Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029b.jpg" align="left" border="0" height="265" width="353">
During September, new orders for durable goods ticked up 0.8%
after falling 5.5% during August, a decline revised from the -4.5%
figure reported initially. Though the September rise in orders beat
Consensus expectations for a 1.0% decline, there where few, if any,
areas of strength. The gain mostly reflected a 21.8% (-16.6% y/y) jump
in new orders for aircraft &amp; parts that offset most of a
decline during August. (Nondefense aircraft orders rose 29.7% (-34.1%
y/y).
Highlighting the weakness in durable goods orders last month
was a 1.1% decline in new orders less the transportation sector
altogether. That followed a 4.1% drop during August, initially reported
at down 3.0%. The September decline about matched Consensus
expectations but during the last three months, orders less the
transportation sector fell at a 19.0% annual rate.
The rise in aircraft orders did lift overall orders for
nondefense capital goods by 0.8%, but that followed a little-revised
7.7% plunge during August. Without aircraft, nondefense capital goods
orders fell 1.4% after 2.2% drop during August. These declines lowered
the three-month growth rate to -12.4%, the worst since early last year.
During the last ten years there has been an 80% correlation between the
y/y gain in nondefense capital goods orders and the rise in equipment
&amp; software spending in the GDP accounts. The correlation of the
GDP figure with capital goods shipments is, as one would expect, a
larger 92%.
The industry detail highlights the recent weakness in factory
orders. Orders for machinery ticked up just 0.5% after a 6.4% drop
during August. That left the three-month growth rate at -9.5%.Primary
metals orders fell sharply for the second consecutive month with a 4.5%
(+1.6% y/y) drop which followed a downwardly revised 12.5% August
plunge. New orders for electrical equipment increased 1.5% (1.1% y/y)
after a 3.5% August decline. On a three-month basis these orders were
down at a 35.0% annual rate.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029c.jpg" align="right" border="0" height="265" width="353">
New orders for computers &amp; electronic products
continued on their weaker trend-line with a 1.4% drop last month. On a
three-month basis these orders fell at a 15.0% annual rate after their
2.1% decline during all of last year. Orders for just computers
&amp; related products fell 2.8% and on a three-month basis they
were off at a 47.9% annual rate. New orders for communications
equipment also have been quite weak and they fell 14.6% last month.
Three-month growth was -36.6% (AR) after last year's 7.5% decline.
Reflecting past weakness in new orders was a 0.2% rise in
overall shipments of durable goods which made up little of a 4.2%
August fall. During the last three months growth was a negative 7.6%
(AR) after last year's negligible 0.1% uptick. For comparison,
industrial production of durable goods during the last three months
fell at a 13.5%. During the last ten years there has been a 62%
correlation between the three-month change in shipments of durable
goods and the change in durables industrial production. Less
transportation, shipments of durable goods fell 0.4% following a 2.9%
August drop. Three-month growth fell to -4.8% (AR).
Inventories of durable goods rose just 0.4% (8.1% y/y), the
weakest monthly increase since last October. Three-month growth eased
slightly to a still strong 8.8%. Less transportation, inventories rose
a weaker 0.5% and the three-month growth rate eased slightly to 9.4%
(AR) after the 1.4% rise during 2007.
Addressing the Credit Crisis is a speech
given earlier this month by Dallas Fed President Richard W. Fisher and
it can be found <a href="http://dallasfed.org/news/speeches/fisher/2008/fs081012.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS
Classification</a> (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>0.8</td>
<td>-5.5</td>
<td>-3.6</td>
<td>1.4</td>
<td>6.2</td>
<td>10.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Excluding Transportation</td>
<td>-1.1</td>
<td>-4.1</td>
<td>-0.6</td>
<td>-0.3</td>
<td>9.1</td>
<td>9.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>0.8</td>
<td>-7.7</td>
<td>-7.2</td>
<td>3.5</td>
<td>9.4</td>
<td>17.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-1.4</td>
<td>-2.2</td>
<td>0.5</td>
<td>-2.7</td>
<td>10.7</td>
<td>11.6</td>
</tr>
</tbody>
</table>
U.S. Mortgage Applications
Recovered Last Week; Off Two-Thirds From Peak 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 29, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029d.jpg" align="left" border="0">
The total number of mortgage applications rose 28.5% last week
and that recovered all of the prior period's decline, according to the
Mortgage Bankers Association. Nevertheless, the October average fell
20.0% from September and applications were two-thirds below their peak
reached this past January.
Last week, applications for a mortgage to purchase a home made
up most of the prior week's decline with an 8.5% rise. For October so
far, however, purchase applications reversed most of the prior month's
gain with a 13.3% decline. During the latest week purchase applications
were down 43% from their 2005 peak.
During the last ten years there has been a 61% correlation
between the y/y change in purchase applications and the change in new
plus existing single family home sales. Figures covering sales of
existing single-family home will be available this Friday while
single-family home sales will be published early next week.
Applications to refinance a home mortgage recovered most of
the prior week's decline with a 28.5% increase but applications in
October overall remained 20% below September. During September,
applications to refinance had risen 61.9% from August as 15-year
mortgage rates fell briefly to 5.54%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029e.jpg" align="right" border="0">
The effective interest rate on a conventional 15-year mortgage
slipped last week to 6.30% following an average of 6.01% last month.
For a 30-year mortgage, rates slipped w/w to 6.48%. Interest rates on
15 and 30 year mortgages are closely correlated (&gt;90%) with the
rate on 10-year Treasury securities. For an adjustable rate 1-Year
mortgage the rate also slipped w/w to 6.95% after having averaged 6.70%
last month.
During the last ten years there has been a (negative) 79%
correlation between the level of applications for purchase and the
effective interest rate on a 30-year mortgage.
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 covers roughly 50% of
all U.S. residential mortgage applications processed each week by
mortgage banks, commercial banks and thrifts. Visit the Mortgage
Bankers Association site <a href="http://www.mbaa.org">here</a>.
The figures for weekly mortgage applications are available in
Haver's SURVEYW database.

<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/@S5/@S5.HTM">MBA
Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">10/24/08</th>
<th scope="col">10/17/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>476.7</td>
<td>408.1</td>
<td>-30.1%</td>
<td>652.6</td>
<td>584.2</td>
<td>708.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>303.1</td>
<td>279.3</td>
<td>-26.6%</td>
<td>424.9</td>
<td>406.9</td>
<td>470.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,489.4</td>
<td>1,158.8</td>
<td>-33.8%</td>
<td>1,997.9</td>
<td>1,634.0</td>
<td>2,092.3</td>
</tr>
</tbody>
</table>
FOMC Cut Funds Rate to 1.00%; The
Lowest Since 2004 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 29, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029f.jpg" align="left" border="0" height="265" width="353">
The Federal Open Market Committee today cut the Federal funds
rate, as expected, to 1.00% from 1.50%. The discount rate also was cut
to 1.25%. The latest Fed funds rate was its lowest since 2004.
The Fed indicated three specific reasons for lowering interest
rates today. 1) A slowdown in U.S. economic growth due to slower
consumer spending and weaker business investment spending 2) Financial
market turmoil and 3) an expectation for moderation in inflation due to
lower energy and other commodity prices as well as slower economic
growth.
Credit market conditions were expected by the Fed to improve
due to interest rate cuts around the world, "extraordinary liquidity
measures" and actions to strengthen financial systems.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029g.jpg" align="right" border="0" height="265" width="353">
The decision was unanimous amongst FOMC voters.
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081029a.htm">link</a>.
How Economic News Moves Markets from the
Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci14-6.pdf">here</a>. 
 
 
 
 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">September</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>1.00</td>
<td>1.50</td>
<td>2.00</td>
<td>5.05</td>
<td>4.96</td>
<td>3.19</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>1.25</td>
<td>1.75</td>
<td>2.25</td>
<td>5.86</td>
<td>5.96</td>
<td>4.19</td>
</tr>
</tbody>
</table>
Japan&#8217;s Industrial Output Recoups
Some of Loss 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 29, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029a.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s IP fell sharply by 3.5% in August, but it has made a
substantial rebound in September. Still the trends for IP all are
lower, as the sequential growth rates in the table below show. The
rebounds by sector in September are only about one-third of the drop
made in August.
Year-over-year, Japan&#8217;s IP is still rising at a 2.7% pace.
Consumer goods output is up by a strong 3.9% while investment goods
output is up by 0.5% at an annual rate. The investment goods side is
slowing down faster than the consumer goods side.
That trend is in place for the quarter as well. With the
September figures just in to complete the quarter, Q3 reveals that
overall IP is falling at a 5% pace in MFG. Investment goods output is
dropping at a sizeable 13.2% pace while the output of consumer goods is
still up at a 4.1% pace. Since consumers are showing weakness around
the world in terms of lower confidence and reduced spending and since
Japan is a strong exporter of consumer goods this sector is due to get
hit much harder.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr> <th colspan="9" scope="col">Japan
Industrial Production Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
<td>Qtr-to-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">seas adjusted</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>% AR</td>
</tr>
<tr>
<td class="firstcol">Mining &amp; Mfg</td>
<td>1.2%</td>
<td>-3.5%</td>
<td>1.3%</td>
<td>-4.1%</td>
<td>-1.3%</td>
<td>-1.9%</td>
<td>2.7%</td>
<td>-4.8%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>1.1%</td>
<td>-3.6%</td>
<td>1.5%</td>
<td>-4.1%</td>
<td>-1.3%</td>
<td>-2.1%</td>
<td>3.0%</td>
<td>-4.5%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>1.1%</td>
<td>-3.5%</td>
<td>1.2%</td>
<td>-4.8%</td>
<td>-1.7%</td>
<td>-2.1%</td>
<td>2.8%</td>
<td>-5.0%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>-1.4%</td>
<td>-0.2%</td>
<td>-2.9%</td>
<td>-16.6%</td>
<td>-13.7%</td>
<td>-10.6%</td>
<td>-6.8%</td>
<td>-16.2%</td>
</tr>
<tr>
<td class="firstcol">T-port</td>
<td>4.4%</td>
<td>-9.8%</td>
<td>4.0%</td>
<td>-7.9%</td>
<td>-1.2%</td>
<td>-1.3%</td>
<td>10.4%</td>
<td>-7.4%</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Product Group</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.9%</td>
<td>-3.3%</td>
<td>3.6%</td>
<td>4.5%</td>
<td>4.3%</td>
<td>0.6%</td>
<td>3.9%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.5%</td>
<td>-2.3%</td>
<td>-0.2%</td>
<td>-7.8%</td>
<td>-3.6%</td>
<td>-1.8%</td>
<td>3.4%</td>
<td>-5.6%</td>
</tr>
<tr>
<td class="firstcol">Investment Goods</td>
<td>4.7%</td>
<td>-5.2%</td>
<td>-0.5%</td>
<td>-5.1%</td>
<td>-2.4%</td>
<td>-4.9%</td>
<td>0.5%</td>
<td>-13.2%</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>-4.4%</td>
<td>1.6%</td>
<td>4.2%</td>
<td>4.7%</td>
<td>2.5%</td>
<td>-1.4%</td>
<td>1.8%</td>
<td>12.4%</td>
</tr>
<tr>
<td class="firstcol">Electricity &amp; Gas</td>
<td>2.0%</td>
<td>-7.6%</td>
<td>6.3%</td>
<td>0.4%</td>
<td>-0.8%</td>
<td>-3.9%</td>
<td>8.8%</td>
<td>-1.8%</td>
</tr>
</tbody>
</table>
</body></html>

During September, new orders for durable goods ticked up 0.8% after falling 5.5% during August, a decline revised from the -4.5% figure reported initially. Though the September rise in orders beat Consensus expectations for a 1.0% [...]

U.S. Durable Goods Orders Ticked Up

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081028g.jpg" align="left" border="0" height="265" width="353">
Reflecting turbulence in the financial markets, the Conference
Board reported that its October index of consumer confidence collapsed
by more than one-third m/m to a record low level.
The latest index level of 38.0, off by two-thirds from last year,
followed a level of 61.4 during September. Consensus expectations had
been for a lesser m/m decline to a reading of 52.0.
During the last ten years there has been a 79% correlation
between the level of consumer confidence and the y/y change in real
consumer spending.
This month's decline reflected a 42.3% m/m plunge in the
expectations component of the index. The index was at a record low
level and the October drop followed increases during the prior three
months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081028h.jpg" align="right" border="0" height="265" width="353">
Fewer jobs were seen by 41.5% of respondents, the highest
since 1980. Only 4.4% planned to buy an automobile and just 3.3%
planned to buy carpet. Both of these percentages set the record low for
the series. Twenty six percent of respondents planned to buy a major
appliance within six months, near the fifteen year low. Only 2.7% of
respondents planned to buy a home within six months, down from the high
near 5% in 1999.
The percentage of respondents expecting business conditions to
worsen in six months jumped to 36.6%, the highest level since the
credit crunch of 1980. Only 9.9% expected improvement in conditions.
Down by nearly one-third m/m, the present conditions index
fell to the lowest level since 1992. Jobs were seen as hard to get by
37.2% of respondents, the highest since 1993 and jobs were seen as
plentiful by just 8.9%. Business conditions were seen as good by just
9.2%, the lowest since 1991. Those who thought it bad rose to 38.3%,
also the highest since 1992.
Expectations for the inflation rate in twelve months
surprisingly rose to 6.9%, the highest level since July. 
The Enduring Challenge of Concentrated Poverty: Case
Studies from Communities Across the U.S. from the U.S.
Federal Reserve Board is available <a href="http://www.federalreserve.gov/newsevents/press/other/20081024a.htm">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Conference
Board &nbsp;(SA, 1985=100)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y %</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer
Confidence Index</td>
<td>38.0</td>
<td>61.4</td>
<td>-60.1</td>
<td>103.4</td>
<td>105.9</td>
<td>100.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Present Situation</td>
<td>41.9</td>
<td>61.1</td>
<td>-64.5</td>
<td>128.8</td>
<td>130.2</td>
<td>116.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Expectations</td>
<td>35.5</td>
<td>61.5</td>
<td>-55.6</td>
<td>86.4</td>
<td>89.7</td>
<td>89.7</td>
</tr>
</tbody>
</table>
</body></html>

Reflecting turbulence in the financial markets, the Conference Board reported that its October index of consumer confidence collapsed by more than one-third m/m to a record low level. The latest index level of 38.0, off by two-thirds [...]

Consumer Confidence Collapses To Record Low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081028e.jpg" align="left" border="0" height="265" width="353">
The S&amp;P/Case-Shiller Composite 20
Home Price Index fell another 1.0% in August which about matched the
July drop. Since their peak in July 2006 prices have fallen
20.0% -- down 16.6% during the last twelve months. The series
dates back only to 2000. The decline in August prices was as expected.
The Case-Shiller index of 20 U.S. cities and their surrounding
areas is weighted to reflect price changes due to extensive remodeling,
home additions or extreme neglect. For example, smaller weights are
assigned to sales of homes that have undergone extensive remodeling.
The Case-Shiller composite index of homes in 10 metropolitan
areas, which has a longer history and dates back to 1987, fell 1.1% in
August, the same as during July. The index was down 17.7% year-to-year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081028f.jpg" align="right" border="0" height="265" width="353">
Home prices in Phoenix, Nevada continued quite weak and fell
2.9% during August (-30.7% y/y) and in San Diego prices fell 2.3%
(-25.8% y/y). Home prices in Las Vegas, Nevada were down 2.4% (-30.6%
y/y), about as they were in July. Prices in Miami also repeated their
August performance and fell 1.8% (-28.1% y/y) while the same was true
for home prices in Los Angeles, down 26.7% y/y. In San Francisco home
prices were off 27.3% y/y and prices in Tampa, Florida posted an 18.1%
y/y decline.
In the Northeast home prices have held up relatively well. In
New York prices fell a lesser 6.9% y/y and they were down 4.7% in
Boston. In Dallas prices also were off a modest 2.7% y/y and by 2.8% in
Charlotte, North Carolina. In Denver home prices were off 5.1% y/y and
they were down 6.6% in Cleveland Ohio.
The S&amp;P/Case-Shiller home price series can be found in
Haver's USECON database but the city data is in the
REGIONAL database.
The latest press release from Standard &amp; Poor's can be
found <a href="http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_102831.pdf">here</a>.
An overview of the S&amp;P/Case-Shiller home price series
can be found <a href="http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">S&amp;P/Case-Shiller
Home Price Index (NSA, Jan 00 = 100)</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">20 City Composite
Index</td>
<td>164.57</td>
<td>166.29</td>
<td>-16.6%</td>
<td>-3.8%</td>
<td>7.6%</td>
<td>15.8%</td>
</tr>
</tbody>
</table>
</body></html>

The S&P/Case-Shiller Composite 20 Home Price Index fell another 1.0% in August which about matched the July drop. Since their peak in July 2006 prices have fallen 20.0% -- down 16.6% during the last twelve months. The series dates [...]

Home Prices Fell 20% Indicates Case-Shiller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081028c.jpg" width="353">
Consumer spending continued to weaken this month, according to the International Council of Shopping Centers-Goldman Sachs Index, chain store sales recovered just a piece of the prior week&#39;s decline. The 0.5% increase came after a 1.6% drop keeping October sales 1.1% below the September average. Chain store sales fell 1.9% during August.
The level of sales during the latest week remained near the lowest since December of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081028d.jpg" width="353">
During the last ten years there has been a 59% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Portending further weakness in consumer spending was a 1.3% drop in the leading indicator of chain store sales from ICSC-Goldman Sachs. It fell 1.3% (-5.8% y/y) during the latest week to the lowest level since 1996.
The chain store sales figures are available in Haver&#39;s SURVEYW database.

<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">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/25/08</th>
<th scope="col">10/18/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>479.3</td>
<td>477.0</td>
<td>1.3%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


</html>

Consumer spending continued to weaken this month, according to the International Council of Shopping Centers-Goldman Sachs Index, chain store sales recovered just a piece of the prior week's decline. The 0.5% increase came after a [...]

U.S. Chain Store Sales Further Confirm Weak Retail Spending

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081028a.jpg" width="353">
The retail price for a gallon of regular gasoline fell by twenty five cents last week. At $2.66 per gallon, according to the U.S. Department of Energy survey, the price was the lowest since March of 2007. Prices have now fallen roughly $1.50 per gallon, or by one-third, since their peak early this past July. The latest decline was accompanied by a drop in the average price for all grades of gasoline to $2.72 per gallon.
Yesterday, the spot market price for a gallon of regular gasoline fell further to $1.60, down twenty cents from last week&#39;s average. In futures trading the November contract closed down further at $1.48 per gallon.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081028b.jpg" width="353">
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
In reaction to the general slowing of U.S. economic growth and relatively high prices, the demand for gasoline is down. The 4.2% y/y decline, according to the U.S. Department of Energy, was the largest y/y drop since late 1995 (the latest four weeks versus the same four weeks last year).
These DOE figures are available in Haver&#39;s OILWKLY database.
The price for a barrel of West Texas Intermediate crude oil fell sharply last week to an average $68.16 per barrel, down by more than one half from the high in July of $145.66. In futures trading, the two-month price for crude oil was down further yesterday at $63.71 per barrel.
Last week prices for natural gas were near their lowest level since August of last year. At an average $6.73 per mmbtu, prices ticked up slightly from the prior week but the average price this month was nearly one-half below the high for natural gas prices in early-July of $13.19/mmbtu.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">10/27/08</th>
<th scope="col">10/20/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>2.66</td>
<td>2.91</td>
<td>-7.5%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>68.18</td>
<td>75.21</td>
<td>-23.9%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
</body>
</html>

The retail price for a gallon of regular gasoline fell by twenty five cents last week. At $2.66 per gallon, according to the U.S. Department of Energy survey, the price was the lowest since March of 2007. Prices have now fallen [...]

U.S. Gasoline Prices Lowest Since March '07 As Demand Falls

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081027e.jpg" width="353">
Europe&#146;s money supply growth and credit growth do not show signs of further slowing in September. Growth is slower that it has been over the past 12months but 3-month growth rates are about the same or a bit higher than 6-month rates of growth. In the US and the UK rates of growth in three months have picked up beyond those for their respective 12-month paces. In Japan money growth rates are very low and continue to ease. The grow rates for real money balances actually look a bit stronger all around except in Japan. 
As the financial problems have gotten worse one thing we have seen is that money supply numbers have bulged. Money demand has three components: precautionary, speculative and transactions demand. We tend to look at increases in money supply as being for transactions demand but in times such as these the precautionary element could be spiking as investors ditch riskier investments and flock to bank deposits. I would not look at the pick up in money growth or in the growth in real money balances as something that is inflationary for that reason. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr><th colspan="8" scope="col">Look at Global and Euro Liquidity Trends </th>

</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar-all</td>
<td colspan="3">Euro Measures (E13): Money &amp; Credit</td>
<td colspan="3">G-10 Major Markets: Money</td>
<td>Memo</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&#128;&#128;-Supply M2</td>
<td>Credit:Resid</td>
<td>Loans</td>
<td>$US M2</td>
<td>&pound;&pound;UK M4</td>
<td>&yen;&yen;Jpn M2+Cds</td>
<td>OIL:WTI</td>
</tr>
<tr class="odd">
<td class="firstcol">3-MO</td>
<td>10.1%</td>
<td>8.5%</td>
<td>7.2%</td>
<td>7.0%</td>
<td>16.3%</td>
<td>1.2%</td>
<td>-63.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">6-MO</td>
<td>9.2%</td>
<td>8.1%</td>
<td>7.0%</td>
<td>4.0%</td>
<td>14.3%</td>
<td>1.8%</td>
<td>-3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">12-MO</td>
<td>10.1%</td>
<td>10.5%</td>
<td>8.7%</td>
<td>6.2%</td>
<td>11.8%</td>
<td>2.2%</td>
<td>30.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">2Yr</td>
<td>10.2%</td>
<td>10.8%</td>
<td>9.7%</td>
<td>6.2%</td>
<td>12.3%</td>
<td>2.0%</td>
<td>27.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">3Yr</td>
<td>9.6%</td>
<td>11.2%</td>
<td>10.2%</td>
<td>5.7%</td>
<td>13.0%</td>
<td>1.5%</td>
<td>16.4%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Real Balances: deflated by Own CPI. Oil deflated by US CPI</td>
</tr>
<tr class="odd">
<td class="firstcol">3-MO</td>
<td>9.2%</td>
<td>7.5%</td>
<td>6.3%</td>
<td>4.3%</td>
<td>9.7%</td>
<td>0.0%</td>
<td>-64.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">6-MO</td>
<td>6.6%</td>
<td>5.5%</td>
<td>4.4%</td>
<td>-1.2%</td>
<td>7.2%</td>
<td>-0.7%</td>
<td>-8.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">12-MO</td>
<td>6.2%</td>
<td>6.6%</td>
<td>4.9%</td>
<td>1.2%</td>
<td>6.3%</td>
<td>0.0%</td>
<td>24.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">2Yr</td>
<td>7.1%</td>
<td>7.7%</td>
<td>6.6%</td>
<td>2.3%</td>
<td>8.6%</td>
<td>1.0%</td>
<td>22.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">3Yr</td>
<td>6.9%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>2.4%</td>
<td>9.6%</td>
<td>0.6%</td>
<td>12.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Europes money supply growth and credit growth do not show signs of further slowing in September. Growth is slower that it has been over the past 12months but 3-month growth rates are about the same or a bit higher than 6-month rates [...]

Money Supply Growth Stabilizes

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081027d.jpg" align="left" border="0" height="265" width="353">
It is no surprise, given the world economic turmoil that
German firms have become increasingly pessimistic regarding their
economic outlook. The IFO Business climate indicator fell 2.9% to 90.2
(2000=100) in October from 92.9 in September. The indicator is now
approaching the lows last reached in 2001 and 2002.The Business Climate
Indicator is based on the responses of some 7000 firms in the
manufacturing, construction, wholesale and retail trade industries to
questions regarding current conditions and expected conditions over the
next six months. In the current survey, the index for current
conditions increased minimally by 0.1%,while the index for expectations
declined 5.9%. The indexes for the business climate, current conditions
and expectations for the next six months are shown in the first chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081027c.jpg" align="right" border="0" height="265" width="353">
In addition to the indexes, the data are also shown as
percentage balances of good versus poor for current conditions and more
favorable versus less favorable for expectations. The percentage
balances for the business climate in the manufacturing, construction,
wholesale and retail trade industries are shown in the second chart.
All the indicators have been declining since the sub prime problem
arose in the United States in the Fall of 2007, but the declines in
manufacturing and retail trade appear to have accelerated in the past
few months.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMANY
IFO BUSINESS CLIMATE&nbsp;</th>
<th scope="col">Oct 08</th>
<th scope="col">Sep 08&nbsp;</th>
<th scope="col">Oct&nbsp; 07&nbsp;</th>
<th scope="col">M/M %chg&nbsp;</th>
<th scope="col">Y/Y&nbsp; chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">INDEXES&nbsp;
(2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Climate</td>
<td>90.2</td>
<td>92.9</td>
<td>104.1</td>
<td>-2.91</td>
<td>-13.35</td>
<td>106.2</td>
<td>105.4</td>
<td>95.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current
Conditions</td>
<td>99.9</td>
<td>99.8</td>
<td>109.7</td>
<td>0.10</td>
<td>-8.93</td>
<td>111.2</td>
<td>108.4</td>
<td>94.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Expectations for Next Six Months</td>
<td>81.4</td>
<td>86.5</td>
<td>98.8</td>
<td>-5.90</td>
<td>-17.61</td>
<td>101.4</td>
<td>102.7</td>
<td>96.3</td>
</tr>
<tr class="odd">
<td class="firstcol">PERCENT BALANCES (%)</td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;Pt chg</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Industry</td>
<td>-20.2</td>
<td>-14.9</td>
<td>7.5</td>
<td>-5.3</td>
<td>-27.7</td>
<td>11.6</td>
<td>10.2</td>
<td>-9.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Manufacturing</td>
<td>-18.9</td>
<td>-11.9</td>
<td>18.4</td>
<td>-7.2</td>
<td>-37.3</td>
<td>22.4</td>
<td>19.8</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Construction&nbsp;</td>
<td>-27.6</td>
<td>-25.2</td>
<td>-20.3</td>
<td>-2.4</td>
<td>-7.3</td>
<td>-16.1</td>
<td>-15.8</td>
<td>-37.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale
Trade</td>
<td>-15.1</td>
<td>-10.3</td>
<td>2.6</td>
<td>-4.8</td>
<td>-17.7</td>
<td>11.1</td>
<td>11.7</td>
<td>-9.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail
Trade</td>
<td>-25.0</td>
<td>-24.1</td>
<td>-6.4</td>
<td>-0.9</td>
<td>-18.6</td>
<td>-6.5</td>
<td>-6.0</td>
<td>-28.0</td>
</tr>
</tbody>
</table>
</body></html>

It is no surprise, given the world economic turmoil that German firms have become increasingly pessimistic regarding their economic outlook. The IFO Business climate indicator fell 2.9% to 90.2 (2000=100) in October from 92.9 in [...]

No Surprise: German Ifo's Business Climate Indicator Continues To Decline

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

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250718F5.jpg

250718G5.jpg

Total housing starts increased 4.6% (-0.5% y/y) in June to 1.321 million units (SAAR) after falling a little-revised 9.7% in May to 1.263 million, revised from 1.256 million, and rising 3.2% in April to 1.398 million, revised from 1.392, according to the U.S. Census Bureau. Total starts in June were 27.4% below their peak of 1.820 million units reached in April 2022. The Action Economics Forecast Survey expected 1.30 million starts in June.

Single-family starts in June fell 4.6% (-10.0% y/y) to 883,000 after declining 2.3% in May to 926,000, revised from 924,000, and holding steady at 948,000 in April, revised from 920,000. Multi-family starts rebounded 30.0% in June (26.6% y/y) to 438,000 after declining 25.1% in May to 337,000, revised from 332,000, and increasing 10.6% to 450,000 in April, revised from 472,000.

All of the increase in starts last month was due to a 73.3% surge (52.9% y/y) in the Northeast to 182,000 units, following a decline of 42.6% in May. Offsetting this increase, starts in the South weakened 0.7% (-9.0% y/y) to 674,000 after falling 9.0% in May. Starts in the West declined 1.4% (-1.7% y/y) to 286,000 after rising 22.4% in May. Housing starts in the Midwest declined 5.3% (+1.7% y/y) to 179,000 after falling 18.5% in May.

Building permits improved 0.2% (-4.4% y/y) last month to 1.397 million after falling 2.0% in May and declining 4.0% in April. Single-family permits fell 3.7% (-8.4% y/y) in June to 866,000 after weakening 2.6% in May. Multi-family permits rose 7.3% (+2.9% y/y) after easing 0.8% in May. Building permits fell 11.4% (-7.6% y/y) in the Northeast and in the West, permits fell 5.1% (-9.2% y/y). In the South, building permits rose 4.4% (-4.2% y/y), while in the Midwest, building permits held steady (+4.1% y/y).

The housing starts and building permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

250718H5.jpg

250718I5.jpg

- Increase recovers half of prior month’s drop.
- Multi-family starts surge but single-family starts fall.
- Building permits rise negligibly after two months of decline.

U.S. Housing Starts Rebound in June

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No one will be critical of Japan’s efforts to free itself of its torpor into disinflation and deflation that it suffered for many years. The Bank of Japan struggled long and hard to remove the contraction in prices from its economy since falling prices can have a pernicious effect on growth and investment. Japan still faces challenges: it has a contracting population and faces dealing with tariff demands from the United States as negotiations on that front continue to drag and have become harder to settle than Japan had expected. Despite the current inflation overshoot, on data back to January 2011, Japan’s to-date inflation is only averaging 1%; that is still well below its 2% target and ample reason for the Bank of Japan to continue to move carefully to corral inflation especially if inflation has stopped accelerating – as it seems to have done. Against this background, we look at Japan’s CPI report.

**Current inflation: June**
Japan has dispatched deflation and currently faces an inflation problem. In June, the BOJ’s preferred gauge for the CPI excluding fresh foods & energy rose 0.4% month-to-month for the second month in a row; it rose by 0.2% in April. Japan’s headline inflation rate seems to have fallen into line A traditional ‘core reading’ excluding all food & energy flies under the BOJ’s target pace. But the BOJ’s preferred inflation gauge shows a 3.4% rise over 12 months and then gains at a pace of 3.7% over both six months and three months. All of those numbers are too hot to handle.

**Line-items**
Education costs in Japan are falling sharply and sequentially. Medical care costs are deescalating too. And while food & beverage prices continue to overshoot, 2% by a wide margin, the pace of total food & beverage inflation has been falling. No broad category has steadily accelerating inflation. But the BOJ’s preferred gauge of inflation, a specialized core measure excluding energy & fresh foods, sees inflation ramping up and staying high over three months and six months.

**Diffusion/breadth**
Among the eight major categories, year-on-year inflation has accelerated compared to where it was one-year ago in four of the eight. Inflation is above the 2% benchmark for four of eight categories as well.

**Acceleration or not...**
The chart on sequential inflation for the BOJ’s preferred core gauge shows that this measure has accelerated since August or December of last year and since then has more or less marked time oscillating without any clear trend.

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**BOJ policy and communication**
With interest rates having been elevated, this may be the peak for inflation rates in the wake of past interest rate increases- but the BOJ moves to-date have been more about communication and signaling than about actual restraint. These sorts of determinations about the impact of policy are always preliminary and never made clear until time passes and we are able to observe how the trend unfolds. Has inflation really peaked or not?

**BOJ actions**
The BOJ has raised its policy rate in very small and careful steps with an eye to not disrupt markets. Until early 2024, the BOJ has promoted a negative policy rate coupled with policy of yield curve control. However, in early 2024 the BOJ switched the -0.1% target rate to +0.1% and then moved it up to 0.25% just after mid-year 2024, then, early in 2025, it hiked it again to 0.5%. These have been cautious step-wise moves that after three hikes leave the official rate higher by less than one percentage point. But it also reversed an eight-year period of having a negative policy rate and one coupled with yield curve control policy. The BOJ’s careful steps may owe to some learning from the Federal Reserve’s SNAFU when it announced a coming end to its policy of QE for the first time creating a ‘taper tantum.’   

**The environment**
While Japan’s economy is growing, it has logged four quarters of negative growth in the past seven quarters (Q/Q). Year-on-year growth is positive for three quarters in a row after two in a row that logged declines. The economy is not strong, but it is growing in Q1; it grew by 1.7% over the past four quarters even though the Q/Q change was -0.2%, annualized.

**Summing up**
The BOJ is taking policy steps slowly with national elections hovering in the background, keeping monetary policy out of the way of election discussions. So far, we would regard the BOJ’s anti-inflation steps as being more about communicating an end to a period of super easy policy than as a frontal-attack on rising inflation. Given that, Japan’s prices declined for many months from August 2020 to March 2020; the BOJ is being careful to try to arrest inflation increases without pummeling prices and restarting deflation. From January 2011 to September 2022, Japan had only 12 (out of 141) months of inflation above 2% on its preferred gauge. It is now on a run of 33 (well 32 out of 33) months in a row with year-on-year inflation at or above 2%. It is understandable that the BOJ is walking on eggshells when it comes to hiking rates. If its inflation requires a monetary brake, the BOJ has more to do. If inflation merely needs to be ‘reminded’ that the period of excess is over, the recent flattening of inflation could be a sign that the message has been heard. A turn lower for inflation may still be achievable without draconian monetary steps.

Japan

Japan’s Ex-Fresh-Food Ex-Energy Inflation Runs Hot

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Total retail sales increased 0.6% (3.9% y/y) during June following an unrevised 0.9% May decline and an unrevised 0.1% April easing. A 0.1% uptick had been expected in the Action Economics Forecast Survey. Sales excluding autos rose 0.5% (3.3% y/y) following a 0.2% May decline, revised from -0.3%, and an unrevised no change in April. A 0.3% rise had been expected.

Sales in the retail control group, which excludes autos, building materials, gasoline and food services, rose 0.5% (4.0% y/y) in June after gaining 0.2% in May, revised from 0.4%, and minimally revised 0.2% April decline. These sales are used in the construction of personal consumption expenditures in the NIPA accounts. These sales rose 3.2% (AR) last quarter following a 3.7% Q1 rise.

Light vehicle sales increased 1.2% (6.5% y/y) in June after declines of 3.8% and 0.7% in the prior two months. This compares to a 0.3% June decline (2.6% y/y) in unit sales of motor vehicles last month which followed an 8.8% May slump. Gasoline station sales eased lightly (-4.4% y/y) during June after a 1.3% drop during May. Gasoline prices held steady (-7.6% y/y) last month. Sales of building materials & garden equipment rose 0.9% (-1.1% y/y) after a 2.7% decline during May.

Apparel store sales increased 0.9% (3.9% y/y) during June following a 0.3% gain. General merchandise store sales rose 0.5% (3.2% y/y) after they edged 0.1% higher in May, but department store sales declined 0.8% (-3.6% y/y) following a 0.3% dip. Nonstore retail sales increased 0.4% (4.5% y/y) following a 0.6% gain. Sporting goods & hobby shop sales improved 0.2% (1.6% y/y) after strengthening 1.0% in May. To the downside, furniture & home furnishings store sales slipped 0.1% (+4.5% y/y) after declining 0.6% in May. Electronics & appliance store sales also eased 0.1% (-0.2% y/y) following a 0.3% May decline.

In the nondiscretionary sales sector, food & beverage store sales rose 0.5% (2.5% y/y) last month following a 0.5% decline in May. Health & personal care store sales also rose 0.5% (8.3% y/y) after easing 0.1% in May.

Restaurant & drinking establishment sales increased 0.6% (6.6% y/y) in June following a 0.1% slip during May.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economic Forecast Survey in **AS1REPNA**.

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- Increase led by surge in sales excluding autos.
- Nonauto sales also improve.
- Sales in the control group (used to estimate PCE) strengthen.

U.S. Retail Sales Rebound in June

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The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo rose 3.1% to 33 (-19.5% y/y) during July after falling 5.9% to 32 in June. The reading matched expectations in the Informa Global Markets Survey. The NAHB figures are seasonally adjusted. During the last ten years, there has been a 72% correlation between the y/y change in the home builders index and the y/y change in housing starts.

The index of present sales conditions in the housing market rose 2.9% (-21.7% y/y) to 36 following two straight months of decline. The index for conditions in the next six months increased 7.5% (-10.4% y/y) to 43 following three consecutive monthly declines.

Home builders reported that the traffic of prospective buyers reading fell 4.8% to 20 (-25.9% y/y), the lowest level since December 2024.

Amongst the regional indexes, the index for the Midwest gained 12.8% both m/m and y/y while the index for the West rose 13.6% (-32.4% y/y). The index for the Northeast improved 9.1% (2.1% y/y) but the index for the South fell 3.3% (-32.6% y/y).

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions asking builders to rate market conditions as "good," "fair," "poor" or "very high" to "very low." The figure is thus a diffusion index with numerical results six over 50 indicating a predominance of "good" readings. The weights assigned to the individual index components are .5920 for single-family detached sales, present time, .1358 for single-family detached sales, next months and .2722 for traffic of prospective buyers. The results are included in Haver’s **SURVEYS** database. The expectations figure is available in Haver's **MMSAMER** database.

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- Increase follows two months of decline.
- Two of three components rise.
- Regional indexes are mixed.

U.S. Home Builder Index Improves in July

Sandy Batten

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The Current Activity Diffusion Index from the latest Manufacturing Business Outlook Survey (MBOS) conducted by the Federal Reserve Bank of Philadelphia, jumped nearly 20 points to 15.9 in July from -4.0 in June. This was the first positive reading since March and the highest reading since February. A positive reading points to expansion in activity in the Third Federal Reserve District. A reading of -0.3 for July had been expected by the Action Economics Forecast Survey. Nearly 32% of respondents reported an increase in activity in July versus 24.5% in June while 16% reported a decline, down markedly from 28% in June. Responses to this month's survey were collected from July 7 to July 14.

The headline index reflects the answer to a single question on activity. Haver Analytics calculates an ISM-adjusted current activity diffusion index from five key components using the methodology employed in constructing the national ISM index. That index slipped to 51.2 in July from 51.4 in June, indicating that the outsize jump in the headline index was not widely supported by the components. Still, readings above 50 for the ISM-adjusted index point to continued expansion.

Looking at the component indexes, orders and shipments posted significant gains with new orders jumping to 18.4 in July, the highest reading since February, from 2.3 in June and shipments surging to 23.7 from 8.3 in June. Thirty-five percent of respondents reported an increase in new orders while 17% reported a decline; 32% reported an increase in shipments versus only 9% reporting a decline. Employment returned to positive territory in July, rising to 10.3 from -9.8 in June. In contrast, unfilled orders slipped to 5.7 from 9.3 and delivery times shortened with the index falling to -4.7 from 13.6. Inventories also slid, to -1.3 in July from 3.6 in June.

Inflation indicators picked up in July with the prices paid index jumping to 58.8 from 41.4 in June. Nearly 61% of respondents reported paying higher prices for inputs, up from 41% in June. The prices received index rose to 34.8 from 29.5 in June with nearly 35% reporting that they received higher prices this month, up slightly from 32% reporting increases in June.

The outlook continues to be clouded. The Future Activity Index rebounded slightly to 21.5 in July after having plunged to 18.3 in June from 47.2 in May. Forty-one percent of respondents expect an increase in activity over the next six months, down from 45% in the June survey and 67% in May. Expectations for new orders and inventories improved while expectations for shipments, delivery times and employment fell. Expectations for capital spending rose slightly to 17.1 from 14.5 but are still down meaningfully from a recent high of 39.0 reached in January, likely a response to the marked increase in policy uncertainty generated by the Trump administration.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The series from the survey dating back to May 1968 can be found in Haver's **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- The headline index jumped nearly 20 points, led by strong performances by both orders and shipments.
- However, ISM-adjusted composite slipped a bit, indicating that the jump in the headline index was not widely supported by the components.
- Delivery times shortened markedly while both prices paid and prices received indexes posted significant gains.

Economy in Brief: 2008

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