Tom Moeller

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Sales of new single-family homes fell 3.4%
(-1.2% y/y) to 560,000 during August, following a 5.5% drop in July to 580,000,
revised from 571,000. August sales were at the lowest level since December. The
figures do not include the full effects due to Hurricane Harvey. Expectations in
the Action Economics Forecast Survey had been for 585,000 sales.
The median price of a new home declined 6.2% (+0.4% y/y) to
$300,200 from $319,900. It was the lowest level in six months. The average price
of a new home eased 0.9% (+3.7% y/y) to $368,100.
Movement in home sales was mixed around the country, with
weakness led last month by a 4.7% decline (-9.2% y/y) in the South to 307,000,
the third straight month of decline. In the West, sales fell 2.7% (+4.3% y/y) to
146,000 after a 15.3% drop. New home sales in the Northeast declined 2.6%, up
two-thirds y/y, to 38,000 after a 9.3% drop. In the Midwest, sales held steady
m/m (+4.5% y/y) at 69,000 following a 7.8% gain in July. 
There was a 6.1 months' supply of homes for sale at the
current sales rate. It was the highest level since July 2014. The median number
of months a new home was on the market rose slightly to 3.1.

Why Persistent Employment Disparities Matter for the Economy's Health is the title of today's 
speech by Fed Chair Janet L. Yellen and it can be found <a href="https://www.federalreserve.gov/newsevents/speech/brainard20170926a.htm"> here</a>. 

The data in this report are available in Haver's USECON
database. The consensus expectation figure from Action Economics is available in
the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 


 <thead>
 <tr>
 <th class="firstcol" scope="col" >U.S. New Single-Family
 Home Sales (SAAR, 000s)</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>560</td>
 <td>580</td>
 <td>614</td>
 <td>-1.2</td>
 <td>561</td>
 <td>503</td>
 <td>440</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Northeast</td>
 <td>38</td>
 <td>39</td>
 <td>43</td>
 <td>65.1</td>
 <td>32</td>
 <td>25</td>
 <td>28</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Midwest</td>
 <td>69</td>
 <td>69</td>
 <td>64</td>
 <td>4.5</td>
 <td>69</td>
 <td>61</td>
 <td>58</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; South</td>
 <td>307</td>
 <td>322</td>
 <td>330</td>
 <td>-9.2</td>
 <td>317</td>
 <td>286</td>
 <td>244</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West</td>
 <td>146</td>
 <td>150</td>
 <td>177</td>
 <td>4.3</td>
 <td>142</td>
 <td>130</td>
 <td>110</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Median Price (NSA, $)</td>
 <td>300,200</td>
 <td>319,900</td>
 <td>316,300</td>
 <td>0.4</td>
 <td>310,567</td>
 <td>297,258</td>
 <td>283,775</td>
 </tr>
 </tbody>
</table>

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Sales of new single-family homes fell 3.4% (-1.2% y/y) to 560,000 during August, following a 5.5% drop in July to 580,000, revised from 571,000. August sales were at the lowest level since December. The figures do not include the full [...]

U.S. New Home Sales & Prices Decline

Robert Brusca

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 The Report's Inflation Diagnostic Starts to Read Hotter
 
 
 
 
 

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French business climate edged lower in September but is still a very high-valued reading. At 100.3 it is down from 110.8 in August but the standing is still at its 84th percentile, higher historically only 16% of the time. The recent and likely trend ratings both expanded and have standings in the 90th percentile of their respective ranges. The past and current trend growth assessments in France continue to be strongly evaluated. 

The French orders and foreign orders series have much lower diffusion values than other components but when ranked against their historic standings they still stand up as relatively strong levels. Orders and demand have an 86 percentile standing despite a raw diffusion score of -1. Foreign orders and demand with a zero net diffusion score have an 82nd percentile queue standing. While both of these readings are weak in diffusion terms they are still among the stronger readings French industry has seen since 1990. 

The likely sales prices trend reading made a significant move higher to +9 in September from +3 in August. That reading is a top 16 percentile queue standing reading. The outlook for prices was last greater than this value in July of 2011- over six years ago. 

The plot of the climate index shows that there have been eight episodes since 1980 when the Climate index has gotten to be this high of higher. In three of the past cycles the index peaked out at readings close to the level the index is now posting.

One surprising development in this poll is the higher inflation reading. Oil prices remain relatively well contained. And the Euro-Area as been seeing the exchange rate start to buck-up to higher level as the ECB has been flirting with a less accommodative policy. A stronger euro is more likely to depress prices yet in France expectations for prices are firming and at an 84th percentile standing the current reading is already reasonably high. And the monthly jump in the prices series make it one of the largest month to month changes in the likely prices trend series in its history, a top 10% reading. Apparently there are some price pressure in the French manufacturing sector that are unique to it since we are not seeing these in the EU data or even reported yet in France's HICP (which is not updated though September yet). The French Insee series puts us on the outlook for inflation pressures in France. 




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French business climate edged lower in September but is still a very high-valued reading. At 100.3 it is down from 110.8 in August but the standing is still at its 84th percentile, higher historically only 16% of the time. The recent [...]

French Biz Climate Edges Lower Stays High-Valued

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Regular gasoline prices at the pump declined to $2.58
per gallon last week (+16.1% y/y), the lowest level in four weeks. Haver
Analytics constructs factors adjusting for the seasonal variation in gasoline
pump prices. The seasonally adjusted gasoline price slipped to $2.53 per gallon.&nbsp;

WTI crude oil prices moved the other way and rose to $50.21
per barrel last week (12.5% y/y), the highest level since late-May. Prices
continued to strengthen yesterday with a move to $52.22 per barrel. The two-month
futures contract price was higher a $52.52. Brent crude oil prices increased to
$56.00 per barrel last week, then rose to $58.99 per barrel yesterday.
Natural gas prices rose to $3.09/mmbtu last week (0.5%
y/y) and were $2.97 yesterday.
In the week ended September 15, gasoline demand eased
0.3% y/y, while total petroleum product demand gained 0.5% y/y. Gasoline
inventories fell 4.0% y/y, while inventories of all petroleum products
declined 3.5% y/y. Crude oil input to refineries fell 8.1% 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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 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th scope="col" >09/25/17</th>
 <th scope="col" >09/18/17</th>
 <th scope="col" >09/11/17</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 >2.58</td>
 <td >2.63</td>
 <td >2.69</td>
 <td >16.1</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 >50.21</td>
 <td >49.07</td>
 <td >48.58</td>
 <td >12.5</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 >3.09</td>
 <td >2.95</td>
 <td >2.88</td>
 <td >0.5</td>
 <td >2.49</td>
 <td >2.62</td>
 <td >4.37</td>
 </tr>
 </tbody>
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Regular gasoline prices at the pump declined to $2.58 per gallon last week (+16.1% y/y), the lowest level in four weeks. Haver Analytics constructs factors adjusting for the seasonal variation in gasoline pump prices. The seasonally [...]

U.S. Gasoline Prices Weaken; Crude Oil Costs Continue to Rise

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Regular gasoline prices at the pump declined to $2.58
per gallon last week (+16.1% y/y), the lowest level in four weeks. Haver
Analytics constructs factors adjusting for the seasonal variation in gasoline
pump prices. The seasonally adjusted gasoline price slipped to $2.53 per gallon.&nbsp;

WTI crude oil prices moved the other way and rose to $50.21
per barrel last week (12.5% y/y), the highest level since late-May. Prices
continued to strengthen yesterday with a move to $52.22 per barrel. The two-month
futures contract price was higher a $52.52. Brent crude oil prices increased to
$56.00 per barrel last week, then rose to $58.99 per barrel yesterday.
Natural gas prices rose to $3.09/mmbtu last week (0.5%
y/y) and were $2.97 yesterday.
In the week ended September 15, gasoline demand eased
0.3% y/y, while total petroleum product demand gained 0.5% y/y. Gasoline
inventories fell 4.0% y/y, while inventories of all petroleum products
declined 3.5% y/y. Crude oil input to refineries fell 8.1% y/y in the last four
weeks, compared to sharp y/y improvement earlier this year.
The energy price data are reported by the U.S. Department of
Energy. The petroleum demand and inventory figures are from the Oil &amp; Gas
Journal Weekly. These data can be found in Haver's WEEKLY database. The
daily figures are in DAILY and greater detail on prices, demand and
production, along with regional breakdowns, are in OILWKLY.
<table width="1769" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="753">Weekly Energy Prices</th>
 <th scope="col" width="144">09/25/17</th>
 <th scope="col" width="144">09/18/17</th>
 <th scope="col" width="144">09/11/17</th>
 <th scope="col" width="145">Y/Y %</th>
 <th scope="col" width="145">2016</th>
 <th scope="col" width="145">2015</th>
 <th scope="col" width="145">2014</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" width="753">Retail Gasoline ($ per Gallon, Regular)</td>
 <td align="center" width="144">2.58</td>
 <td align="center" width="144">2.63</td>
 <td align="center" width="144">2.69</td>
 <td align="center" width="145">16.1</td>
 <td align="center" width="145">2.31</td>
 <td align="center" width="145">2.03</td>
 <td align="center" width="145">2.30</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="753">Light Sweet Crude Oil, WTI ($ per bbl.)</td>
 <td align="center" width="144">50.21</td>
 <td align="center" width="144">49.07</td>
 <td align="center" width="144">48.58</td>
 <td align="center" width="145">12.5</td>
 <td align="center" width="145">43.22</td>
 <td align="center" width="145">48.90</td>
 <td align="center" width="145">93.64</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="753">Natural Gas ($/mmbtu, LA, WSJ)</td>
 <td align="center" width="144">3.09</td>
 <td align="center" width="144">2.95</td>
 <td align="center" width="144">2.88</td>
 <td align="center" width="145">0.5</td>
 <td align="center" width="145">2.49</td>
 <td align="center" width="145">2.62</td>
 <td align="center" width="145">4.37</td>
 </tr>
 </tbody>
</table>
&nbsp;
&nbsp;
U.S. New Home Sales Decline Unexpectedly 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;&nbsp;
September 26, 2017
Sales of new single-family homes in July fell 9.4% to 571,000
following an upwardly revised June gain of 1.9% to 630,000. The latter was
revised from 610,000. The July volume was the lowest since December's 548,000.
Expectations in the Action Economics Forecast Survey had envisioned 610,000
sales, which would have been unchanged from the original June report.
The median price of a new home rose 0.7% (6.3% y/y) to
$313,700. June's median price was revised upward modestly to $311,600. The
average price of a new home rose 0.3% (+4.6% y/y) to $371,200.
The July drop in home sales was spread around much of the
country. In fact, the only region with a gain was the Midwest, where sales rose
6.2% to 69,000 (-12.7% y/y); June sales there had risen 1.6% to 65,000. The
other three regions saw declines, a couple of them quite sizable. In the
Northeast, sales amounted to 32,000, down 23.8% (-13.5% y/y) from June's 42,000,
when they had risen 2.4%. Those in the West totaled 144,000, down 21.3% in the
month (up 1.4% y/y), a reversal of June's 16.6% gain. Sales in the South, the
region with the largest volume of sales, were 326,000, off 4.1% from June
(-11.7% y/y), which, in turn, was off 4.5% from May.
The months' supply of homes for sale at the current sales
rate was 5.8, up from June's 5.2 months, and the highest since September 2015,
when it was also 5.8 months. The median number of months a new home was on the
market was unchanged from June at 2.9 and the lowest since the same amount in
December 2015.
The data in this report are available in Haver's USECON
database. The consensus expectation figure from Action Economics is available in
the AS1REPNA database.
<table width="1769" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="826">U.S. New Single-Family
 Home Sales (SAAR, 000s)</th>
 <th scope="col" width="134">Aug</th>
 <th scope="col" width="134">Jul</th>
 <th scope="col" width="134">Jun</th>
 <th scope="col" width="134">Aug Y/Y %</th>
 <th scope="col" width="134">2016</th>
 <th scope="col" width="134">2015</th>
 <th scope="col" width="135">2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="826">Total</td>
 <td align="center" width="134"></td>
 <td align="center" width="134">571</td>
 <td align="center" width="134">630</td>
 <td align="center" width="134">-8.9</td>
 <td align="center" width="134">561</td>
 <td align="center" width="134">503</td>
 <td align="center" width="135">440</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="826">&nbsp; Northeast</td>
 <td align="center" width="134"></td>
 <td align="center" width="134">32</td>
 <td align="center" width="134">42</td>
 <td align="center" width="134">-13.5</td>
 <td align="center" width="134">32</td>
 <td align="center" width="134">25</td>
 <td align="center" width="135">28</td>
 </tr>
 <tr>
 <td class="firstcol" width="826">&nbsp; Midwest</td>
 <td align="center" width="134"></td>
 <td align="center" width="134">69</td>
 <td align="center" width="134">65</td>
 <td align="center" width="134">-12.7</td>
 <td align="center" width="134">69</td>
 <td align="center" width="134">61</td>
 <td align="center" width="135">58</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="826">&nbsp; South</td>
 <td align="center" width="134"></td>
 <td align="center" width="134">326</td>
 <td align="center" width="134">340</td>
 <td align="center" width="134">-11.7</td>
 <td align="center" width="134">317</td>
 <td align="center" width="134">286</td>
 <td align="center" width="135">244</td>
 </tr>
 <tr>
 <td class="firstcol" width="826">&nbsp; West</td>
 <td align="center" width="134"></td>
 <td align="center" width="134">144</td>
 <td align="center" width="134">183</td>
 <td align="center" width="134">1.4</td>
 <td align="center" width="134">142</td>
 <td align="center" width="134">130</td>
 <td align="center" width="135">110</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="826">Median Price (NSA, $)</td>
 <td align="center" width="134"></td>
 <td align="center" width="134">313,700</td>
 <td align="center" width="134">311,600</td>
 <td align="center" width="134">6.3</td>
 <td align="center" width="134">310,567</td>
 <td align="center" width="134">297,258</td>
 <td align="center" width="135">283,775</td>
 </tr>
 </tbody>
</table>

&nbsp;
U.S. Consumer Confidence Improves Markedly 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;September
26, 2017
The Conference Board Consumer Confidence Index strengthened
2.4% during August to 122.9 following a 2.3% July rise, revised from 3.2%. The
index was just below its recent peak in March and neared the highest level since
December 2000. The Action Economics Forecast Survey looked for a lesser increase
to 120.0. During the past thirty years, there has been a 70% correlation between
the level of consumer confidence and the y/y change in real PCE.
The increase in confidence reflected a 4.0% gain (20.7% y/y)
in the present situation index to 151.2, its highest level since July 2001. The
expectations reading increased 1.0% (20.8% y/y) to 104.0, its highest level
since April.
The percentage of respondents indicating that business
conditions are &quot;good&quot; surged to 34.5%, the highest level since January
2001. The percentage saying business conditions are &quot;bad&quot; matched the
recovery low of 13.1%. The 35.4% of respondents saying that jobs are
&quot;plentiful&quot; was the most since July 2001. The percentage claiming jobs
are &quot;hard to get&quot; declined to a sixteen year low of 17.3%. These
improved views of labor market conditions led to a labor market differential
(plentiful minus hard to get) of 18.1 percentage points. This differential is
97% inversely related to the unemployment rate.
The percentage expecting business conditions to improve over
the next six months declined to 19.6%, and remained well below its 26.9% March
peak. The percentage expecting more jobs in six months declined to 17.1%, a nine
month low and well below the 23.8% March peak. The percentage expecting their
incomes to strengthen improved slightly to 20.9%, but remained below the March
high.
The expected rate of inflation in twelve months declined to
4.5% and roughly equaled the 12-year low. The percentage expecting higher
interest rates over the next twelve months fell to 64.8%, down from a March high
of 72.2%, while 6.4% expected to buy a home, down slightly from the recent high.
Confidence amongst individuals over age 55 reached a new high
for the cycle. Confidence amongst individuals aged 35-to-54 also improved
moderately. Confidence amongst respondents under age 35 also rose following a
sharp decline in July.
The Consumer Confidence data is available in Haver's CBDB
database. The total indexes appear in USECON, and the market expectations
are in AS1REPNA
<table width="100%" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col">Conference Board (SA, 1985=100)</th>
 <th scope="col">Sep</th>
 <th scope="col">Aug</th>
 <th scope="col">Jul</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>
 <td class="firstcol">Consumer Confidence Index</td>
 <td align="center"></td>
 <td align="center">122.9</td>
 <td align="center">120.0</td>
 <td align="center">20.7</td>
 <td align="center">99.8</td>
 <td align="center">98.0</td>
 <td align="center">86.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp; Present Situation</td>
 <td align="center"></td>
 <td align="center">151.2</td>
 <td align="center">145.4</td>
 <td align="center">20.7</td>
 <td align="center">120.6</td>
 <td align="center">111.7</td>
 <td align="center">87.4</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Expectations</td>
 <td align="center"></td>
 <td align="center">104.0</td>
 <td align="center">103.0</td>
 <td align="center">20.8</td>
 <td align="center">86.1</td>
 <td align="center">88.8</td>
 <td align="center">86.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Consumer Confidence By Age Group</td>
 <td align="center"></td>
 <td align="center"></td>
 <td align="center"></td>
 <td align="center"></td>
 <td align="center"></td>
 <td align="center"></td>
 <td align="center"></td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Under 35 Years</td>
 <td align="center"></td>
 <td align="center">134.8</td>
 <td align="center">130.0</td>
 <td align="center">10.0</td>
 <td align="center">122.4</td>
 <td align="center">116.0</td>
 <td align="center">106.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp; Aged 35-54 Years</td>
 <td align="center"></td>
 <td align="center">123.6</td>
 <td align="center">122.2</td>
 <td align="center">9.4</td>
 <td align="center">106.2</td>
 <td align="center">103.9</td>
 <td align="center">92.4</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Over 55 Years</td>
 <td align="center"></td>
 <td align="center">115.6</td>
 <td align="center">113.3</td>
 <td align="center">36.8</td>
 <td align="center">84.6</td>
 <td align="center">84.1</td>
 <td align="center">73.8</td>
 </tr>
 </tbody>
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The IFO business situation diffusion index backed off to 35.1 in September from 37.1 in August. Expressed in index terms it fell to 115.2 in September from 115.9 in August. Any way you slice it, the survey shows some weakening in the German economy in September. But the index levels are still exceptionally strong and that is the true underlying message here. The German economy remains strong...but despite extremely strong readings it still fails to churn out worrisome inflation pressure.



Headlines perform but politics intrude 
The headline business situation index has strong 97.7 percentile queue standing while expectations also backtracked to an 11.6 diffusion reading in September from 12.4 in August to hold to a 94.6 percentile standing. These are both extremely high readings. Of course, the German national election results are out now and the IFO survey was conducted ahead of the election. But the election results ran in the direction expected which was to return Angela Merkel's government to a position of primacy in the next coalition. But it does this by showing encroaching division in the German political system as well. Businesses may already be thinking that policymaking in the period ahead is going to be more difficult and more fractious than it has been. Parties unhappy with the expanded introduction of immigrants in Germany saw electoral gains. This fits with a theme seen across Europe that is best represented by the UK giving up its EU membership and being willing to suffer economic hardship in order to gain control of its own borders, something it felt it had lost in its continuing membership in EMU. And despite the EU's apparent harsh treatment of the UK in the exit process, it seems that many of the people in countries that are still EU members share the UK citizen's concerns. 


German sector trends 
The German sectors show some split conditions across sectors in terms of changes month-to-month. Manufacturing and wholesaling each slipped from August to September with the manufacturing diffusion index dropping two full points month-to-month and wholesaling shedding more than four points in diffusion value. But retailing and construction each saw improvements in August with retailing gaining 2.7 points and construction gaining back nearly one point. 

German sector standings 
Apart from the monthly changes, all the sectors exhibit a strong showing in terms of their respective standings (or levels) in their historic queue of values. Retailing is the weakest sector with a standing in its 88.3 percentile; wholesaling is next weakest at a strong 94.5 percentile standing. Everything in this report is strong. Manufacturing at its 98.1 percentile is extremely strong and construction is this strong or stronger only 0.3% of the time as it is at its highest value on record.

Strength with a moderate PPI 
Despite the good performance of the German economy and the strong across-the-board IFO standings the German PPI to-date through August is up by only 2.4% over 12-months and its 6-month and 3-month rates of expansion each are below a one percent per year pace. The German CPI is up at a 1.8% pace over 12-mo and is accelerating at 2.8% pace over three-months. But EMU wide inflation is stuck more at the 1.5% mark over 12-months and at a 1.6% pace over 3-months with the core rate of expansion at similar growth rates. France and Italy show substantially slower HICP inflation than Germany and EMU, while Spain shows a bit more. Core inflation across the big four EMU members is more mixed but below the EMU target. 

Policy hangs in the balance 
On balance inflation still is not hot enough to trigger action by the ECB, however, various ECB members (such as Mersch today) talk about it. The ECB will be putting aside some of its special stimulus programs when inflation is more established. The Federal Reserve's decision to begin its balance sheet tapering may also convince the ECB that the time is right for to join in the action. Since the ECB is concerned about the impact of any perceived tightening of policy on the exchange rate (boosting it) taking action in the wake of the Fed's move to get tighter might seem like just the right cover. In its meeting last week the Fed also expressed the collective opinion that there probably would be another rate hike this year and three-more next year. While we have learned that the Fed is not always able to make good on its so-called SEP projections, it has laid out a path to higher rates that has been in place for some time. It should give the ECB ample opportunity to begin its own tapering or tightening in concert. And although inflation in the US, like in EMU, is still not behaving, the Fed is not letting the lack of inflation get in its way of making the policy its members seem to think is the right one despite not touching all the bases it has established for raising rates. Could the ECB get away with that?

The policy environment 
It is fair to say that policy is in an unusually difficult environment now. And in Germany the political environment will be a little more mixed and little less unified. Minority parties in Italy seem to gain in popularity as well. In Japan PM Abe has called for snap elections to try to consolidate his hold especially with the new threat of North Korea on his doorstep. In the US Donald Trump continues to be rhetorically aggressive toward North Korea and divisive in his economic and other comments (tweets!) at home. Despite some relatively well-functioning markets we would have to judge the geopolitical background to have become a bit less hospitable. It remains a good time to be vigilant and to keep investment options as fluid as possible. There is no sense of any flight to quality in markets. But then there is no clear and present danger - just nagging danger and "hot-spots". There is a general erosion of international civility and sense of community. In the Middle East the Russians just used war planes to strike at members of a militia in Syria supported by the US. The Kurds finally have laid down their demands for a separate state to be carved out of Iraq. Hot spots seem to abound. So far crude oil and gold are seeing only modest price pressures. But everything is in play. 


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The IFO business situation diffusion index backed off to 35.1 in September from 37.1 in August. Expressed in index terms it fell to 115.2 in September from 115.9 in August. Any way you slice it, the survey shows some weakening in the [...]

Germany IFO Survey Edges Lower... but Remains Very Strong

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The Federal Reserve Bank of Dallas indicated in its Texas
Manufacturing Outlook Survey that the September General Business Activity Index
rose to 21.3 from 17.0 in August. The index was at the highest point since
February. The shipments index strengthened to the highest level of the economic
expansion and the unfilled orders index also rose. The delivery time index
suggested the slowest rate of product delivery in six months. The employment
index rose to the highest level since April 2014 and the employee workweek also
lengthened. Capital expenditures remained strong. Offsetting these positive
indications was the growth rate of new orders which eased slightly while the
production index also slipped. 
On the pricing front, the index of prices paid for finished
goods rose to the highest level since February. Raw materials pricing
strengthened as well. As for labor pricing, the wages &amp; benefits index eased
but remained up sharply from the lows early last year. 
The index for general business activity in six months rose to
the highest level since March. Expected new orders and production improved
slightly. Expectations for employment and the length of the average workweek
gained, but expected wages &amp; benefits weakened. The expected delivery times
index also declined
sharply.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 
Each index is calculated by subtracting the percentage
reporting a decrease from the percentage reporting an increase. When all firms
report that activity has increased, an index will register 100. An index will
register -100 when all firms report a decrease. An index will be zero when the
number of firms reporting an increase or decrease is equal. Items may not add up
to 100% because of rounding. Data for the Texas Manufacturing Outlook can be
found in Haver's SURVEYS database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup> 


 <thead>
 <tr>
 <th class="firstcol" >Texas Manufacturing Outlook Survey
 (SA, % Balance)</th>
 <th 0801 >Sep</th>
 <th 0801 >Aug</th>
 <th 0801 >Jul</th>
 <th 0801 >Sep'16</th>
 <th 0801 >2016</th>
 <th 0801 >2015</th>
 <th 0801 >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Current General Business Activity
 Index</td>
 <td >21.3</td>
 <td >17.0</td>
 <td >16.8</td>
 <td >-2.1</td>
 <td >-8.8</td>
 <td >-12.5</td>
 <td >8.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Production</td>
 <td >19.5</td>
 <td >20.3</td>
 <td >22.8</td>
 <td >17.6</td>
 <td >2.4</td>
 <td >-1.0</td>
 <td >14.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Growth Rate of Orders</td>
 <td >9.7</td>
 <td >11.7</td>
 <td >12.2</td>
 <td >-3.4</td>
 <td >-7.3</td>
 <td >-11.8</td>
 <td >4.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Number of Employees</td>
 <td >16.3</td>
 <td >9.9</td>
 <td >11.2</td>
 <td >&nbsp;1.9</td>
 <td >-4.9</td>
 <td >-0.4</td>
 <td >11.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Prices Received for
 Finished Goods</td>
 <td >&nbsp;17.5</td>
 <td >10.2</td>
 <td >5.6</td>
 <td >0.7</td>
 <td >-1.6</td>
 <td >-8.5</td>
 <td >8.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >General Business Activity Index
 Expected in Six Months</td>
 <td >34.5</td>
 <td >29.2</td>
 <td >31.6</td>
 <td >11.1</td>
 <td >8.9</td>
 <td >4.1</td>
 <td >17.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Production</td>
 <td >46.5</td>
 <td >43.1</td>
 <td >48.8</td>
 <td >31.4</td>
 <td >35.8</td>
 <td >31.1</td>
 <td >42.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Growth Rate of New
 Orders</td>
 <td >35.8</td>
 <td >37.1</td>
 <td >32.8</td>
 <td >19.7</td>
 <td >24.3</td>
 <td >20.7</td>
 <td >31.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Number of Employees</td>
 <td >41.3</td>
 <td >30.8</td>
 <td >36.2</td>
 <td >14.8</td>
 <td >16.7</td>
 <td >14.7</td>
 <td >28.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Wages &amp; Benefits</td>
 <td >39.8</td>
 <td >44.3</td>
 <td >45.9</td>
 <td >31.9</td>
 <td >34.8</td>
 <td >33.2</td>
 <td >43.1</td>
 </tr>
 </tbody>
</table>


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The Federal Reserve Bank of Dallas indicated in its Texas Manufacturing Outlook Survey that the September General Business Activity Index rose to 21.3 from 17.0 in August. The index was at the highest point since February. The [...]

Texas Factory Sector Growth Strengthens

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The National Association for Business Economics expects
2.4% real U.S. economic growth in 2018, the same as expected in the last
tally. This follows an unchanged expectation for 2.2% growth this year.
Quarterly GDP growth is expected to range between 2.2% and 2.8% through next
year. Growth in personal consumption expenditures is forecast to remain fairly
steady at 2.6%. Expected growth in business fixed investment of 4.0% is the
quickest rate of growth since 2014. Residential investment growth also is
expected to improve to 3.2% next year, revised down from a reduced expected
advance of 2.4% in 2017. Government spending growth is projected to improve
slightly to 1.0%, the quickest increase since 2015. Deterioration in real net
exports is forecast to continue as expected import growth of 4.3% outpaces a 3.7%
advance in exports. The rate of inventory investment is expected to improve
slightly next year, but remain below the gains from 2012 to 2015.
Housing starts are expected to average 1.30 million next
year, revised down but still the strongest level since 2007. Expected light
vehicle sales of 16.9 million units in 2018 were revised lower. Average monthly
gains in payroll employment are expected to slow to an unchanged 159,000 next
year, down from the 250,000 average in 2014. Expectations for the unemployment
rate of 4.2% next year were reduced from 4.3%, and would leave it at the lowest
level since 2000.
Consumer price inflation is expected to average 2.1% during
2018 following a 1.7% rise this year. The chain PCE price index should rise 1.9%
from the beginning of next year to the end of 2018, slightly lower than expected
earlier, but still the strongest gain since 2011. The index less food &amp;
energy is expected to rise 1.9% next year, still up from 1.0% growth in 2010.
The cost of crude oil is expected to average $51 per barrel at the end of next
year, up from $53 this coming December. These estimates were little-changed.
The forecasted 3.00% interest rate on 10-year Treasury notes
at the end of 2018 was reduced from the earlier forecast of 3.10%, and follows a
lowered 2.50% estimate at the end of this year. The Fed is expected to continue
raising the federal funds rate to 2.13% by the end of 2018, unchanged from
estimated earlier. Corporate profits after tax next year should rise a slightly
reduced 4.5% after a 5.0% gain this year. The expectation for the Federal
government budget deficit was raised&nbsp; to $666 billion in 2018.
The figures from the latest NABE report can be found in
Haver's SURVEYS database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>


 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">National
 Association For Business Economics</a></th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Real GDP (% Chg. SAAR)</td>
 <td >2.4</td>
 <td >2.2</td>
 <td >1.5</td>
 <td >2.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Personal Consumption
 Expenditures</td>
 <td >2.6</td>
 <td >2.7</td>
 <td >2.7</td>
 <td >3.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Business Fixed Investment</td>
 <td >4.0</td>
 <td >4.4</td>
 <td >-0.6</td>
 <td >2.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Residential Investment</td>
 <td >3.2</td>
 <td >2.4</td>
 <td >5.5</td>
 <td >10.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Gov't Consumption &amp; Gross
 Investment</td>
 <td >1.0</td>
 <td >0.1</td>
 <td >0.8</td>
 <td >1.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Change in Real Business
 Inventories (Bil. $)</td>
 <td >35.0</td>
 <td >17.0</td>
 <td >33.4</td>
 <td >100.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Real Net Exports (Bil. $)</td>
 <td >-652.1</td>
 <td >-619.8</td>
 <td >-586.3</td>
 <td >-545.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Housing Starts (Mil. Units)</td>
 <td >1.30</td>
 <td >1.20</td>
 <td >1.17</td>
 <td >1.11</td>
 </tr>
 <tr>
 <td class="firstcol" >Light Vehicle Sales (Mil. Units)</td>
 <td >16.9</td>
 <td >16.9</td>
 <td >17.5</td>
 <td >17.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Payroll Employment Average Monthly
 Change (000s)</td>
 <td >159</td>
 <td >178</td>
 <td >187</td>
 <td >226</td>
 </tr>
 <tr>
 <td class="firstcol" >Civilian Unemployment Rate (%)</td>
 <td >4.2</td>
 <td >4.4</td>
 <td >4.9</td>
 <td >5.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Consumer Price Index (Q4/Q4 %)</td>
 <td >2.1</td>
 <td >1.7</td>
 <td >1.8</td>
 <td >0.4</td>
 </tr>
 <tr>
 <td class="firstcol" >Fed Funds Rate (%, Year-End)</td>
 <td >2.13</td>
 <td >1.40</td>
 <td >0.63</td>
 <td >0.38</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >10-Year Treasury Note (%, Year-End)</td>
 <td >3.00</td>
 <td >2.50</td>
 <td >2.45</td>
 <td >2.27</td>
 </tr>
 </tbody>
</table>


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The National Association for Business Economics expects 2.4% real U.S. economic growth in 2018, the same as expected in the last tally. This follows an unchanged expectation for 2.2% growth this year. Quarterly GDP growth is expected [...]

NABE 2018 Forecast Unchanged; Moderate GDP Growth & Stronger Price Inflation

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Based on the last five and one-half years of data, the EMU region is doing excellently. The EMU region overall and its two largest economies show composite rankings in the mid-to-high 90th percentile of their historic queues of data (5.5 years). By sector, both manufacturing and services are performing well with each sector having its own 90th percentile standing in the EMU as well as in Germany and in France. This is a uniformity of excellence the euro area has not seen for quite some time.


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The short-time horizon on the Markit data in the most generalized database makes it hard to get the right perspective since the last five and one-half years cover the period of recovery and, of course, the EMU and the rest of the global economy have been recovering. But if we splice a companion series on top of the Markit series (the EU Commission business climate indicators for the EMU), we find that the current strong readings from Markit really do have more global implications. The current index readings are not just strong in this cycle, but they are strong in a broader time series sense as well, judging from the EU Commission index for the EMU.

While PMI data are getting stronger and look stunning, the EMU unemployment data still are only getting back to more normal levels on unemployment. In some ways, the progress that is measured by the PMIs is simply not trickling through to the rest of the economy. And the unemployment rate is only one of the variables that can be used to demonstrate this. Retail sales not what they used to be and auto registrations are much reduced as well.

There is something about the diffusion data whether from Markit or from the EU Commission or elsewhere that is less than robust in terms of depicting the performance of the entire economy. We are aware that GDP growth in the U.S. and EMU has slowed compared to historic rates of growth. These economies are not performing as they used to; yet, the PMI data have no trouble showing us new and comparable highs on their own relative scales. Workers have dropped out of the labor force making actual welfare conditions across countries even worse than unemployment rates say; yet, the diffusion index view of the world shows us the improving breadth of manufacturing sector and service sector activity.

Of course, PMI gauges chart the progress of survivors. Failed firms do not contribute data. There is a certain bias to this sort of survey for exactly that reason. For example, if we compare the PMI to a labor market report, in the U.S. the Bureau of Labor Statistics (BLS) estimates the 'birth and death' of businesses and the corresponding employment gains and losses from that attrition and addition. It is reasonable to wonder what PMI gauges miss.

It is clear that the PMI view of the world is much more upbeat than the real world- call it an alternate fact if you will. And while I do like these as gauges and find them sensitive to changes in the economy, I also find them lacking in other respects. So when you try to digest the strong readings in the EMU PMIs this month, remember that they tell only part of the story. The ECB has been watching a broader range of data and it is not yet convinced that it is time to take away its special stimulus. Inflation is not percolating even though the PMI gauges' cups runneth over. How could that be consistent with the spectacular new highs we are seeing in the PMI data-sphere? Well, it's because the PMIs do not tell the whole the story. So be careful if 'this is the book that you read from' when you put your children to bed at night, or brief your trading room or inform investors.


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Based on the last five and one-half years of data, the EMU region is doing excellently. The EMU region overall and its two largest economies show composite rankings in the mid-to-high 90th percentile of their historic queues of data [...]

EMU PMIs: Manufacturing Pushes Higher As Service Sector Languishes

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

Jump to:

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