Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030818b.jpg" width="353">
The Consumer Price Index (CPI-U) rose an expected 0.2% in July following a like increase in June.
The CPI less food and energy also rose 0.2%. That rise was stronger than Consensus expectations for a 0.1% increase. A 1.2% jump in tobacco prices and an uptick in services prices accounted for the surprise.
Continued deflation in the goods sector was led by lower prices for new and used vehicles (-2.3% y/y) and lower prices for household furnishings and operation (-1.9% y/y). Apparel prices were unchanged m/m but still are down 2.0% y/y.
Core services prices managed a moderate 0.3% gain following the weak 0.1% rise in June. Education and communication prices surged 0.5% (1.3% y/y) following four consecutive months of decline. A sharper increase in August may follow warned the Bureau of Labor Statistics. Shelter prices recovered 0.3% (2.4% y/y) versus the slight June decline. Medical care services prices rose 0.4% for the second month (4.3% y/y).Public transportation prices were strong, rising for the fifth straight month (3.3 y/y).
Energy prices increased moderately. Gasoline prices, up 1.2%, were strong for the second month and they have risen by more than double that degree so far in August. Fuel oil prices recovered 1.0% following three months of decline.
The chained CPI which adjusts for shifts in consumer buying behavior was unchanged m/m and during the last four months has fallen 0.3%. It is similar to the PCE price deflator. The core price measure rose 0.1% after the 0.2% drop in June.
Analysis from the Federal Reserve Bank of St. Louis titled &quot;Deflation, Corrosive and Otherwise&quot; can be found <a href="http://research.stlouisfed.org/publications/net/20030701/netpub.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>1.6%</td>
<td>2.8%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>1.5%</td>
<td>2.3%</td>
<td>2.7%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-1.8%</td>
<td>-1.1%</td>
<td>0.3%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>3.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>0.4%</td>
<td>0.8%</td>
<td>9.1%</td>
<td>-5.8%</td>
<td>3.7%</td>
<td>16.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>3.1%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<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>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a></td>
<td>0.0%</td>
<td>0.1%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>1.0%</td>
<td>1.8%</td>
<td>&nbsp;2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
 Industrial Production Gain Boosted By Hot Weather 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 15, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030818c.jpg" width="353">
Industrial production in July rose more than Consensus expectations for a 0.2% gain. The 0.5% gain was boosted by a 3.8% surge in utility output which was only the second m/m increase since February. Modest May &amp; June gains in total output were revised down.
Output in the manufacturing sector rose a modest 0.2% (-1.3% y/y). The previously reported 0.5% surge in June was revised lower to 0.3%.
Output in selected high-technology industries rose strongly last month as it has all year. The 0.8% (9.3% y/y) gain was powered by a 1.6% (21.9% y/y) surge in computers and peripheral equipment output. Output of semiconductors and related equipment (15.9% y/y) also has been strong.
Excluding high-tech, factory output rose 0.1% (-2.0% y/y) in July. Motor vehicle output jumped 2.9% (-0.9% y/y) output of electrical equipment and appliances sagged 0.7% (-3.8% y/y). Output of furniture rose 2.3% (-2.3% y/y) but a 1.0% June gain was revised to a 0.8% decline. Output of nondurable goods fell 0.4% (-3.0% y/y)
Total capacity utilization rose slightly to 74.5%. Factory sector utilization rose to 72.8%. Growth in capacity remained slow at 1.1% y/y versus 1.5% growth last year and 3.2% growth in 2001. Growth in factory sector capacity has been an even slower 0.7% y/y versus 1.3% growth last year.
The influence of trend output growth on the US economy&#39;s &quot;speed limit&quot; is discussed by the Federal Reserve Bank of San Francisco <a href="http://www.frbsf.org/publications/economics/letter/2003/el2003-14.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Industrial Production</td>
<td>0.5%</td>
<td>0.0%</td>
<td>-1.4%</td>
<td>-0.8%</td>
<td>-3.5%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>74.5%</td>
<td>74.2%</td>
<td>76.4%(7/02)</td>
<td>75.6%</td>
<td>77.3%</td>
<td>82.7%</td>
</tr>
</tbody>
</table>
Empire State Factory Survey Fell in August 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 15, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030818a.jpg" width="353">
The Empire State Index of General Business Conditions fell unexpectedly for August. The NY Fed&#39;s Manufacturing Survey indicated that the index fell to 9.98 this month versus Consensus expectations for a reading of 20.0.
Declines in the inventory and in the unfilled orders indexes may have accounted for much of the lower overall index. New orders fell just moderately while shipments and employment improved, the latter meaningfully.
The index of prices paid fell to a low 4.08. That&#39;s less than half the average reading so far this year.
The survey includes measures of business expectations six months ahead. This diffusion index improved substantially to 59.47 though expectations for capital expenditures fell.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question, not the components.
For the latest Empire State Manufacturing Survey report, click <a href="http://www.newyorkfed.org/rmaghome/regional/mfg_survey/index.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General business conditions (diffusion index)</td>
<td>9.98</td>
<td>20.83</td>
<td>3.41</td>
<td>7.10</td>
<td>-13.02</td>
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</table>
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The Consumer Price Index (CPI-U) rose an expected 0.2% in July following a like increase in June. The CPI less food and energy also rose 0.2%. That rise was stronger than Consensus expectations for a 0.1% increase. A 1.2% jump in [...]

CPI Up As Expected

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/030814d.jpg" width="353">
Growth in the Euro-Zone remained sluggish in the second quarter, according to the &quot;Flash&quot; estimate released by Eurostat on August 14. A flat quarter-on-quarter result pulled the year-to-year growth rate down to 0.4% from 0.9% in the first quarter. As seen in the accompanying chart, Germany experienced a modest outright decrease, which, along with a decline in the Netherlands, worked against a strong rise in Greece and a modest increase in Italy.. This lackluster performance are perhaps at least partially a consequence of the strong euro; for the entire first half of 2003, it was more than 20% higher than a year ago. And the Federal Statistics Office in Germany informs that the second quarter&#146;s weakness there was due to a reduction in exports. Numerical details will be reported August 21; meanwhile the Statistics Office press release explains that growth in domestic demand was insufficient to offset the shrinking export surplus.

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<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">(Percent Changes)</th>
<th scope="col">Qtr/Qtr</th>
<th scope="col">Qtr/Qtr</th>
<th scope="col">Year/Year</th>
4th Qtr/4th Qtr
</tr>
</thead>
<tbody>
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<td class="firstcol"></td>
<td>2nd Qtr 2003</td>
<td>1st Qtr 2003 &nbsp;</td>
<td></td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">Euro-zone</td>
<td>0.0</td>
<td>0.1</td>
<td>0.4</td>
<td>1.2</td>
<td>0.6</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-.01</td>
<td>-0.2</td>
<td>-0.6</td>
<td>0.3</td>
<td>0.4</td>
<td>0.9</td>
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Growth in the Euro-Zone remained sluggish in the second quarter, according to the "Flash" estimate released by Eurostat on August 14. A flat quarter-on-quarter result pulled the year-to-year growth rate down to 0.4% from 0.9% in the [...]

Flash GDP Estimates Show Decline in Germany, Weak Growth in Euro-Zone

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030814a.jpg" width="353">
Finished producer prices matched Consensus expectations and rose 0.2% in July following a 0.1% June drop. Excluding food and energy prices rose 0.2%, a bit more than expectations for no change.
Higher prices for capital equipment led the advance in the core PPI. The gain reflected strong increases in the prices of civilian aircraft, office &amp; store machines and transformers &amp; power regulators.
Core finished consumer goods prices were tame, rising 0.1% (-0.1% y/y) following a 0.1% decline in June. Nondurables prices rose 0.1% (-0.2% y/y) and durables rose 0.2% (0.1% y/y).
Finished energy prices rose a modest 0.3% (14.6% y/y) following the strong 3.4% June gain. Gasoline prices rose 1.6% (16.2% y/y). Fuel oil prices rose 1.9% (18.9% y/y) and residential gas prices fell 0.8% (34.1% y/y). These energy product price series are NSA.
Intermediate goods prices rose 0.2% powered by a 1.3% gain in energy prices. A 44.6% (45.4% y/y) gain in residual fuel prices accounted for this strength. Core intermediate goods prices fell for the third month in the last four. 
Crude goods prices dropped 2.9% as energy prices fell 4.4% (53.9% y/y). Crude petroleum prices were down but crude natural gas prices slid 6.2% pulling them down by almost a third versus the March peak. Core crude prices rose a moderate 0.8%. Iron and steel scrap prices (a very sensitive indicator of activity in the factory sector) rose 3.6% (10.8% y/y) for the first gain in four months.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.0%</td>
<td>-1.3%</td>
<td>2.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.2%</td>
<td>0.5%</td>
<td>4.4%</td>
<td>-1.5%</td>
<td>0.4%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>1.8%</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-2.9%</td>
<td>4.5%</td>
<td>24.7%</td>
<td>-10.6%</td>
<td>0.3%</td>
<td>22.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.8%</td>
<td>0.6%</td>
<td>4.0%</td>
<td>3.8%</td>
<td>-10.0%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
 U.S. Trade Deficit Narrowed As Exports Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 14, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030814b.jpg" width="353">
The U.S. foreign trade deficit narrowed unexpectedly to $39.5B in June versus Consensus expectations for a deficit of $41.6B. The deficit in May was revised slightly to $41.5B from $41.8B.
The narrower June trade deficit could lead to an upward revision of 2Q GDP growth.
For the first six months of this year, the trade deficit averaged a $488.6B annual rate.
Exports rose strongly for the second consecutive month, up 2.4%, and have risen at an 8.9% annual rate YTD. Exports of capital goods (15.4% YTD, AR) and nonauto consumer goods (20.6% YTD, AR) have been quite strong. Services exports surged 2.7% following a 3.4% gain in May.
Imports were unchanged in June reflecting a 4.4% m/m decline in imports of nonauto consumer goods that was offset by a gain in imports of autos and other goods. Petroleum imports rose 1.5% as the per barrel price of crude petroleum rose 5.8% to $25.50. The daily quantity of crude petroleum imports rose and is up 15.2% y/y.
The cover of the annual edition of International Economic Trends, titled &quot;Border Effects&quot;, from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/aiet/20030701/cover.pdf">here</a>.

<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/USECON/@EE/@EE03/@EE03.HTM">Foreign Trade</a></th>
<th scope="col">June</th>
<th scope="col">May</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">Trade Deficit</td>
<td>$39.5B</td>
<td>$41.5B</td>
<td>$35.6B(6/02)</td>
<td>$418.0B</td>
<td>$357.8B</td>
<td>$375.4B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>2.4%</td>
<td>1.7%</td>
<td>3.2%</td>
<td>-3.3%</td>
<td>-5.8%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>0.0%</td>
<td>1.0%</td>
<td>5.6%</td>
<td>2.0%</td>
<td>-5.5%</td>
<td>18.5%</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 14, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030814c.jpg" width="353">
Initial claims for unemployment insurance rose a slight 2,000 to 398,000 and the prior week&#39;s level was revised up slightly. Consensus expectations had been for claims of 395,000.
The four-week moving average of initial claims fell to 394,250 (+2.6% y/y), the second consecutive and only the second week since late February below 400,000.
Continuing claims for unemployment insurance fell 6,000 (-0.2%) and the prior week&#39;s sharp increase was revised lower. It was the third decline in the last five weeks.
The insured rate of unemployment was stable at 2.9%.

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<thead>
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<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">8/09/03</th>
<th scope="col">8/02/03</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>398.0</td>
<td>396.0</td>
<td>2.3%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,657</td>
<td>3.8%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
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Finished producer prices matched Consensus expectations and rose 0.2% in July following a 0.1% June drop. Excluding food and energy prices rose 0.2%, a bit more than expectations for no change. Higher prices for capital equipment led [...]

Producer Prices Up As Expected, But Core Prices Firmed

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030813e.jpg" width="353">
Labor markets in the UK improved moderately in the latest data reported Wednesday. Unemployment sustained a 5.0% level for a second month in these data reported as a 3-month centered moving average. This new report shows the averages for April through June and is recorded as a &quot;May&quot; figure; it thus covers the whole of the second quarter. Compared with the first quarter, the unemployment rate is down 0.1%. That for men improved to 5.5% from 5.7% in the first quarter and a high of 5.9% in the third quarter of last year. The rate for women decreased from 4.4% in the first quarter to 4.3%, a record low [these &quot;ILO definition&quot; unemployment data begin in 1992.].. The other side of the coin, employment, also shows modest improvement. It is up 63,000 on the quarter (0.2%) and 224,000 on the year (0.8%). Men fared better than women, however, gaining 85,000 over the first quarter, while women employees decreased by 21,000. The corresponding employment rate (similar to te US concept: the number employed as a ratio to the working age population over age 16) rose to a record high 59.9%. Average earnings, of key concern to policymakers in the UK, slowed to a 3.1% rate of gain in the three months to June, compared to 3.4% in the March period and 3.3% from a year earlier.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">All Data (% Change, Annual Rate)</th>
<th scope="col">&quot;May&quot; &nbsp;(3&nbsp; months ended Jun)</th>
<th scope="col">&quot;Feb&quot; &nbsp;(3 months ended Mar</th>
<th scope="col">Year Ago</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">Unemployment Rate</td>
<td>5.0</td>
<td>5.1</td>
<td>5.1</td>
<td>5.2</td>
<td>5.1</td>
<td>5.4</td>
</tr>
<tr>
<td class="firstcol">Employment Rate</td>
<td>59.9</td>
<td>59.8</td>
<td>59.7</td>
<td>59.6</td>
<td>59.6</td>
<td>59.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Hourly Earnings (Annual % Change)</td>
<td>3.1</td>
<td>3.4</td>
<td>3.9</td>
<td>3.6</td>
<td>4.4</td>
<td>4.6</td>
</tr>
</tbody>
</table>
</body>
</html>

Labor markets in the UK improved moderately in the latest data reported Wednesday. Unemployment sustained a 5.0% level for a second month in these data reported as a 3-month centered moving average. This new report shows the averages [...]

Record High Employment Rate in UK; Wages Moderate

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030812b.jpg" width="353">
The Japanese economy grew 0.6% in the second quarter, the sixth quarter of growth and well above the consensus estimate of 0.2%. First quarter growth was revised upward from 0.1% to 0.3%. All major sectors except for government consumption, showed increases. Private consumption increased by 0.3%. Gross capital formation increased by 1% in the second quarter, marking its fifth consecutive rise. With exports up 1% and import down by 1%, the foreign trade sector made a significant contribution to growth.. Deflation, however, continues as can be seen in the attached chart that compares nominal and real GDP. Progress has been slow on Prime Minister Koizumi&#39;s attempt to dispose of the 44.5 trillion yen ($370 billion) of bad loans at Japan&#39;s banks and until this problem is resolved there is no assurance of a substantial and sustained recovery in Japan.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Q2/03</th>
<th scope="col">Q1/03</th>
<th scope="col">Q2/02</th>
<th scope="col">Q/Q % Chg</th>
<th scope="col">Y/Y % Chg</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP (Trillion Current Yen SAAR)</td>
<td>498.0</td>
<td>497.3</td>
<td>500.3</td>
<td>0.15</td>
<td>-0.44</td>
<td>500.0</td>
<td>506.3</td>
<td>510.3</td>
</tr>
<tr>
<td class="firstcol">GDP (Trillion 1995 Yen)</td>
<td>547.9</td>
<td>544.8</td>
<td>536.7</td>
<td>0.57</td>
<td>2.09</td>
<td>537.5</td>
<td>535.3</td>
<td>531.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Consumption</td>
<td>301.2</td>
<td>300.3</td>
<td>297.4</td>
<td>0.31</td>
<td>1.29</td>
<td>298.2</td>
<td>293.9</td>
<td>287.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Government Consumption</td>
<td>91.1</td>
<td>91.4</td>
<td>90.7</td>
<td>-0.40</td>
<td>0.43</td>
<td>90.9</td>
<td>88.8</td>
<td>86.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Gross Capital Formation</td>
<td>139.4</td>
<td>138.0</td>
<td>134.4</td>
<td>1.02</td>
<td>3.74</td>
<td>134.9</td>
<td>142.7</td>
<td>143.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>64.6</td>
<td>64.0</td>
<td>60.9</td>
<td>0.96</td>
<td>6.08</td>
<td>60.7</td>
<td>56.1</td>
<td>59.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>-48.4</td>
<td>-49.0</td>
<td>-46.7</td>
<td>-1.10</td>
<td>3.78</td>
<td>-47.1</td>
<td>-46.2</td>
<td>-46.1</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
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The Japanese economy grew 0.6% in the second quarter, the sixth quarter of growth and well above the consensus estimate of 0.2%. First quarter growth was revised upward from 0.1% to 0.3%. All major sectors except for government [...]

Japan's Growth Exceeds Expectations, but Deflation Still a Problem

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030812a.jpg" width="353">
Chain store sales ticked 0.1% higher last week according to the BTM-UBSW survey. The mailing of tax-rebate checks, state tax holidays and the beginning of the back-to-school shopping season likely encouraged sales.
The small advance in the first full week of August pulled the level of sales so far this month 1.1% above the July average. July sales rose 1.4% from June.
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.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">8/9/03</th>
<th scope="col">8/2/03</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>428.3</td>
<td>427.7</td>
<td>3.7%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
Fed Funds Rate Left Unchanged by FOMC 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 12, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030812c.jpg" width="353">
The Federal Reserve left the target rate for federal funds unchanged at 1.00%. The discount rate also was left unchanged at 2.00%.
The unanimous action was as expected by economists.
The press release which accompanied the Fed&#146;s action contained the following statement. &quot;The Committee continues to believe that an accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, is providing important ongoing support to economic activity. The evidence accumulated over the intermeeting period shows that spending is firming, although labor market indicators are mixed. Business pricing power and increases in core consumer prices remain muted.&quot;
With regard to the risks to the economic outlook, the Fed stated that &quot;the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level. The Committee judges that, on balance, the risk of inflation becoming undesirably low is likely to be the predominant concern for the foreseeable future.&quot;
<a href="http://www.federalreserve.gov/boarddocs/press/monetary/2003/20030812/default.htm">Here</a> is the complete text of the Fed&#39;s latest press release.
Analysis from the Federal Reserve Bank of St. Louis titled &quot;Alternative Policy Weapons?&quot; can be found in this <a href="http://research.stlouisfed.org/publications/mt/20030801/cover.pdf">link</a>.

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Chain store sales ticked 0.1% higher last week according to the BTM-UBSW survey. The mailing of tax-rebate checks, state tax holidays and the beginning of the back-to-school shopping season likely encouraged sales. The small advance [...]

Chain Store Sales Tick Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030811b.jpg" width="353">
Since late 2002, the prices manufacturers in the UK pay for the raw materials of their products have generally been rising faster than the prices they receive for their finished products. In July, the year to year increase in input prices was 2.79% while the increase in output prices was 1.38%.. Although labor is, in general, much the largest cost of production and is not included in the input index, the relationship between prices of final goods and the prices of raw material prices is often a good indicator of profit trends. In the UK, corporate profits are defined as the gross operating surplus of corporations in the national accounts. According to this measure, profits in the first quarter of this year have decelerated to 7.4% from an increase of 9.9% in the fourth quarter of 2002. The trend in output and input prices since then, suggests a further squeeze on profits in the UK.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"> </th>
<th scope="col">July 2003</th>
<th scope="col">June 2003</th>
<th scope="col">July 2002</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">1995=100</td>
<td></td>
<td></td>
<td></td>
<td>%</td>
<td>%</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Input Prices</td>
<td>92.0&nbsp;</td>
<td>91.2</td>
<td>89.5</td>
<td>0.88</td>
<td>2.79</td>
<td>90.0</td>
<td>93.0</td>
<td>93.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Output Prices</td>
<td>110.2</td>
<td>110.0</td>
<td>108.7</td>
<td>0.10</td>
<td>1.38</td>
<td>408.5</td>
<td>408.2</td>
<td>108.0</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Y/Y % Change</td>
<td>Q1 03</td>
<td>Q4 02</td>
<td>Q3 02</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">Gross Operating Surplus of Corporations</td>
<td>7.41</td>
<td>9.92</td>
<td>8.82</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>8.36</td>
<td>0.77</td>
<td>4.98</td>
</tr>
</tbody>
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Since late 2002, the prices manufacturers in the UK pay for the raw materials of their products have generally been rising faster than the prices they receive for their finished products. In July, the year to year increase in input [...]

Price Trends in UK Manufacturing Industry Point to Further Profit Squeeze

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.

Economy in Brief

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CPI Up As Expected

Flash GDP Estimates Show Decline in Germany, Weak Growth in Euro-Zone

Producer Prices Up As Expected, But Core Prices Firmed

Producer Prices Up As Expected, But Core Prices Firmed

Record High Employment Rate in UK; Wages Moderate

Japan's Growth Exceeds Expectations, but Deflation Still a Problem

Chain Store Sales Tick Higher

Price Trends in UK Manufacturing Industry Point to Further Profit Squeeze