Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020909b.jpg" width="353">
Consumer credit outstanding rose $10.8B (0.6%) in July, a bit more than expected. June figures were revised up slightly. So far this year, consumer credit outstanding has risen at a 5.9% annual rate. 
Revolving credit grew more strongly (0.9%) than in any month since November. That surge raised year to date revolving credit growth to 5.6% (AR).
Not seasonally adjusted revolving credit issuance was quite strong from finance companies. The 12.8% month to month surge was the strongest on record.
Nonrevolving credit was moderate at 0.4%, 6.1% (AR) YTD.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E103/@E10308/@E10308.HTM">Consumer Credit Outstanding</a></th>
<th scope="col">July m/m</th>
<th scope="col">June m/m</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Total</td>
<td>$10.8B</td>
<td>$8.9B</td>
<td>6.4%</td>
<td>6.8%</td>
<td>10.2%</td>
<td>7.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revolving</td>
<td>$6.5B</td>
<td>$3.5B</td>
<td>3.3%</td>
<td>4.9%</td>
<td>11.5%</td>
<td>6.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonrevolving</td>
<td>$4.4B</td>
<td>$5.3B</td>
<td>8.7%</td>
<td>8.3%</td>
<td>9.2%</td>
<td>8.4%</td>
</tr>
</tbody>
</table>
Chicago Fed National Activity Index Down in July 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 9, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020909a.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) fell in July. The decline left the three-month moving average near zero.
The index level measures deviations from zero. A zero value indicates that the economy is expanding at its historical trend rate of growth.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production &amp; income, the labor market, personal consumption &amp; housing, mfg. &amp; trade sales, and inventories &amp; orders.
During the last ten years there has been a 70% correlation between the level of the National Activity Index and quarterly growth in real GDP.
For a complete discussion of the Chicago Fed&#39;s National Activity Index visit: <a href="http://www.chicagofed.org/economicresearchanddata/national/pdffiles/CFNAI_july2002.pdf">http://www.chicagofed.org/economicresearchanddata/national/pdffiles/CFNAI_july2002.pdf</a>

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
<tbody>
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<td class="firstcol">CFNAI</td>
<td>-0.25</td>
<td>0.20</td>
<td>-0.35</td>
<td>-1.10</td>
<td>-0.18</td>
<td>0.27</td>
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</tbody>
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Consumer credit outstanding rose $10.8B (0.6%) in July, a bit more than expected. June figures were revised up slightly. So far this year, consumer credit outstanding has risen at a 5.9% annual rate. Revolving credit grew more [...]

Consumer Credit Growth Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020906a.jpg" width="353">
Payrolls rose about as expected last month, up 39,000. July&#39;s gain in payrolls was revised up to 67,000 from just 6,000 reported last month, but June&#39;s gain was lowered to 34,000 from 66,000. Payrolls are about unchanged YTD.
The length of the workweek recovered slightly following a steep July plunge. As a result, the index of aggregate hours worked (employment times hours worked) rose 0.3%, but the average for 3Q so far is 0.4% below the 2Q average.
Amongst industries, factory sector jobs fell by 0.4%, the largest one month decline since February. The one-month diffusion index of 39.7 was the weakest breadth-of-gain in factory payrolls since February. Construction jobs rose 34,000, more than reversing the July slide. Jobs in service producing industries rose 72,000 but that was dominated by a 41,000 rise in government employment. Private service producing jobs are up 0.3% YTD.
The one-month diffusion index for nonfarm payrolls remained below the 50% level, at 46.7, down for the third consecutive month. The level suggests little or no employment growth near term. The three month diffusion index was 47.1. 
Average hourly earnings rose as expected and the July gain was revised down slightly.
The unemployment rate fell as a result of a huge 429,000 (0.3% YTD) rise in employment but only a 226,000 (0.2% YTD) rise in the labor force.
The employment figures for nonfarm payrolls are based on reports provided to the US Labor Department by businesses, while the figures from which the unemployment rate is derived are based on a survey of US households.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Payroll Employment</td>
<td>39,000</td>
<td>67,000</td>
<td>-0.9%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-68,000</td>
<td>-7,000</td>
<td>-4.8%</td>
<td>-4.2%</td>
<td>-0.4%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>34.1</td>
<td>34.0</td>
<td>34.1</td>
<td>34.2</td>
<td>34.4</td>
<td>34.5</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.1%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.7%</td>
<td>5.9%</td>
<td>4.9%</td>
<td>4.8%</td>
<td>4.0%</td>
<td>4.2%</td>
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Payrolls rose about as expected last month, up 39,000. July's gain in payrolls was revised up to 67,000 from just 6,000 reported last month, but June's gain was lowered to 34,000 from 66,000. Payrolls are about unchanged YTD. The [...]

August Payrolls Rose Modestly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020905c.jpg" width="353">
Unit sales of light vehicles were stronger than expected last month as 0% financing plans continued to spur buying. Vehicle sales rose 3.2% versus July and were up 13.1% YTD. Total vehicle sales were the highest since October of last year.
Sales of domestically built vehicles rose 5.1% m/m following an 11.8% surge in July. Auto sales rose 0.6% m/m but light truck sales surged 8.7%.
Imported vehicle sales fell 5.2% vs. July. Auto sales fell 3.1% and truck sales dropped 9.4%.
Imports&#39; share of the US light vehicle market dropped to 17.0%, the lowest percentage since October of last year.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil.Units)</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Total</td>
<td>18.68</td>
<td>18.10</td>
<td>13.8%</td>
<td>17.25</td>
<td>17.40</td>
<td>16.95</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>15.50</td>
<td>14.75</td>
<td>15.4%</td>
<td>14.18</td>
<td>14.58</td>
<td>14.47</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imported</td>
<td>3.17</td>
<td>3.35</td>
<td>6.5%</td>
<td>3.06</td>
<td>2.82</td>
<td>2.48</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 5, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020905b.jpg" width="353">
Initial claims for unemployment insurance were higher than expected in the latest week. Claims fell 8,000 versus the prior week (revised up) but a larger decline had been expected.
For the full month of August claims averaged 396,400, the highest level since May.
The four-week moving average rose to 400,000.
Continuing claims for unemployment insurance rose for the fourth week in five versus the prior week&#39;s level which was revised down.
The weekly insured rate of unemployment was stable at 2.8%, still down versus the high of 3.0% in May.

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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">8/31/02</th>
<th scope="col">8/24/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>403.0</td>
<td>411.0</td>
<td>-2.4%</td>
<td>405.8</td>
<td>299.8</td>
<td>297.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,578</td>
<td>13.0%</td>
<td>3,021</td>
<td>2,114</td>
<td>2,186</td>
</tr>
</tbody>
</table>
Nonfarm Productivity Growth Revised Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 5, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020905a.jpg" width="353">
Nonfarm labor productivity grew more than expected last quarter. Consensus estimates were for no change in the 2Q growth rate of 1.1% reported last month.
Output in the nonfarm business sector rose 0.8% versus a 0.5% preliminary estimate. Hours worked fell 0.7%, unchanged from last month&#39;s estimate.
Unit Labor costs rose less than originally estimated. Compensation growth was little changed.
Productivity in the nonfinancial business sector, a figure derived from the income side of the National Income Accounts, rose 5.0% following a 5.1% rise in 1Q. Unit labor costs here fell for the fifth consecutive quarter.
Manufacturing sector productivity growth was revised down to 4.4% (5.2% y/y) versus 4.9% estimated last month. Unit labor costs fell 1.2%.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;02 (Revised)</th>
<th scope="col">2Q &#39;02</th>
<th scope="col">1Q &#39;02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.5%</td>
<td>1.1%</td>
<td>8.6%</td>
<td>4.8%</td>
<td>1.1%</td>
<td>2.9%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.7%</td>
<td>3.6%</td>
<td>3.6%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>7.0%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.1%</td>
<td>2.4%</td>
<td>-4.6%</td>
<td>-2.3%</td>
<td>1.6%</td>
<td>3.9%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Weak 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 5, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020905d.jpg" width="353">
The Institute for Supply Management business activity index of the nonmanufacturing sector was weaker than expected last month, a slight rise versus July had been expected. 
The overall index has been above 50, the dividing line for expansion and contraction, since February.
Of the seasonally adjusted subgroups, new orders and imports fell. Employment rose for the second month. 
The not seasonally adjusted index of prices fell to the lowest level since March. 
During the last five years, there has been a 51% correlation between the level of the NAPM nonmanufacturing index and quarterly growth in real GDP in the service sector.
Business activity for the nonmanufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The nonmanufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
<tbody>
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<td class="firstcol">Business Activity Index</td>
<td>50.9</td>
<td>53.1</td>
<td>46.7</td>
<td>49.0</td>
<td>59.2</td>
<td>59.1</td>
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</tbody>
</table>
Slow Factory Inventory Decumulation Continued 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 5, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020905e.jpg" width="353">
Manufacturing inventories continued to run off in July, but decumulation clearly has slowed. June&#39;s decline was unrevised.
Excluding the transportation sector, inventories rose 0.1%, the first monthly gain since January 2001. Inventory accumulation of communications and audio &amp; video equipment was notable, but elsewhere durable goods inventories continued to run off or were up just slightly. Nondurable goods inventories rose 0.4% following a like gain in June. Accumulation of nondurable goods was not broad based, and strongest for petroleum products for the second month. 
Shipments recovered 1.6% following a 0.9% June decline (0.0% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Inventories</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Mfg Inventories</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-7.1%</td>
<td>-8.0%</td>
<td>4.5%</td>
<td>3.1%</td>
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</tbody>
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Unit sales of light vehicles were stronger than expected last month as 0% financing plans continued to spur buying. Vehicle sales rose 3.2% versus July and were up 13.1% YTD. Total vehicle sales were the highest since October of last [...]

U.S. Light Vehicle Sales Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020904b.jpg" width="353">
The value of construction put in place was about as expected in July, unchanged from June which was revised up. The revision to June was slight and due to a lessened decline in nonresidential construction. May&#39;s sharp decline was halved due to sharply higher residential figures.
Residential building fell for the third month in four. Single family building rose during the period but multi-family has fallen in five of the last seven months. 
Nonresidential building activity again fell sharply and was down 12.1% YTD. Industrial and office building fell sharply, the seventh down month this year (-32.6% YTD).
Spending by governments rose slightly due to broad based increases amongst categories.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
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<td class="firstcol">Total</td>
<td>0.0%</td>
<td>-1.7%</td>
<td>-1.1%</td>
<td>2.5%</td>
<td>7.3%</td>
<td>8.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Residential</td>
<td>-0.7%</td>
<td>-0.7%</td>
<td>5.9%</td>
<td>3.3%</td>
<td>7.4%</td>
<td>11.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-2.2%</td>
<td>-2.9%</td>
<td>-20.2%</td>
<td>-3.1%</td>
<td>7.1%</td>
<td>1.9%</td>
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<tr>
<td class="firstcol">&nbsp; Public</td>
<td>0.9%</td>
<td>-3.7%</td>
<td>3.2%</td>
<td>7.4%</td>
<td>5.4%</td>
<td>10.6%</td>
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</table>
Chain Store Sales Recover Some 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 4, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020904a.jpg" width="353">
Chain store sales rose for the first week in four according to the BTM-UBSW survey. Sales rose 0.5% in the final week of August following declines ranging from 0.3% to 0.8% in the three prior weeks.
Sales for the full month of August fell 0.9% versus the average for July which rose only 0.3% from June.
During the last five years there has been a 61% correlation between the year-to-year percent change in monthly chain store sales and the change in GAF retail sales.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">8/31/02</th>
<th scope="col">8/24/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
<tbody>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>410.7</td>
<td>408.7</td>
<td>2.1%</td>
<td>2.1%</td>
<td>3.4%</td>
<td>6.7%</td>
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</tbody>
</table>
</body>
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The value of construction put in place was about as expected in July, unchanged from June which was revised up. The revision to June was slight and due to a lessened decline in nonresidential construction. May's sharp decline was [...]

Construction Spending Unchanged in July

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020903a.jpg" width="353">
The ISM Composite Index of manufacturing sector activity was slightly weaker than expected last month, unchanged from July at 50.5. Consensus expectations were for a modest rise to 51.7. 
New orders, production and the vendor performance indexes all fell. Employment and inventories rose.
Inflation pressure fell for the first month since February. The percentage (NSA) of companies reporting higher prices fell to the lowest level since March.
Over the last twenty years there has been a 76% correlation between the ISM Composite Index and the three month change in industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>50.5</td>
<td>50.5</td>
<td>47.9</td>
<td>43.9</td>
<td>51.6</td>
<td>54.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>61.5</td>
<td>68.3</td>
<td>35.0</td>
<td>43.0</td>
<td>64.8</td>
<td>54.2</td>
</tr>
</tbody>
</table>
Challenger Survey Indicates Layoffs Rose Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 3, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020903b.jpg" width="353">
According to Challenger, Gray &amp; Christmas, announced job cuts surged in August to the highest level since February.
Announced job cuts were widespread amongst industries.
During the last eight years there has been a 72% correlation between the y/y change in announced job cuts and the change in initial claims for jobless insurance.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>118,067</td>
<td>80,966</td>
<td>-15.7</td>
<td>1,956,876</td>
<td>613,980</td>
</tr>
</tbody>
</table>
</body>
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The ISM Composite Index of manufacturing sector activity was slightly weaker than expected last month, unchanged from July at 50.5. Consensus expectations were for a modest rise to 51.7. New orders, production and the vendor [...]

ISM Index Unchanged in August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020830a.jpg" width="353">
Personal income rose less than expected last month. June&#39;s gain was revised slightly higher. Consensus expectations were for a 0.3% gain.
A decline in wage and salary disbursements (2.6% AR, YTD), the second this year, was broadly based amongst industries.
Personal consumption expenditures rose more than expected, reflecting a 3.7% surge in durable goods purchases and 0.6% gains in purchases of nondurables and services.
Disposable income rose 0.2% (10.1% AR, YTD). Personal tax payments fell a sharp 0.8%, the sixth monthly decline this year. 
The PCE price deflator rose 0.2% following a 0.1% rise in June. Prices were up 2.1% (AR) year to date. Less food and energy the price deflator rose 0.1% (1.6% AR, YTD) for the third consecutive month.

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.0%</td>
<td>0.7%</td>
<td>3.0%</td>
<td>3.3%</td>
<td>8.0%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>1.0%</td>
<td>0.5%</td>
<td>5.0%</td>
<td>4.5%</td>
<td>7.0%</td>
<td>6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>3.4%</td>
<td>4.2%</td>
<td>3.0%</td>
<td>2.3%</td>
<td>2.8%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">PCE Price Deflator</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.2%</td>
<td>2.0%</td>
<td>2.5%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Firmed 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 30, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020830c.jpg" width="353">
The Chicago Purchasing Manager&#146;s Index of Business activity rose in August. Consensus estimates were for little change or a slight decline. 
The indexes of new orders, production, order backlogs and delivery speeds rose. Employment and inventories fell. 
The prices paid index fell slightly following a surge in July. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Barometer</td>
<td>54.9</td>
<td>51.5</td>
<td>43.6</td>
<td>41.4</td>
<td>51.8</td>
<td>56.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>63.6</td>
<td>64.5</td>
<td>41.7</td>
<td>50.5</td>
<td>65.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
Consumer Sentiment Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 30, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020830b.jpg" width="353">
The full month August reading of Consumer Sentiment from the University of Michigan was about as expected, down 0.6% for the third consecutive monthly decline. 
Sentiment declined somewhat less month to month than the Conference Board&#39;s measure of Consumer Confidence which also fell for the third consecutive month in August.
Both the indexes of consumer expectations and current conditions fell slightly. 
The University of Michigan survey is not seasonally adjusted.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Sentiment</td>
<td>87.6</td>
<td>88.1</td>
<td>-4.3%</td>
<td>89.2</td>
<td>107.6</td>
<td>105.8</td>
</tr>
</tbody>
</table>
</body>
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Personal income rose less than expected last month. June's gain was revised slightly higher. Consensus expectations were for a 0.3% gain. A decline in wage and salary disbursements (2.6% AR, YTD), the second this year, was broadly [...]

Personal Income Weak, Spending Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020829a.jpg" width="353">
Initial claims for unemployment insurance were higher than expected in the latest week, rising above 400,000 for only the second week since May. Claims rose 8,000 (2.0%) versus the prior week which was revised up.
The Consensus forecast was for a rise in claims to 385,000. It was the third consecutive rise in weekly claims.
The four-week moving average rose for the third consecutive week to 392,750.
Continuing claims for unemployment insurance jumped 2.6% from the prior week&#39;s level which was revised down.
The weekly insured rate of unemployment rose slightly to 2.8% but the prior week&#39;s level was revised down.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">8/24/02</th>
<th scope="col">8/17/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>403.0</td>
<td>395.0</td>
<td>-0.2%</td>
<td>405.8</td>
<td>299.8</td>
<td>297.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,588</td>
<td>14.5%</td>
<td>3,021</td>
<td>2,114</td>
<td>2,186</td>
</tr>
</tbody>
</table>
Weak 2Q GDP Growth of 1.1% Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 29, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020829b.jpg" width="353">
GDP growth last quarter was left unrevised, as expected. A slight upward revision to inventories offset a downward revision to domestic demand.
Domestic final demand growth of 1.3% was the weakest since two quarters during the middle of last year when demand was virtually unchanged. Higher consumer spending (1.9%, AR) and business spending on equipment (3.1%) offset a sharp decline in business spending on structures (-17.8%) which fell hard for the third consecutive quarter.
Trade sector deterioration was little revised and lowered GDP growth by 1.7 percentage points. Exports grew 12.3% (AR) and imports surged 22.8%. Both figures were little changed.
Production increases to slow the rate of inventory decumulation added slightly more to GDP growth than was initially estimated. 
Corporate profits with IVA and CCA adjustments fell 6.6% (AR). It was the second consecutive quarterly decline at that rate.
Estimated inflation was little changed at roughly half last year&#39;s pace.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained &#39;96 $, % AR</a></th>
<th scope="col">2Q&#39;02 (Prelim.)</th>
<th scope="col">2Q&#39;02 (Advance)</th>
<th scope="col">1Q&#39;02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>1.1%</td>
<td>1.1%</td>
<td>5.0%</td>
<td>2.1%</td>
<td>0.3%</td>
<td>3.8%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>1.4%</td>
<td>1.2%</td>
<td>2.6%</td>
<td>0.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>1.5%</td>
<td>3.7%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-1.7%</td>
<td>-1.8%</td>
<td>-0.8%</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>1.3%</td>
<td>1.6%</td>
<td>3.0%</td>
<td>2.2%</td>
<td>1.6%</td>
<td>4.3%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Deflator</td>
<td>1.1%</td>
<td>1.2%</td>
<td>1.3%</td>
<td>1.0%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
Help Wanted Advertising Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 29, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020829c.jpg" width="353">
The Conference Board&#39;s National Index of Help-Wanted Advertising in July reversed all of the prior month&#39;s rebound.
The proportion of labor markets with rising want-ad volume fell to the lowest level (22%) since October.
During the last five years there has been a 78% correlation between the level of help-wanted advertising and the monthly change in nonfarm payrolls. 
Job opportunities deteriorated broadly across regions of the country.
The figures are seasonally adjusted.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;01</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>44</td>
<td>47</td>
<td>57</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance were higher than expected in the latest week, rising above 400,000 for only the second week since May. Claims rose 8,000 (2.0%) versus the prior week which was revised up. The Consensus [...]

Initial Claims for Jobless Insurance Rose Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020828a.jpg" width="353">
Crude oil prices fell slightly during the past week, but concerns over supply disruptions have raised the spot market price of West Texas Intermediate crude more than 60% since the lows set early this year.
Wholesale gasoline prices have been similarly strong up 56% during the period, and fuel oil prices are up 43%.
Through July the CPI for energy had risen 8.2% YTD, held back by a 1% decline in piped gas and electricity costs.

<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/daily/@D3/@D306/@D30604/@D30604.HTM">Daily Crude Oil Prices</a></th>
<th scope="col">8/27/02</th>
<th scope="col">7/26/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">West Texas Intermediate Crude Oil</td>
<td>$28.85</td>
<td>$26.58</td>
<td>6.1%</td>
<td>$25.97</td>
<td>$30.34</td>
<td>$19.34</td>
</tr>
</tbody>
</table>
U.S. Budget Surpluses Gone 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 28, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020828b.jpg" width="353">
The US Congressional Budget Office issued an update of its outlook for the Federal Budget for the next ten years. For the complete report, go to the website below. <a href="http://www.cbo.gov/showdoc.cfm?index=3735&amp;sequence=0">http://www.cbo.gov/showdoc.cfm?index=3735&amp;sequence=0</a>
The budget in 2002 is now expected to run a deficit of $157B. That&#39;s versus a March estimate of a $46B deficit and a January estimate of a $313B surplus. The budget is expected to return to surplus in 2006.
For the ten years ended 2012, surpluses are expected to total $1,015 trillion. That&#39;s versus a March estimate of $2,380 trillion. Lowered revenue estimates account for roughly half of the revision, and most fall in the &quot;technical&quot; category. Nearly half of the raised spending total is accounted for by a higher estimate of &quot;debt service.&quot;

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Crude oil prices fell slightly during the past week, but concerns over supply disruptions have raised the spot market price of West Texas Intermediate crude more than 60% since the lows set early this year. Wholesale gasoline prices [...]

Crude Oil Prices Up

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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Michael J. Moran

260714A.jpg

260714B.jpg

Most analysts were looking for a dip in the CPI because of a likely retreat in gasoline prices, but the published decline of 0.4% in the headline index was noticeably softer than the consensus estimate of -0.1%. Gasoline prices did not disappoint, with a drop of 9.7% offsetting approximately one-quarter of the cumulative surge in the prior three months. Prices of fuel oil fell almost as much as gasoline prices, and electricity charges contributed to the softness with a decline of 1.0%. The price of natural gas services was the only major energy item to increase in June (0.5%). All told, the energy component of the CPI fell 5.7% after climbing 19.6% in the prior three months.

The drop in energy prices was notable, but the core component provided a bigger surprise by posting a decline, the first since a series of three consecutive decreases during the pandemic. Before the pandemic-related retreat, the core component fell only twice from 1990 to 2019. The drop in June was minuscule (-0.02%), but the fact that it carried a minus sign was striking.

Both the goods and services components of the core index contributed to the restraint. Prices of goods other than food and energy fell 0.1%. The Bureau of Labor Statistics publishes six key subcategories of core goods, and five of them fell in June. Apparel prices stood out with a decline of 0.6%. Prices of core services were nearly unchanged at 0.03%, restrained by declines in medical services and motor vehicle insurance. Airfares, which showed upward pressure from rising fuel prices in the prior three months, posted a nondescript increase of 0.2%. The modest increase in the prices of core services led to a dip in the 12-month average increase after stepping up in April and May. The trend in core goods prices continued its gradual deceleration (chart, below right).

Food prices in June rose 0.2%, a reading comfortably within the range of the past few years.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

260714C.jpg

260714D.jpg

- The energy component retraced a portion of its surge in the prior three months.
- Prices excluding food and energy provided a surprise by posting a rare decline.

June CPI: Cooling Energy Prices and a Restrained Core Component

Winnie Tapasanun

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The NFIB Small Business Optimism Index rose to 97.4 in June, the highest level since February, after a 0.6-point decline to 95.3 in May, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index was slightly below its 52-year average of 98.0 for the fourth consecutive month and down from a peak of 105.1 in December 2024, albeit above a low of 88.5 in March 2024. Seven of the 10 index components rose, while three fell. Meanwhile, the NFIB Small Business Uncertainty Index edged down to 89 in June following a three-point increase to 91 in May, remaining well above its historical average of 68. The index was below its record high of 110 in October 2024 but above its recent low of 84 in December 2025 and a low of 65 in November 2023.

The outlook for business conditions in the next six months remained positive for the 20th straight month in the latest survey. The net balance of respondents expecting the economy to improve advanced to 13% in June, a four-month high, following a one-point decline to 3% in May; these readings were far below a high of 52% in December 2024 but significantly above a record low of -61% in June 2022. Expected real sales climbed to a net 9% in June, a five-month high, from 1% in May; the latest figure was below a high of 22% in December 2024 but above a low of -18% in August 2024. A net -4% of respondents reported higher nominal sales in the past three months, up from -5% in May and marking the highest reading in four months; the latest result remained above a low of -20% in October 2024 but below the recent positive reading of 1% in February and a peak of 9% in June 2021.

Plans to expand the business inched up to 8% in June from 7% in May and April; the latest figure was down from a high of 20% in December 2024 but up from a low of 2% in March 2023. Plans to make capital outlays rebounded to 20% in June from 16% in May; these numbers were still below a high of 28% in November 2024 and a peak of 31% in October 2021. Expected credit conditions slipped to -5% in June, a three-month low, from -3% in May; this result was slightly below a high of -2% in December 2024 but above a low of -11% in November 2023. Meanwhile, a net 0% of respondents viewed current inventory stocks as “too low” in June, up from -4% in May and matching the highest reading since August 2025 (also 0%); the positive reading of 1% was recorded in May 2025.

On the labor front, 51% of respondents reported that qualified workers to fill job openings were hard to find in June, up from 46% in May and registering the highest level since September 2024. These numbers were above a low of 43% in August 2025 but below a high of 56% in August 2024 and a peak of 62% in September 2021. A net 11% planned to increase employment in June, up from 9% in May; it matched a low of 11% in March 2024 but remained below its recent high of 19% in November 2025 and a peak of 32% in August 2021. Notably, 32% reported positions not able to be filled in June, up from 29% in May (the lowest level since May 2020); these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The measure fell to -20% in June, the lowest level in three months, following a four-point increase to -15% in May. These readings were below the most recent high of -14% in February and a high of -5% in June 2021 but above a low of -37% in August 2024,

On the pricing front, actual and expected selling prices remained at an inflationary level, indicating continued inflationary pressures. The net percent of firms raising their average selling prices rose to 38% in June, the highest reading since February 2023, after a six-point increase to 36% in May. The latest reading was up from a low of 20% in August 2024 but well below a peak of 66% in March 2022. The percentage planning to raise prices eased to a still-elevated 32% in June following a seven-point rise to 34% in May (the highest level since November 2023); these readings remained above a low of 21% in April 2023.

Wage inflation remained relatively high in the June survey. A net 28% of respondents raised compensation during the last three months, down from 31% in May and marking the lowest since November 2025. It was also below a high of 46% in February 2023 and a peak of 50% in January 2022. A net 17% of firms planned to raise worker compensation in the next three months, slightly down from 18% in May and matching the lowest reading since July 2025; this remained below highs of 28% in November 2024, 30% in November 2023, and 32% in October 2022.

Inflation was cited as the single most important problem facing small businesses, as reported by 21% of NFIB members in June, up from 18% in May and representing the highest since October 2024; these readings were well below a peak of 37% in July 2022. Taxes ranked second as the next most important problem (alongside labor quality), as reported by 19% of respondents in June, unchanged from May. Labor quality also remained a key challenge for small businesses, as reported by 19% of respondents in June—the highest since December—compared with 13% in May (the lowest level since December 2016). Other concerns (in June vs. May) included labor costs (8% vs. 14%), government requirements (8% vs. 10%), insurance cost/availability (8% vs. 8%), poor sales (7% vs. 7%), and competition from large businesses (5% vs. 6%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

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- Uncertainty Idx down 2 pts. to 89, remaining well above the historical avg. of 68.
- Expectations for economy up 10 pts. to 13%, a four-month high.
- Expected real sales up 8 pts. to 9%, a five-month high.
- Plans to expand business up 1 pt. to 8%, highest in three mths.
- Firms raising avg. selling prices up 2 pts. to 38%, highest since Feb. ’23.
- Top three business concerns: inflation (21%), taxes (19%), and labor quality (19%).

U.S. NFIB Small Business Optimism Rebounds in June to a Four-Month High

Robert Brusca

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Industrial production in Japan fell by 0.5% in May after rising by 0.7% in April and declining by 0.2% in March. Manufacturing output rose by 0.1% in May after rising by 0.4% in April and declining by 0.3% in March. Total industrial output shows a 0.7% gain over 12 months, a 3.4% annual rate gain over six months, and zero change in output over three months. For manufacturing, 12-month output is up 0.7%; over six months, output is up at a 6.1% annual rate; and over three months, output is up by 0.8% at an annual rate.

These trends show that output continues to grow for manufacturing as well for total industry, but not by a great margin. In fact, there are still a number of industries still fighting off negative trends, such as textiles, where output falls over three months, six months, and 12 months, as well as investment goods and mining, both of which show declines over three months, six months and 12 months. One year ago, all of these sectors were showing year-over-year declines except for manufacturing, which was up by 0.5% over 12 months. Manufacturing output is now up by 0.7% year-over-year, with consumer goods up by 1.8%, intermediate goods output up by 2%, and investment goods falling by 3%. Japan is currently trying to fight off a legacy of weakness. The strength of the rebound is being borne by consumer goods and intermediate goods, with investment goods undergoing significant contractive effects.

Manufacturing is showing gains on all three sequential horizons. Utilities output is showing growth on each horizon, and actually shows gathering strength, rising by 0.9% over 12 months, at a 1.4% annual rate over six months, and at a very strong 7.9% annual rate over three months.

In the quarter-to-date (QTD) basis, most of these sectors are losing the battle against weakness, with most industry or sectors showing declines two months into the new quarter. Overall output declines at a 0.2% annual rate. Manufacturing output falls at a 2.2% annual rate, intermediate goods output falls at a 0.2% annual rate, and investment goods output falls at a 7.2% annual rate. The only exception is consumer goods output, which is rising at a solid 5.3% annual rate, but that's not strong enough to drag all of industrial output or even manufacturing into the plus column.

Manufacturing output currently is at about 87.7% of its past peak. Activity in electric and gas utilities are at 90.4% of their past peak, while mining is only at 59.6% of its past peak of activity. Comparing levels of output to where they were in January 2020, manufacturing is at 94% of that value, with total industry also at 94% of that value. Consumer goods are at 98% of that value, intermediate goods at 92%, and investment goods at 93%. Mining is only at 74% of its January 2020 value, while electric and gas utilities have moved beyond the January 2020 level and are 3.3% higher than they were and early 2020.

Since 2020, it has been a relatively difficult time for the global economy. The Japanese statistics show only one sector that has managed to create positive growth compared to its level in January 2020. The current month is a mix of plus-and-minus activity changes. Sequential trends generally show more positives than negatives, but there are still a lot of negatives in train that keep Japanese manufacturing from reaching clearly solid footing. When the Strait of Hormuz opened, it appeared that Japan would be in a position to build on its recovery, but now, with the failed peace agreement and failed ceasefire, the strait once again has been closed and the outlook is shrouded in negativity.

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Japan

Japan’s IP Is Fighting Off Weak Trends

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

Tian Yong Woon

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

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

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

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

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

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

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