Robert Brusca

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The EMU PPI is accelerating in August. But its 0.6% gain follows a 0.1% drop in July. The PPI continues to be volatile. Its trend is hard to nail down. And gyrating oil prices have great impact on the path of the PPI.

The unrelenting and undiminished role of oil 
Oil continues to dominate the outlook for the PPI and the outlook for oil is muddied. We are coming off a period in which oil prices have firmed. Yet, for the fifth straight month, bankers have cut their outlook for oil prices. On the day, oil prices slipped taking Brent to $58.08 per barrel. Russian Energy Minister, Alexander Novak, today claimed there was no immediate need to talk about further oil output cuts. As a result, the outlook for oil continues to be uncertain and U.S. rig activation is back on a positive path after some slowdown.

The policy focus is not the PPI 
As always what matters for policy and for the ECB is what happens to consumer prices and the HICP measure that the ECB uses. The relationship between consumer prices and producer prices in the EMU is a loose one. When the PPI makes an exceptional move, there is usually some impact on the HICP but one that is muted. With oil prices suddenly having swung higher after a substantial period of declining, there has been some lift in the pace of the HICP but the headline and core rates continue well under the objectives set by the ECB. More recent news on EMU area wages show that wage increase have popped up to log a 2% gain. But it will take time to see if that move has any sustainability or follow-up or not.

Month-to-month 
Compared to July, the PPI is accelerating in all EMU reporters in the table except the financial center Luxembourg and Finland. Prices only fell in August in Luxembourg. Still, prices did fall in seven of 12 of these EMU countries in July.

Sequential trends 
Sequential growth rates 12-month to six-month to three-month show that inflation is up at a 2.5% pace over 12 months, but it is still showing price declines at a -1.8% annual rate over six months. Over three months, that pace is trimmed to -0.4% (SAAR).

Sectors 
Sector rates of growth show stability in price trends for capital goods locked in at a pace of 1%. Consumer goods price inflation is still sequentially falling. The pick-up for inflation is wholly from six-month to three-month and in intermediate goods, where oil prices pressures show up. On balance, despite some increase in activity in the EMU and optimism over growth, inflation is really only picking up in intermediate goods not for capital goods and not for consumer goods: it's still an oil phenomenon.

Shifting relationships 
In the U.S. where I have looked at the PMI growth 'phenomenon' more closely, I have discovered a shift in the relationship between the PMI and industrial production growth. It seems in this expansion at each growth rate for IP the corresponding PMI value is higher that it used to be. So while some speak of more 'buoyant economic reports' to me the PMIs are just another example of shifting and less meaningful economic relationships, like for the Phillips Curve. For some time, we have known that dropping unemployment rates should have created more wage and price inflation except they didn't. Still, policy in the U.S. remains geared to the Phillips Curve. Judging from the strong-seeming PMI readings, IP and the industrial sector would be expected to be much stronger, but it isn't. Not surprisingly the strong PMIs are taken as further evidence that Phillips Curves will come back to life. Some hopes spring eternal.

Decoupling and denial: square pegs vs. round holes 
In fact, in Japan today, following the stellar Tankan report released yesterday, Japanese firms actually pulled back on their inflation expectations in Q3. Companies there now expect consumer prices to advance by 0.7% in the year ahead instead of 0.8% as they did previously. This is just another example of decoupling. Old economic relationships are shifting. Central banks have their eye upon the hole and not upon the donut. They don't even realize that they are not watching that which has become less important. They remain eerily clueless or in denial about how the world has changed. Even when they admit out loud that they may be missing something, they do that just to cover their bases and continue to make policy as if the relationships of yore will spring back to life spontaneously. Well, who knows what they think at this point. Central bankers are not prepared for the great game of no-or-low inflation to go on. They are prepared for it to end; for normalcy. They warn of inflation overshooting when target-achievement might be their best-case scenario. Most importantly they have no plan 'B.' They are determined to pursue plan 'A' and to find different ways to justify it, such as the Fed's 'clever' plan to justify the start of tightening in the midst of a huge inflation undershoot as oil prices collapsed by appealing to its medium 'forecast.' The square peg of Fed policy has yet to find a round hole of reality that it could not be forced though. We are now waiting on Europe to see how things will go there.

Myopia makes policy choices easier... but makes them more dangerous 
To me the global inflation shortfall is a true global phenomenon. It is not a bunch of idiosyncratic local events that simply happened to occur at the same time (surprise!). The first warnings came out of Japan and as everyone commiserated with Japan's problems and offered advice from afar the problem nonetheless spread. Some were sure that Japan's bout with deflation was all because of Japan's unique demographics. How did that one play out? Now we are assured that disinflation is no longer a problem. But with oil prices having ratcheted back up with so little overall impact, I'm not sure that is a conclusion that could stand up to close inspection. There are some slight wage pressures afoot in the EMU and in the U.S., but they are very slight and have yet to show staying power let alone escalation. And there is some unemployment backsliding in Spain reported today. If that sort of thing continues and spreads, wage pressures will be central banks' last worries. We are still not that long or far out of the soup.

Stirring the pots 
The U.S. pot is being stirred by hurricane effects of unknown dimension. In Europe, the Catalan problem has emerged; the feeling that with the German elections over Europe has dodged the bullet of 'populism' has proved wrong. And Germany still will be ruled by a less-united coalition. The same leader will prevail, but different compromises and policies will be afoot. The tensions in Italy with its Five-Star party are still present. The Kurds in Iraq have begun to stir up their own issues to the consternation of (at least) Iraq and Turkey. North Korea is still a big unsolved (unsolvable?) problem and U.S. President Donald Trump is still pressing many on the trade front while trying to enlist some of his 'trade adversaries' into cooperative groups for other geopolitical ends. Global diplomacy has never been so fractured. The geopolitical scene is more topsy-turvy than an owners' meeting in the NFL these days. And that's saying something.


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The EMU PPI is accelerating in August. But its 0.6% gain follows a 0.1% drop in July. The PPI continues to be volatile. Its trend is hard to nail down. And gyrating oil prices have great impact on the path of the PPI. The unrelenting [...]

EMU PPI Accelerates In August...But Does It Matter?

Tom Moeller

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Retail gasoline prices were little-changed last week
at $2.57 per gallon (14.3% y/y) and remained down from the $2.69 high
early last month. Haver Analytics constructs factors adjusting for the seasonal
variation in gasoline pump prices. The seasonally adjusted gasoline price held
steady at $2.53 per gallon.

WTI crude oil prices strengthened to $51.76 per barrel
last week (11.1% y/y), the highest level early-April. Prices eased yesterday to
$50.58 per barrel. Brent crude oil prices increased to $58.02 per barrel last
week, then declined to $56.07 per barrel yesterday.

Natural gas prices declined to $2.94/mmbtu last week (-1.1%
y/y) and were $2.81 yesterday.

In the week ended September 22, gasoline demand rose
0.6% y/y, while total petroleum product demand gained 1.3% y/y. Gasoline
inventories fell 4.4% y/y, while inventories of all petroleum products
declined 3.9% y/y. Crude oil input to refineries fell 10.0% y/y in the last four
weeks, compared to sharp y/y improvement earlier this year.

The energy price data are reported by the U.S. Department of
Energy. The petroleum demand and inventory figures are from the Oil &amp; Gas
Journal Weekly. These data can be found in Haver's WEEKLY database. The
daily figures are in DAILY and greater detail on prices, demand and
production, along with regional breakdowns, are in OILWKLY.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th scope="col" >10/02/17</th>
 <th scope="col" >09/25/17</th>
 <th scope="col" >09/18/17</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Retail Gasoline ($ per Gallon, Regular)</td>
 <td >2.57</td>
 <td >2.58</td>
 <td >2.63</td>
 <td >14.3</td>
 <td >2.31</td>
 <td >2.03</td>
 <td >2.30</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl.)</td>
 <td >51.76</td>
 <td >50.14</td>
 <td >49.07</td>
 <td >11.1</td>
 <td >43.22</td>
 <td >48.90</td>
 <td >93.64</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Natural Gas ($/mmbtu, LA, WSJ)</td>
 <td >2.94</td>
 <td >3.09</td>
 <td >2.95</td>
 <td >-1.1</td>
 <td >2.49</td>
 <td >2.62</td>
 <td >4.37</td>
 </tr>
 </tbody>
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Retail gasoline prices were little-changed last week at $2.57 per gallon (14.3% y/y) and remained down from the $2.69 high early last month. Haver Analytics constructs factors adjusting for the seasonal variation in gasoline pump [...]

U.S. Gasoline Prices Remain Firm; Crude Oil Costs Strengthen

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The Tankan assessment 
Japan's Tankan survey turned out much stronger than expected. The closely-watched manufacturing gauge for large enterprises in Q3 soared to a reading of 22, up from 17 in Q2 which in turn had risen from 12 in Q1. The Tankan has been making great strides. The quarterly manufacturing reading's q/q gain ranks as in the top 21st percentile of all quarterly changes back to 2004. The four-quarter change ranks in the top 16th percentile. The level of the reading for the large enterprise gauge in Q3 2017 stands in its 72nd queue percentile and is the highest reading in 40 quarters making it last higher before the onset of the global recession and financial crisis in late-2007. The lesser watched nonmanufacturing index was unchanged quarter-to-quarter and already has a 92.6 percentile standing.

The Tankan outlook survey 
The Tankan report also has an outlook section. The outlook for large manufacturing establishments gained four points on the quarter and rose to a reading of 19 for Q4. At that level, the reading has an 83.6 queue percentile standing in its historic queue of data. The quarterly rise itself marks a top 19th percentile gain among all quarterly changes and the four-quarter gain of 13 points has been larger only 16% of the time. For nonmanufacturing, the outlook index has a reading of 19, a one-point quarter-to-quarter gain marking a 98.5 percentile queue standing. The combined standing of the two sectors has driven the outlook index for the large enterprise all-industry reading to its 85.5 percentile. But for medium-sized enterprises, the outlook for all of industry is at the highest value in the history of the survey and the same is true for small enterprises.

Other industries 
Aside from manufacturing that has a 72.2 percentile standing for its Q3 reading, there are Tankan readings for industries in the nonmanufacturing sector as well. Construction and personal services each have a 98.1 queue percentile reading in Q3. The "services for businesses" sector has an 88.9 percentile standing. Transportation has a strong 83.3 percentile standing. Real estate, restaurants & hotels and retailing industries have readings in the 70th percentile in Q3. Wholesaling has a 66th percentile standing.

Momentum 
The strongest gain relative to its one-year average comes from manufacturing followed by wholesaling. Transportation ranks as next best and there is a tie between services for businesses and retailing for the next slot. Restaurants & hotels are the clear lagging sector and the only one with a weaker Tankan reading in Q3 than over the previous year. Construction and real estate are two other relative laggard sectors, but they are both above their respective one-year average readings.

Conditions 
The Bank of Japan expects inflation to hit its 2% objective in the fiscal year ending in March 2020, as it argues (as does the Fed in the U.S.) that a tightening job market and solid economic growth will gradually push up prices. The Tankan produced an index gauging firms' views of the job market that showed that complaints of labor shortages, rather than excess staff, were at the highest since 1992. Large firms kept their capital spending plans intact. Big firms expect to increase capital expenditure by 7.7% in the current fiscal year ending in March 2018; that is roughly unchanged from their plans back in June.

On balance, the Tankan report is a breath of fresh air. The survey is closely watched and considered an important and reliable gauge for Japan's economy. The leadership from manufacturing in terms of momentum is a very satisfying finding. While inflation in Japan continues to lag, the Tankan report is reassuring that growth remains on path. It largely agrees with the updated manufacturing survey from Markit for Japan in September also released and finalized today. The Tankan is just another global example of a report that shows that growth continues and is improving despite a lack of progress in lifting inflation to target.

For Prime Minister Abe, the Tankan is support for his case that the economy is responding to his policies, an important consideration for a politician calling a snap election. To the BOJ, there is probably something comforting in this report, but there is no clear sense that this means the inflation target is more viable. Growth and inflation have decoupled globally recently; there is no sense in this report that inflation will perk up but on traditional analysis that would be expected. I would expect the BOJ to stay optimistic based on that scenario in the wake of this report.


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The Tankan assessment Japan's Tankan survey turned out much stronger than expected. The closely-watched manufacturing gauge for large enterprises in Q3 soared to a reading of 22, up from 17 in Q2 which in turn had risen from 12 in Q1. [...]

Japan's Tankan Marks 10-Year High Reading

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The value of construction put-in-place increased 0.5% (2.5%
y/y) during August following two months of sharp deterioration, -1.2% in July
and -0.8% in June. A 0.4% increase had been expected in the Action Economics
Forecast Survey.

Private sector building activity gained 0.4% (4.7 y/y) as
residential building activity rose by the same amount (11.6% y/y).
Nonresidential building activity improved 0.5% (-2.5% y/y), reflecting a 3.2%
increase (3.1% y/y) in the value of lodging construction. Commercial building
ticked 0.1% higher (10.4% y/y).

The value of public sector building activity gained 0.7%
(-5.1 y/y) after sharp declines in three of the prior four months. Conservation
&amp; development (-24.0% y/y), power facility production (-16.1% y/y) and
highway &amp; street construction (-6.0% y/y) have been notably weak.

The construction spending figures are in Haver's USECON
database and the expectations reading is contained in the AS1REPNA database.

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 <th class="firstcol" scope="col" >Construction Put in Place
 (SA, %)</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >Aug Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >0.5</td>
 <td >-1.2</td>
 <td >-0.8</td>
 <td >2.5</td>
 <td >6.7</td>
 <td >10.5</td>
 <td >11.4</td>
 </tr>
 </tbody>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Private</td>
 <td >0.4</td>
 <td >-0.5</td>
 <td >0.1</td>
 <td >4.7</td>
 <td >9.2</td>
 <td >12.5</td>
 <td >15.4</td>
 </tr>
 </tbody>
 <tbody>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Residential</td>
 <td >0.4</td>
 <td >0.2</td>
 <td >1.2</td>
 <td >11.6</td>
 <td >10.6</td>
 <td >13.8</td>
 <td >14.6</td>
 </tr>
 </tbody>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Nonresidential</td>
 <td >0.5</td>
 <td >-1.4</td>
 <td >-1.2</td>
 <td >-2.5</td>
 <td >7.6</td>
 <td >11.2</td>
 <td >16.3</td>
 </tr>
 </tbody>
 <tbody>
 <tr>
 <td class="firstcol" >&nbsp; Public</td>
 <td >0.7</td>
 <td >-3.3</td>
 <td >-4.1</td>
 <td >-5.1</td>
 <td >-0.4</td>
 <td >5.0</td>
 <td >1.9</td>
 </tr>
 </tbody>
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The value of construction put-in-place increased 0.5% (2.5% y/y) during August following two months of sharp deterioration, -1.2% in July and -0.8% in June. A 0.4% increase had been expected in the Action Economics Forecast Survey. [...]

U.S. Construction Spending Activity Improves Modestly

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Factories were humming last month. The ISM manufacturing
sector composite index jumped to 60.8 during September from August's unrevised
reading of 58.8. It indicated the 13th strait month of increased factory sector
activity, and the figure was at its highest level since May 2004. A level of 58.0
had been expected in the Action Economics Forecast Survey.

The new orders index increased to 64.6, the highest level in
six months. As a result of this strengthening, the supplier delivery series
surged to 64.4, indicating the slowest speeds of product delivery since July
2004. The production series ticked higher, but the inventories index fell
following sharp increases since 2015.

The employment figure increased slightly to 60.3, indicating
the twelfth straight month of payroll expansion. During the last ten years,
there has been an 88% correlation between the index and the m/m change in
factory sector employment. Twenty-four percent (NSA) of respondents reported
higher employment while seven percent indicated a decline.

The prices paid index surged to 71.5, its highest level since
May 2011. Forty-five percent (NSA) of respondents reported paying higher prices
while two percent paid less.

The export order index rose slightly to 57.0, down from its
June high but up sharply versus all of 2015. The import order index slipped and
remained below its July high. The order backlog series improved and was up
sharply from the 2015 low.

The ISM figures are diffusion indexes where a reading above
50 indicates increase. The figures from the Institute for Supply Management can
be found in Haver's USECON database. The expectations number can be found
in Haver's AS1REPNA database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >ISM Mfg (SA)</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Sep'16</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Composite Index</td>
 <td >60.8</td>
 <td >58.8</td>
 <td >56.3</td>
 <td >51.7</td>
 <td >51.5</td>
 <td >51.4</td>
 <td >55.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;New Orders</td>
 <td >64.6</td>
 <td >60.3</td>
 <td >60.4</td>
 <td >55.0</td>
 <td >54.7</td>
 <td >52.6</td>
 <td >58.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Production</td>
 <td >62.2</td>
 <td >61.0</td>
 <td >60.6</td>
 <td >53.3</td>
 <td >54.0</td>
 <td >53.5</td>
 <td >59.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Employment</td>
 <td >60.3</td>
 <td >59.9</td>
 <td >55.2</td>
 <td >50.0</td>
 <td >49.7</td>
 <td >51.0</td>
 <td >54.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Supplier Deliveries</td>
 <td >64.4</td>
 <td >57.1</td>
 <td >55.4</td>
 <td >50.8</td>
 <td >51.9</td>
 <td >50.7</td>
 <td >55.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Inventories</td>
 <td >52.5</td>
 <td >55.5</td>
 <td >50.0</td>
 <td >49.5</td>
 <td >47.2</td>
 <td >49.0</td>
 <td >50.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Prices Paid Index (NSA)</td>
 <td >71.5</td>
 <td >62.0</td>
 <td >62.0</td>
 <td >53.0</td>
 <td >53.5</td>
 <td >39.8</td>
 <td >55.6</td>
 </tr>
 </tbody>
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Factories were humming last month. The ISM manufacturing sector composite index jumped to 60.8 during September from August's unrevised reading of 58.8. It indicated the 13th strait month of increased factory sector activity, and the [...]

ISM Factory Sector Index Strengthens to 13-Year High

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Personal income increased 0.2% during August (2.8% y/y)
following a 0.3% July rise, revised from 0.4%. The latest gain matched
expectations in the Action
Economics Forecast Survey. Wages &amp; salaries remained unchanged (2.7% y/y)
following two months of strong gains. Rental
income grew 0.7% (6.5% y/y) after two months of 0.6% increase. Proprietors'
income advanced 0.3% (2.9% y/y) following declines in three of the prior four
months. Personal
interest income improved 0.2% (2.8% y/y) for a second straight month. That
followed three consecutive months of 0.9% decline. Dividend income also rose
0.2% (1.5% y/y) after a 0.5% increase. Personal
transfer receipts improved 0.3% (2.7% y/y) after two months of 0.2% increase. Social Security
payments ticked 0.1% higher (3.3% y/y) and Medicare payments gained an improved
0.3% (2.8%
y/y). Unemployment insurance benefits declined 1.0% (-11.2% y/y).
Disposable income inched up 0.1% (2.7% y/y) following a 0.2%
rise during July. Adjusted for price changes, take-home pay slipped 0.1% (+1.2% y/y)
and reversed July's increase.
Personal consumption expenditures ticked 0.1% higher last month
following an unrevised 0.3% rise. A 0.1% gain had been expected.
Adjusted for price change, personal spending eased 0.1% (+2.5% y/y), the first
decline since January. Real durable goods purchases declined 1.0% (+5.8% y/y),
pulled lower by a 2.7% drop (+2.4% y/y) in motor vehicle buying. Real furniture
purchases eased 0.2% (+6.3% y/y), but real spending on recreational goods &amp;
vehicles rose 0.1% (9.0% y/y). Constant dollar spending on nondurable items fell
0.2% (+1.7% y/y), off for the third straight month. Real purchases of clothing
&amp; footwear declined 0.8% (+1.0% y/y). Real spending on gasoline &amp; oil
declined 0.9% (-0.9% y/y), down for the fourth month in the last five. Real
spending on food &amp; beverages rose 0.3% (1.4% y/y). Real spending on services
improved 0.1% (2.2% y/y) for the third straight month. Real outlays on health
care rose 0.2% (2.8% y/y) but housing &amp; utilities expenditures eased 0.1%
(+0.3% y/y), the sixth monthly decline this year. Real recreation spending held
steady for the second straight month (3.2% y/y).&nbsp;
The personal savings rate held at 3.6%, but remained down from the 6.1% high during all of 2015. Personal saving
declined by roughly one quarter y/y.
The chain-type price index increased 0.2% (1.4% y/y), the
strongest increase since April. Excluding food &amp; energy, prices increased
0.1% (1.3% y/y) for the fourth straight month. Durable goods prices eased 0.1%
(-2.2% y/y), down for the seventh straight month. The price index for
recreational goods &amp; vehicles fell 0.7% (-3.8% y/y). Nondurable goods prices rose
0.5% (1.3% y/y) as gasoline prices jumped 5.8% (9.9% y/y). Services prices improved
0.2% (2.0%
y/y), following a 0.1% uptick.
The personal income &amp; consumption figures are available
in Haver's USECON database with detail in the USNA database. The
Action Economics figure is in the AS1REPNA database.
<table width="1769" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="910">Personal Income &amp; Outlays
 (%)</th>
 <th scope="col" width="122">Aug</th>
 <th scope="col" width="122">Jul</th>
 <th scope="col" width="122">Jun</th>
 <th scope="col" width="122">Aug Y/Y</th>
 <th scope="col" width="122">2016</th>
 <th scope="col" width="122">2015</th>
 <th scope="col" width="123">2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="910">Personal Income</td>
 <td align="center" width="122">0.2</td>
 <td align="center" width="122">0.3</td>
 <td align="center" width="122">0.0</td>
 <td align="center" width="122">2.8</td>
 <td align="center" width="122">2.4</td>
 <td align="center" width="122">5.0</td>
 <td align="center" width="123">5.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="910">&nbsp;&nbsp;Wages &amp; Salaries</td>
 <td align="center" width="122">0.0</td>
 <td align="center" width="122">0.5</td>
 <td align="center" width="122">0.4</td>
 <td align="center" width="122">2.7</td>
 <td align="center" width="122">2.9</td>
 <td align="center" width="122">5.1</td>
 <td align="center" width="123">5.1</td>
 </tr>
 <tr>
 <td class="firstcol" width="910">Disposable Personal Income</td>
 <td align="center" width="122">0.1</td>
 <td align="center" width="122">0.2</td>
 <td align="center" width="122">0.0</td>
 <td align="center" width="122">2.7</td>
 <td align="center" width="122">2.6</td>
 <td align="center" width="122">4.5</td>
 <td align="center" width="123">5.1</td>
 </tr>
 <tr>
 <td class="firstcol" width="910">Personal Consumption Expenditures</td>
 <td align="center" width="122">0.1</td>
 <td align="center" width="122">0.3</td>
 <td align="center" width="122">0.1&nbsp;</td>
 <td align="center" width="122">3.9</td>
 <td align="center" width="122">4.0</td>
 <td align="center" width="122">3.9</td>
 <td align="center" width="123">4.4</td>
 </tr>
 <tr>
 <td class="firstcol" width="910">Personal Saving Rate</td>
 <td align="center" width="122">3.6</td>
 <td align="center" width="122">3.6</td>
 <td align="center" width="122">3.7</td>
 <td align="center" width="122">4.9 
 (Aug '16)</td>
 <td align="center" width="122">4.9</td>
 <td align="center" width="122">6.1</td>
 <td align="center" width="123">5.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="910">PCE Chain Price Index</td>
 <td align="center" width="122">0.2</td>
 <td align="center" width="122">0.1</td>
 <td align="center" width="122">0.0</td>
 <td align="center" width="122">1.4</td>
 <td align="center" width="122">1.2</td>
 <td align="center" width="122">0.3</td>
 <td align="center" width="123">1.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="910">&nbsp;&nbsp;Less Food &amp; Energy</td>
 <td align="center" width="122">0.1</td>
 <td align="center" width="122">0.1</td>
 <td align="center" width="122">0.1</td>
 <td align="center" width="122">1.3</td>
 <td align="center" width="122">1.8</td>
 <td align="center" width="122">1.3</td>
 <td align="center" width="123">1.6</td>
 </tr>
 <tr>
 <td class="firstcol" width="910">Real Disposable Income</td>
 <td align="center" width="122">-0.1</td>
 <td align="center" width="122">0.1</td>
 <td align="center" width="122">-0.0</td>
 <td align="center" width="122">1.2</td>
 <td align="center" width="122">1.4</td>
 <td align="center" width="122">4.2</td>
 <td align="center" width="123">3.6</td>
 </tr>
 <tr>
 <td class="firstcol" width="910">Real Personal Consumption Expenditures</td>
 <td align="center" width="122">-0.1</td>
 <td align="center" width="122">0.2</td>
 <td align="center" width="122">0.1</td>
 <td align="center" width="122">2.5</td>
 <td align="center" width="122">2.7</td>
 <td align="center" width="122">3.6</td>
 <td align="center" width="123">2.9</td>
 </tr>
 </tbody>
</table>

&nbsp;
Chicago Purchasing Managers Index Strengthens 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;September
29, 2017
The Chicago Purchasing Managers Business Barometer for
September rose to 65.2 following two months at 58.9. It was the highest level in
three months and well improved versus 54.0 twelve months ago.&nbsp; A slip to
58.5 had been expected in the Action Economics Forecast Survey. 
Based on these figures Haver Analytics constructs an index
that is comparable to the ISM Composite index, to be released Monday. This
figure rose to 61.3 from 55.7. It was the highest level since June and up from
52.9 last September. During the last ten years, there has been a 63% correlation
between the index and the q/q change in real GDP.
The component series each improved m/m. The new orders series
increased moderately but the backlog of unfilled orders reading surged to the
highest level since 1988. The supplier delivery index rose and roughly indicated
the slowest product delivery speeds since 2011. Production improved moderately.
The employment index strengthened to the highest level in
three months. Twenty percent (NSA) of respondents indicated an increase in
hiring while ten percent reported a decline. During the last ten years, there
has been an 81% correlation between the index level and the m/m change in
factory sector payrolls.
The prices paid index eased surged to the highest level since
July 2011. Forty six percent (NSA) of respondents reported paying higher prices
while five percent paid less.
The MNI Chicago Report is produced by MNI/Deutsche Borse
Group in partnership with ISM-Chicago. The survey covers a sample of over 200
purchasing professionals in the Chicago area with a monthly response rate of
about 50%. The ISM-Adjusted headline index is calculated by Haver Analytics
using these data to construct a figure with the ISM methodology. Summary data
are contained in Haver's USECON database, with detail, including the ISM-style
index, in the SURVEYS database. The Consensus expectations figure is
available in AS1REPNA.
&nbsp;
<table width="1769" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" width="972">Chicago Purchasing Managers Index (%, SA)</th>
 <th scope="col" width="113">Sep</th>
 <th scope="col" width="113">Aug</th>
 <th scope="col" width="113">Jul</th>
 <th scope="col" width="113">Sep '16</th>
 <th scope="col" width="113">2016</th>
 <th scope="col" width="114">2015</th>
 <th scope="col" width="114">2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="972">General Business Barometer</td>
 <td align="center" width="113">65.2</td>
 <td align="center" width="113">58.9</td>
 <td align="center" width="113">58.9</td>
 <td align="center" width="113">54.0</td>
 <td align="center" width="113">53.1</td>
 <td align="center" width="114">50.3</td>
 <td align="center" width="114">60.7</td>
 </tr>
 <tr>
 <td class="firstcol" width="972">ISM-Adjusted General Business Barometer</td>
 <td align="center" width="113">61.3</td>
 <td align="center" width="113">55.7</td>
 <td align="center" width="113">58.0</td>
 <td align="center" width="113">52.9</td>
 <td align="center" width="113">52.0</td>
 <td align="center" width="114">51.6</td>
 <td align="center" width="114">59.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="972">&nbsp;&nbsp;Production</td>
 <td align="center" width="113">63.3</td>
 <td align="center" width="113">61.9</td>
 <td align="center" width="113">60.8</td>
 <td align="center" width="113">57.5</td>
 <td align="center" width="113">54.7</td>
 <td align="center" width="114">52.5</td>
 <td align="center" width="114">64.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="972">&nbsp;&nbsp;New Orders</td>
 <td align="center" width="113">67.5</td>
 <td align="center" width="113">61.2</td>
 <td align="center" width="113">60.3</td>
 <td align="center" width="113">55.0</td>
 <td align="center" width="113">55.7</td>
 <td align="center" width="114">50.4</td>
 <td align="center" width="114">63.8</td>
 </tr>
 <tr>
 <td class="firstcol" width="972">&nbsp;&nbsp;Order Backlogs</td>
 <td align="center" width="113">65.3</td>
 <td align="center" width="113">54.7</td>
 <td align="center" width="113">57.9</td>
 <td align="center" width="113">42.6</td>
 <td align="center" width="113">47.4</td>
 <td align="center" width="114">44.4</td>
 <td align="center" width="114">54.2</td>
 </tr>
 <tr>
 <td class="firstcol" width="972">&nbsp;&nbsp;Inventories</td>
 <td align="center" width="113">56.9</td>
 <td align="center" width="113">48.5</td>
 <td align="center" width="113">54.9</td>
 <td align="center" width="113">48.7</td>
 <td align="center" width="113">47.2</td>
 <td align="center" width="114">52.1</td>
 <td align="center" width="114">55.9</td>
 </tr>
 <tr>
 <td class="firstcol" width="972">&nbsp;&nbsp;Employment</td>
 <td align="center" width="113">56.0</td>
 <td align="center" width="113">47.5</td>
 <td align="center" width="113">52.6</td>
 <td align="center" width="113">49.2</td>
 <td align="center" width="113">49.4</td>
 <td align="center" width="114">50.3</td>
 <td align="center" width="114">56.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="972">&nbsp;&nbsp;Supplier Deliveries</td>
 <td align="center" width="113">62.6</td>
 <td align="center" width="113">59.3</td>
 <td align="center" width="113">61.5</td>
 <td align="center" width="113">54.1</td>
 <td align="center" width="113">52.8</td>
 <td align="center" width="114">52.5</td>
 <td align="center" width="114">56.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="972">&nbsp;&nbsp;Prices Paid</td>
 <td align="center" width="113">74.3</td>
 <td align="center" width="113">58.9</td>
 <td align="center" width="113">60.9</td>
 <td align="center" width="113">55.8</td>
 <td align="center" width="113">53.1</td>
 <td align="center" width="114">46.8</td>
 <td align="center" width="114">61.0</td>
 </tr>
 </tbody>
</table>


</body>

</html>

Personal income increased 0.2% during August (2.8% y/y) following a 0.3% July rise, revised from 0.4%. The latest gain matched expectations in the Action Economics Forecast Survey. Wages & salaries remained unchanged (2.7% y/y) [...]

U.S. Personal Income & Consumer Spending Growth Ease

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</head>
<body>
	 
 
 
 


<a href="/comment/170929f.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170929f.png"></a>
 <a href="/comment/170929g.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170929g.png"></a>
The Chicago Purchasing Managers Business Barometer for
September rose to 65.2 following two months at 58.9. It was the highest level in
three months and well improved versus 54.0 twelve months ago.&nbsp; A slip to
58.5 had been expected in the Action Economics Forecast Survey. 
Based on these figures Haver Analytics constructs an index
that is comparable to the ISM Composite index, to be released Monday. This
figure rose to 61.3 from 55.7. It was the highest level since June and up from
52.9 last September. During the last ten years, there has been a 63% correlation
between the index and the q/q change in real GDP.
The component series each improved m/m. The new orders series
increased moderately but the backlog of unfilled orders reading surged to the
highest level since 1988. The supplier delivery index rose and roughly indicated
the slowest product delivery speeds since 2011, reflecting intense storm activity. Production improved moderately.

The employment index strengthened to the highest level in
three months. Twenty percent (NSA) of respondents indicated an increase in
hiring while ten percent reported a decline. During the last ten years, there
has been an 81% correlation between the index level and the m/m change in
factory sector payrolls.
The prices paid index surged to the highest level since
July 2011. Forty six percent (NSA) of respondents reported paying higher prices
while five percent paid less.
The MNI Chicago Report is produced by MNI/Deutsche Borse
Group in partnership with ISM-Chicago. The survey covers a sample of over 200
purchasing professionals in the Chicago area with a monthly response rate of
about 50%. The ISM-Adjusted headline index is calculated by Haver Analytics
using these data to construct a figure with the ISM methodology. Summary data
are contained in Haver's USECON database, with detail, including the ISM-style
index, in the SURVEYS database. The Consensus expectations figure is
available in AS1REPNA.
<a href="/comment/170929h.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170929h.png"></a>
 <a href="/comment/170929i.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170929i.png"></a>



<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
 <tr>
 <th class="firstcol" >Chicago Purchasing Managers Index (%, SA)</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Sep '16</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >General Business Barometer</td>
 <td >65.2</td>
 <td >58.9</td>
 <td >58.9</td>
 <td >54.0</td>
 <td >53.1</td>
 <td >50.3</td>
 <td >60.7</td>
 </tr>
 <tr>
 <td class="firstcol" >ISM-Adjusted General Business Barometer</td>
 <td >61.3</td>
 <td >55.7</td>
 <td >58.0</td>
 <td >52.9</td>
 <td >52.0</td>
 <td >51.6</td>
 <td >59.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Production</td>
 <td >63.3</td>
 <td >61.9</td>
 <td >60.8</td>
 <td >57.5</td>
 <td >54.7</td>
 <td >52.5</td>
 <td >64.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;New Orders</td>
 <td >67.5</td>
 <td >61.2</td>
 <td >60.3</td>
 <td >55.0</td>
 <td >55.7</td>
 <td >50.4</td>
 <td >63.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Order Backlogs</td>
 <td >65.3</td>
 <td >54.7</td>
 <td >57.9</td>
 <td >42.6</td>
 <td >47.4</td>
 <td >44.4</td>
 <td >54.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Inventories</td>
 <td >56.9</td>
 <td >48.5</td>
 <td >54.9</td>
 <td >48.7</td>
 <td >47.2</td>
 <td >52.1</td>
 <td >55.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Employment</td>
 <td >56.0</td>
 <td >47.5</td>
 <td >52.6</td>
 <td >49.2</td>
 <td >49.4</td>
 <td >50.3</td>
 <td >56.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Supplier Deliveries</td>
 <td >62.6</td>
 <td >59.3</td>
 <td >61.5</td>
 <td >54.1</td>
 <td >52.8</td>
 <td >52.5</td>
 <td >56.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Prices Paid</td>
 <td >74.3</td>
 <td >58.9</td>
 <td >60.9</td>
 <td >55.8</td>
 <td >53.1</td>
 <td >46.8</td>
 <td >61.0</td>
 </tr>
 </tbody>
</table>


</body>

</html>

The Chicago Purchasing Managers Business Barometer for September rose to 65.2 following two months at 58.9. It was the highest level in three months and well improved versus 54.0 twelve months ago. A slip to 58.5 had been expected in [...]

Chicago Purchasing Managers Index Strengthens

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EMU gained only 0.1% in September and the year-on-year pace accelerated slightly to 1.6% from 1.5%. The core, however, rose by 0.1% and logged a drop in its year-on-year pace to 1.2% from 1.3% previously. On this report the ECB does not seem to be closer to meeting its inflation goal.

The sequential growth rates for inflation in EMU under core vs headline schemes show that over three months inflation is higher for the headline compared to six months but is lower for the core. Over six months all measures of inflation are quiescent and over 12-months all are well below the ECB target rate. Three month inflation is higher than 12-month inflation for the headline but it is at the same low, 1.2% pace, for the core.

Turning to the individual large country-reported inflation data we find that three of the four largest EMU economies have inflation on the borderline or at an excessive pace over three-months. German inflation is over the top at a 2.4% pace while Spanish and French inflation at a 2% pace are marginally above the target which is expressed as a pace just less than 2%. Italy in fact at a 1.6% pace is still undernourished. Over six months all the large country headline rates of inflation are too low. Germany logs the fastest gain at a 1.6% pace, Spain is next at 0.9%, followed by France at 0.7% and Italy at 0.4%. Obviously on a six month time line there are very weak inflation pressures here. Over 12-months Spain logs a near target 1.9% pace, with Germany at a 1.8% pace, but France falls well short at a 1.1% pace and Italy falls short, too, with a 1.3% pace.

Inflation simply does not seem to be building any consistent momentum in EMU. The economic data have been showing some firmness and that has been rewarding. But growth is not being accompanied by inflation to much of a degree. Another aspect to keep in mind is that the strongest growth signals have come from PMI data. The signals from conventional economic indicators have not been anywhere near as strong as from the PMI reports and other sorts of surveys. However, one thing is clear and that is that the Germany is doing better than the rest of EMU and that is reflected in its relatively higher rate of inflation for the most part. The German harmonized rate of unemployment is at 3.7% whereas for all of EMU it is at 9.1 percent as of July. The German advantage is even greater when compared directly to the largest EMU economies (France 9.8%, Italy 11.3% and Spain 17.1%) Germany today also reported another drop in its unemployment rate to a new reunification low. Its fresh retail sales gauge showed sales growing at a steady 2.8% annual rate.

There are early observations on core inflation for Italy and for Germany if we use the domestic CPI instead of the HICP for Germany. In Sept Italy's core rate logged a -0.1% change while the German core rose by 0.2% after gaining 0.3% in August. Over three-months Germany shows the core up at a 2.4% annual rate while the Italian core is up at a 0.4% pace. But over other horizons core inflation is better behaved. Over six-months the German rate is at a 1.6% pace with the Italian rate at 1.0%. Over 12-months the German rate is closer to ECB target pace at a 1.8% rate but in Italy the core is only up at a 0.9% pace.

There does seem to be some separation in the inflation rates emerging from EMU members. Interestingly among this group of countries Germany has tended to be the high inflation country while either France or Italy have been the low inflation countries. This is the opposite sort of result to what we have expected and observed over most of the EMU's existence it is what has happened since Italy and France have been under strong pressures to reduce or contain debt and its growth. Meanwhile, Germany has been the consistently strongest economy in EMU during this period of an economic lull. This might be considered as a less that optimal result for EMU from the standpoint of stability since Germany has the greatest fear of inflation and on this trend, as EMU-wide inflation creeps closer to target the German inflation rate will surpass 2% first and lead to criticisms in Germany and uneasiness at the Bundesbank. This pressure probably will manifest itself as more leverage on the ECB to pay attention to where inflation might be pointing rather than to where it is. In that respect it could cause the ECB to make policy more off of inflation forecasts as the Fed has been doing although with not much success.



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EMU gained only 0.1% in September and the year-on-year pace accelerated slightly to 1.6% from 1.5%. The core, however, rose by 0.1% and logged a drop in its year-on-year pace to 1.2% from 1.3% previously. On this report the ECB does [...]

HICP Inflation Keeps Toothpaste in the Tube but Begins to Show Divergences

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

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Andrew Cates

**Faster-than-Expected Monetary Easing**
Our first potential upside risk for 2026 is that monetary policy across most major advanced economies is loosened further and by more than markets and forecasters currently anticipate. Monetary policy cycles have a history of being underestimated in both length and magnitude—in large part because of the powerful feedback loops between interest rates, inflation, and economic behaviour. On the way up, higher policy rates feed into mortgage costs, debt-service burdens, rents, and the general cost of doing business, reinforcing wage pressures and inflation persistence. But these same channels work in reverse on the way down. As rates fall, debt servicing eases, housing and rental inflation softens, and cost pressures across the economy unwind more rapidly than expected—allowing inflation to decelerate faster and creating scope for further easing. A risk, therefore, is that if disinflation becomes self-reinforcing, central banks find themselves cutting rates more aggressively than currently priced, not because of economic distress, but because restrictive policy proves increasingly unnecessary.

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**Energy Supply Dynamics Prove More Supportive**
The second chart reinforces the message from the first: easing monetary policy may be accompanied—and amplified—by a more benign energy backdrop. Recent projections from the EIA point to a renewed build-up in OECD crude oil and liquids inventories over the year ahead, a dynamic that has historically been associated with downward pressure on oil prices. If inventories continue to rise as supply growth outpaces demand, spot prices for crude could undershoot current forecasts, keeping energy inflation subdued. That, in turn, would reinforce disinflationary forces already in play—lowering headline CPI, easing cost pressures for firms and households, and giving central banks greater confidence to loosen policy further. In that sense, softer oil prices would not just be a standalone positive shock, but part of a reinforcing feedback loop alongside rate cuts, supporting real incomes, financial conditions, and global growth into 2026.


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**AI-Driven Productivity Gains Materialise More Quickly** 
The third chart shows a clear pickup in US nonfinancial productivity growth, reviving the debate around whether AI-driven efficiency gains may arrive sooner than many forecasters expect. While the longer-term productivity potential of AI remains uncertain and uneven across sectors, there are reasons to think that at least some near-term gains could prove more tangible than currently assumed. Rather than transformative breakthroughs, early benefits are likely to come from incremental improvements—automation of routine processes, better scheduling and logistics, more efficient use of capital and labour, and modest reductions in overhead costs—areas where US firms are already well positioned to implement new technologies quickly. If these gains accumulate and diffuse more broadly, the implications would still be meaningful. Even a modest, sustained uplift in productivity would help contain unit labour costs, support real income growth, and raise the economy’s speed limit without generating renewed inflation pressure. In that scenario, productivity would not need to “revolutionise” the economy to matter: incremental efficiency gains could nonetheless provide a supportive backdrop for growth, earnings, and policy easing into 2026—representing a genuine upside risk to the outlook.


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**The US Economy Proves Resilient Again**
The next chart highlights a further upside risk to the 2026 outlook: the possibility that the US economy once again outperforms its peers. Unlike the typical pre-recession backdrop, there is little evidence of meaningful financial stress in the US private sector. After a prolonged period of balance-sheet repair, private-sector debt ratios have been trending lower in recent years, while the sector as a whole is running a healthy financial surplus. This stands in stark contrast to previous late-cycle episodes, which were characterised by rising leverage, widening deficits, and growing dependence on credit expansion. The absence of private-sector excesses reduces the economy’s vulnerability to higher rates and external shocks, and helps explain why growth has remained more durable than expected. If households and firms continue to prioritise balance-sheet strength rather than forced deleveraging, the usual mechanisms that tip the economy into recession may fail to materialise. In that environment, even modest easing in financial conditions could translate into renewed spending and investment, allowing the US to sustain above-trend growth into 2026—representing another upside risk to the global outlook.


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**India’s Growth Engine Accelerates Further** 
Chart 5 points to another potential upside risk for 2026 emanating from India’s economy. After a period of relative pessimism earlier in the year, consensus growth forecasts for 2026 have been revised modestly higher, even as inflation projections have continued to drift lower. This combination—firmer growth expectations alongside easing inflation pressures—creates scope for a more supportive policy backdrop than markets currently assume. With real interest rates no longer rising and financial conditions stabilising, India’s investment cycle, already underpinned by public infrastructure spending and improving corporate balance sheets, could prove more durable than forecast. If these trends persist, India may deliver growth that is both stronger and more internally driven than expected, providing a meaningful demand impulse to the broader global economy. Given India’s increasing weight in global growth, even small upside surprises would have outsized effects on trade, commodity demand, and regional activity—reinforcing the case that the global outlook for 2026 may be skewed to the upside.


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**The Global South Becomes a More Independent Source of Demand** 
The final chart points to a broader upside risk for the global economy in 2026: that economies across the so-called Global South generate more durable momentum than currently assumed. With a few notable exceptions—such as China and Thailand—many emerging economies continue to benefit from stronger growth in their working-age populations and/or faster real GDP per capita growth than their advanced-economy counterparts. These demographic and income dynamics are helping to underpin domestic consumption, support labour-force expansion, and attract capital inflows, as reflected in the pattern of net FDI across countries. In contrast, much of the advanced world faces binding demographic constraints and lower steady-state growth rates, limiting the scope for demand to re-accelerate organically. If growth in the Global South proves more resilient and internally driven—rather than overly dependent on exports to advanced economies—it could provide a more stable and geographically diversified source of global demand. In that scenario, global growth in 2026 would be less reliant on a narrow set of advanced economies, reinforcing the case that risks to the outlook may be skewed to the upside.


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_This marks our final Charts of the Week publication for 2025 The next edition will be released on Thursday 8 January._

Last week’s Charts of the Week focused on the darker tail risks hanging over the 2026 outlook: the possibility of monetary policy mis-calibration, that geopolitics and trade fragmentation further disrupt supply chains, and that elevated debt levels—particularly in the public sector—reassert themselves as a drag on growth. This week’s charts take a deliberately different tack. Taken together, they highlight a set of upside risks that are possibly underappreciated in current forecasts. For example, policy easing across advanced economies may extend further than expected as disinflation feeds on itself (chart 1); oil prices could surprise on the downside as inventories rebuild (chart 2); US productivity may deliver incremental but meaningful gains sooner than assumed (chart 3); the US economy itself could continue to benefit from an absence of private-sector financial stress (chart 4); India’s growth momentum might firm again as inflation pressures recede (chart 5); and, more broadly, parts of the Global South appear increasingly capable of generating their own demand impulse, supported by favourable demographics and income growth (chart 6). None of these forces is guaranteed, and each carries its own caveats—but together they suggest that, having spent much of the past year fixated on downside risks, the risks to global growth in 2026 may be more evenly balanced than is widely assumed.

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Charts of the Week: The Upside Risks

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped 13,000 to 224,000 during the week of December 13, from 237,000 during the week of December 6, revised from 236,000. The four-week moving average of initial claims was 217,500, an increase of 500 from the previous week, which was revised to 217,000 from 216,750.

Federal government employees initially filed 1091 (NSA) jobless insurance claims in the week ended December 6, after filing 643 claims in the week ended November 29.

Continuing claims for unemployment insurance rose 67,000 to 1,897,000 in the week ending December 6, following a sharp decline of 107,000 to 1,830,000 in the prior week, revised from 1,838,000. The four-week moving average was 1,902,000 in the week ending December 6, a decrease of 14,000 from 1,916,00 in the week ended November 29, revised from 1,918,000. The insured unemployment rate stood at 1.2% in the week of December 6, unchanged from the prior week.

Federal government employees’ continuing benefits rose to 14,077 (NSA) in the week of November 29 from 12,732 (NSA) in the week ended November 22.

The insured unemployment rate varied greatly across individual states and territories. In the week ending November 29, the highest unemployment rates were in Washington (2.48%), New Jersey (2.42%), California (2.26%), Minnesota (2.16%), and Massachusetts (2.10%). The lowest rates were in Florida (0.34%), South Dakota (0.40%), North Carolina (0.41%), Louisiana (0.44%), Alabama (0.46%), Virginia (0.47%), and Tennessee (0.49%). Rates in other notable states include New York (1.81%), Illinois and Pennsylvania (both 1.67%), and Texas (1.22%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.



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- Initial claims dropped from the prior week.
- Continuing claims rebounded from the prior week sharp decline.
- The insured unemployment rate was unchanged.


U.S. Initial Claims for Unemployment Insurance Eased in Latest Week

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Mortgage applications dropped 3.8% w/w (+40.9% y/y) in the week of December 12 after a rise of 4.8% w/w (45.4% y/y) in the week of December 5, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house fell 2.8% w/w (+12.3% y/y) in the latest week after declining 2.4% w/w (+17.2% y/y) in the week of December 5. Applications for loan refinancing dropped 3.6% w/w (+86.0% y/y) in the week of December 12, following the 14.3% (87.8% y/y) jump in the week ended December 5.

The effective interest rate on a 30-year fixed-rate loan rose 6bps to 6.56% in the week ending December 12, from 6.50% in the week ending December 5. The rate on 15-year fixed-rate mortgages rose 4bps to 5.91% in the latest week from 5.87% in the December 5 week. The rate on 30-year jumbo edged down 2bps to 6.55% in the December 12 week from 6.57% in the prior week. The rate on a 5-year ARM eased 4bps to 5.76% in the latest week from 5.80% in the December 5 week.

The share of applications for refinancing an existing loan rose to 59.0% of total applications in the December12 week from 58.2% in the week ending December 5. The adjustable-rate mortgage (ARM) share of activity rose to 7.2% in the latest week from 7.0% in the December 5 week.

The average size of a mortgage loan rose 1.5% (6.4% y/y) to $400,000 in the December 12 week, following a decline of 0.7% (+7.1% y/y) to $394,200 in the December 5 week. The average size of a purchase loan edged up 0.6% (-0.3% y/y) to $424,200 in the latest week, after dropping 0.4% (+1.3% y/y) to $421,700 in the December 5 week. The average size of a loan to refinance a mortgage rose 2.4% (19.8% y/y) to $383,300 in the week ending December 12 after rising 0.2% (19.4% y/y) to $374,500 in the December 5 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications fell 2.8% w/w; refinancing loan applications fell 3.6% w/w.
- Effective interest rate on 30-year fixed loans rose to 6.56%.
- Average loan size rose moderately.

U.S. Mortgage Applications Retreated in the Week of December 12

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U.K. inflation has moderated in November, posting a 0.1% drop on the HICP, a 0.1% gain in the CPI-H headline measure as well as a 0.1% gain in the CPI-H core (excluding energy, food, alcohol, and tobacco). The sequential trend in core inflation points lower and is eroding but continues to run over the 2% mark set as a target by the Bank of England for overall inflation (over 12 months). The headline is excessive as well but also eroding.

Sequentially the CPI-H gains 3.5% over 12 months, slows to a 2.8% annual rate over six months and then dips to 1.4% annual rate over three months. The CPI-H core rises by 3.6% over 12 months, ticks down to a 3.0% pace over six months, and then runs at a 2.4% annualized pace over three months.

The trend for the CPI core, and for the headline, both are quite good and would be completely consistent with the Bank of England cutting rates, a move that is widely expected – although the 12-month pace for each is excessive.

Not only is inflation showing signs of falling into the Bank of England's target zone, but the economy has been weak although the unemployment rate currently is only hovering around the 4% mark. Still, recent economic data have been weak, and the recent monthly GDP report posted a negative reading, further unsettling the outlook. The October monthly GDP change was estimated at -0.1% while the year-over-year increase in GDP in October produced a gain of just 1.1%. These metrics have put the U.K. economy on recession watch at a time when there has been a sharp revision in the budget process that will be much more constrictive. A sharp pullback in the manufacturing of motor vehicles is blamed for the sudden weakness in GDP in October. The three-month drop in GDP is the first such drop since December 2023.

Meanwhile, the headline and the core inflation statistics are progressing. The table calculates breadth statistics on how widespread inflation acceleration has been and we see that it has not been prevalent (over 50%) in September or November, although breadth did touch the 58% mark in October. Sequentially, inflation acceleration has been tamed: over 12 months (when it is neutral), six months, and three months. Over 12 months, inflation accelerated in only 50% of the categories. And inflation according to the CPI headline and in the core over six months continues to show deceleration to accompany narrowing breadth - only 8.3%. That reading indicates that there was more inflation deceleration than acceleration by a wide margin over six months. At 50%, inflation acceleration and deceleration forces are balanced. Readings below 50% indicate relatively more deceleration, and that is now the more common condition. Inflation acceleration is extremely rare across categories over six months and three months.

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On balance, inflation by the headline and by the core measures is well disciplined and falling into line although still excessive over 12 months. The breadth statistics reinforce the view that inflation is broadly coming to heel at the same time the real economy data are showing a cooling in the economy- and perhaps an excessive slowing at that. The new budget should put the economy under additional downward pressure, further restraining inflation and causing growth to moderate. In this situation, a rate cut from the Bank of England is the odds-on bet. Perhaps the only question now is how large a cut? How much will the Bank think that circumstance have changed and that key trends have been altered in a significant way? Will policy react mostly to lower trend tempered by an excessive 12-month pace, or will it be willing to look farther forward and weight heavily the deteriorating economic trend as well?

United Kingdom

U.K. Inflation Moderates Open Door for BOE Rate Cut

Sandy Batten

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The Bureau of Labor Statistics released establishment survey data for both October and November today. With the government shutdown during the month of October, there was no household survey for that month. Today’s release contained only November data for households. Nonfarm payrolls (from the establishment survey) increased 64,000 in November but fell 105,000 in October. The 119,000 increase previously reported for September was revised down to a 108,000 rise. The Action Economics Forecast Survey had expected an 80,000 decrease in October and a 35,000 increase in November. The three-month average change in payrolls rebounded to 22,000 in November from -8,000 in October. However, this figure has trended down since early this year, pointing to a modest softening of labor-market conditions. 

This softening was reinforced by a 0.2%-point jump in the unemployment rate, measured in the household survey, to 4.6% in November from 4.4% in September. (As already noted, there was no household survey in October.) The unemployment rate, including employees working part-time for economic reasons plus all marginally attached workers, surged to 8.7% in November from 8.0% in September. For both series, these were the highest readings since September 2021.

Average hourly earnings (AHE), a key variable for the Federal Reserve, showed a further slowing in wage growth. AHE edged up 0.1% m/m in November after a 0.4% monthly jump in October. Importantly, the y/y rate slowed to 3.5%, the slowest since May 2021, from 3.7% in both September and October. The annual pace of the rise in service-producing wages slowed to 3.4% in November from 3.7% in both September and October while the annual growth of goods-producing wages was unchanged at 4.0%. Depending on your estimate of productivity growth, the current pace of total AHE growth is likely still a little too fast to be consistent with the Fed’s 2% inflation target. But clearly, it is moving in the desired direction.

In the **establishment survey**, much of the recent softening reflects declines in federal government employment. Federal government employment fell again in November (-6,000). This follows a sharp decline of 162,000 in October, as some federal employees who accepted a deferred resignation offer came off federal payrolls. Federal government employment is down by 271,000 since reaching a peak in January. (Note however that federal employees on furlough during the government shutdown were counted as employed in the establishment survey because they received pay, even if later than usual, for the pay period that included the 12th of the month. Employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey.)

Private-sector employment rose 69,000 in November and 52,000 in October following an upwardly revised 104,000 increase in September (previously 97,000). Goods sector employment rebounded in November, rising 19,000 after a 9,000 fall in October. Construction jobs increased 28,000 in November, their largest monthly gain in more than a year, but slipped 1,000 in October. Manufacturing jobs continued to decline, falling 5,000 in November and 9,000 in October. They have now declined for seven consecutive months, not the result that the Trump Administration new tariff policy had intended.

Private-sector service-producing jobs gained 50,000 in November on top of a 61,000 increase in October and an 87,000 rise in September. A 46,000 increase in healthcare jobs on top of a 44,000 increase in October and an 18,000 gain in social assistance jobs in November after a 21,000 increase in October led the overall increases in the past two months. Other major sectors mostly experienced either job declines or minimal gains in October and November.

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The length of the workweek increased to 34.3 hours in November from 34.2 hours in August, September and October. The goods-producing workweek edged up to 39.8 hours in November from 39.6 hours in October while the private service-producing workweek was unchanged at 33.2 hours in November.

In the **household survey**, the unemployment rate jumped to 4.6% in November, the highest since September 2021 and up from a recent low of 3.4% in April 2023, from 4.4% in September (again, no data for October). The labor force increased 323,000 in November from September after a 470,000 monthly gain in September. The gain in employment slowed in November with the number of employed rising only 96,000 from September following a 251,000 monthly increase in September. The number of unemployed increased 228,000 in November from September following a 219,000 monthly increase in September. The labor force participation rate rose to 62.5% in November, its highest since April, from 62.4% in September. On a slightly brighter note, the average duration of unemployment slipped to 23.0 weeks in November from 24.1 weeks in September while the median duration of unemployment fell to 9.5 weeks, the lowest since May, from 10.0 weeks in September.

The employment/population ratio for all workers slipped to 59.6% in November from 59.7% in September. It remained below the recent peak reading of 61.1% in February 2020 just prior to the pandemic. For men, the rate slipped to 64.6% in November from 64.8% in September and 65.0% in August, and for women, the rate was unchanged at 54.8% in November.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Total payrolls rose 64k in November but fell 105k in October
- The October decline was more than accounted for by a 157k decline in government employment
- The unemployment rate jumped to 4.6% in November from 4.4% in September.
- There were no household survey data collected for October.

Economy in Brief: 2017

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