.jpg

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

260709Z3.jpg

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

260709Z4.jpg

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

260709Z5.jpg

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

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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.

Economy in Brief

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OECD Leaders Build Upward Momentum

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US Dollar Down Even Before the August Employment Report

Canadian Employment Down, Unemployment Up in August

U.S. Nonfarm Payrolls Fell Unexpectedly

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Labor Markets Stabilize in Germany and Italy