Even with strong capex, US nonfinancial corporations are generating more cash than they are investing

Investor sentiment worldwide is positive, especially in AI-led Asia

Sectoral shift in US job openings

Meteoric rise in AI-related semiconductor exports fueling South Korea's export boom

Regional Fed surveys showing further manufacturing acceleration in August

Sharp drop in China demand for oil helping to limit impact of Middle East conflict on the price

Decades high real price of copper posing physical challenge to investment boom

Rising US long-term real yields point to strong demand for investment funding

US retail sales accelerate even as consumers remain gloomy

Retail gasoline price still well above pre-conflict level and now rising again

PMIs showing widespread revival of global economy

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

Surging orders for computers and electronics propelling durable goods orders

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

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Winnie Tapasanun

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Total retail sales rose a larger-than-expected 1.2% m/m to $773.9 billion in August, the sixth monthly gain in seven months, after a 0.5% decline in July (-0.6% initially) and a 0.3% increase in June (+0.2% previously), data from the U.S. Census Bureau showed, pointing to resilient consumer spending and solid domestic demand in Q3 2026. A 0.8% m/m August rise had been expected in the Action Economics Forecast Survey. The year-on-year growth rate accelerated to 6.0% in August from 5.0% in July (4.7% in August 2025), while remaining well below a high of 17.1% in February 2022 and a record high of 51.8% in April 2021.

Excluding motor vehicles & parts, retail sales grew a greater-than-expected 1.4% (6.9% y/y) in August, the first m/m rise since May, following a 0.2% decline in July (-0.3% initially). A 0.5% m/m August increase had been expected. Sales of motor vehicles & parts rose 0.6% (2.1% y/y), up for the third time in four months, after a 1.8% July drop; this compared to a 2.0% gain (1.3% y/y) in unit light vehicle sales following a 1.0% July decrease.

Sales in the retail control group, which excludes autos, building materials, gasoline stations, and food services, rebounded 1.4% (5.6% y/y) in August, the seventh m/m gain in eight months, following a 0.4% decline in July, pointing to solid underlying consumer demand in Q3 2026. These sales are used in the construction of personal consumption expenditures in NIPA accounts. Nonauto sales excluding gasoline & building materials climbed 1.3% (5.7% y/y), up for the seventh time in eight months, after a 0.2% July decline.

Sales by category mostly increased in August. Posting the largest m/m gain among major categories, gasoline station sales jumped 3.1% (21.0% y/y) in August, the first m/m increase since May, after a 0.2% decrease in July. Nonstore retail sales recovered 2.6% (9.9% y/y), the seventh rise in eight months, following a 1.7% July drop. Miscellaneous store sales rebounded 1.9% (14.0% y/y), the third m/m gain in four months, after a 0.6% July slide. Electronics & appliance store sales rose 1.6% (7.8% y/y), the second m/m increase in three months, following a 0.1% July slip. Sporting goods, hobby, book & music store sales advanced 1.2% (10.7% y/y), the seventh consecutive m/m gain, on top of a 0.2% July increase. Furniture & home furnishing store sales grew 0.9% (1.9% y/y), the first m/m rise in three months, after a 0.2% July decline. Clothing & accessory store sales rose 0.7% (4.3% y/y), up for the third time in four months, following a 1.3% July gain. Meanwhile, general merchandise store sales climbed 0.7% (4.5% y/y) in August after a 0.5% increase in July; within this category, department store sales fell 0.8% (+1.9% y/y) following a flat July reading. Building materials & garden equipment store sales decreased 0.2% (+5.1% y/y) following a downwardly revised 0.1% decline in July (+0.3% initially) and eight straight m/m gains.

In the nondiscretionary sales categories, health & personal care store sales rose 0.9% (+1.9% y/y) in August, the third m/m rise in four months, after a 0.3% increase in July. Food & beverage store sales recovered 0.4% (0.5% y/y) after declining 0.2% in July and June.

Consumers appeared to dine out more frequently in August despite still-elevated inflation (August CPI +0.4% m/m, +3.4% y/y; core CPI +0.3% m/m, +2.4% y/y). Restaurant & drinking place sales advanced 1.2% (+5.8% y/y) in August, the fifth successive m/m gain, after a 0.5% increase in July.

**Note**: The Federal Reserve unanimously voted to raise its benchmark interest rate by 25 basis points to a target range of 3.75% to 4.00%. The statement issued following today's FOMC meeting is available [here](https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm).

Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total retail sales +1.2% (+6.0% y/y) in August; sixth m/m increase in seven mths.
- Ex-auto sales +1.4% (+6.9% y/y), first m/m rise since May; auto sales +0.6% (+2.1% y/y), third rise in four mths.
- Ex-gas sales +1.1% (+4.9% y/y) and ex-auto & gas sales +1.2% (+5.6% y/y); both up m/m from Jan. through Aug. except July.
- Retail control group +1.4% (+5.6% y/y), seventh m/m gain in eight mths., pointing to solid underlying consumer demand in Q3 ’26.
- Gains m/m: gasoline stations (+3.1%), nonstore sales (+2.6%), misc. stores (+1.9%), electronics stores (+1.6%).
- Declines m/m: department stores (-0.8%), building materials & garden equipt. stores (-0.2%).

U.S. Retail Sales Rebound in August, Exceeding Forecasts

Sandy Batten

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Import prices increased 0.7% m/m (7.0% y/y) in August after a revised 0.3% m/m decline in July (previously -0.4% m/m). The Action Economics Forecast Survey looked for a 0.1% m/m decline. Export prices increased 0.6% m/m (8.6% y/y) in August following monthly declines in both June and July. The Action Economics Survey expected a 0.5% m/m decline. Note that import and export price indexes are not directly affected by tariffs because they measure the prices of goods before taxes. Tariffs are classified as taxes and therefore are excluded from these calculations.

Declines in petroleum prices led to monthly declines in the overall import and export prices in both June and July. However, petroleum prices edged up 0.1% m/m in August. Import prices excluding petroleum jumped 0.8% m/m (5.5% y/y) in August, the largest monthly increase in four months and the highest y/y rate since May 2022. Higher prices for nonfuel industrial supplies and materials (2.0% m/m, the largest monthly increase since February), capital goods (0.9% m/m) and consumer goods excluding automotives (0.5% m/m) drove the increase in August.

Agricultural export prices rose 0.5% m/m (5.8% y/y) in August while nonagricultural export prices jumped 0.7% m/m (8.9% y/y), the first monthly increase in three months. Agricultural export prices have not declined on a monthly basis since December 2025. Higher prices for corn and animal feeds more than offset lower prices for meat. Nonagricultural export prices had fallen in both June and July, aided by falling petroleum prices. Higher prices for nonagricultural industrial supplies and materials (1.4% m/m after declines in both June and July), capital goods (0.2% m/m) and automotive vehicles, parts, and engines (0.3% m/m) drove the increase.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Counter to market expectations for small declines, both import and export prices rose meaningfully in August.
- Import prices increased 0.7% m/m while export prices rose 0.6% m/m. Both had fallen in June and July, helped by falling petroleum prices.
- Petroleum prices edged up 0.1% m/m in August.
- Price increases were relatively widespread across end-use categories.

U.S. Import and Export Prices Jump in August

Kathleen Stephansen, CBE

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Mortgage applications fell 4.1% w/w (-40.2% y/y) in the week ending September 11, after declining 2.7% w/w (-19.2% y/y) in the week ending September 4, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house fell 0.8% w/w (-10.2% y/y) in the latest week, after edging down 0.2% w/w (-6.9% y/y) in the September 4 week. Applications for loan refinancing fell 8.8% w/w (-60.7% y/y) in the September 11 week following a decline of 6.2% w/w (-32.1% y/y) in the September 4 week.

The effective interest rate on a 30-year fixed-rate loan rose 13bps to 7.18% in the week ending September 11 from 7.05% in the week ending September 4, reaching its highest level since late January 2025. The rate on 15-year fixed-rate mortgages rose 15bps to 6.55% in the September 11 week from 6.40% in the September 4 week. The 30-year Jumbo rate rose 27bps to 7.20% in the latest week from 6.93% in the September 4 week. The rate on a 5-year ARM soared 46bps to 6.59% in the September 11 week from 6.13% in the September 4 week.

The share of applications for refinancing an existing loan fell to 39.4% of total applications in the week of September 11 from 40.9% in the week ending September 4. The adjustable-rate mortgage (ARM) share of activity fell to 8.4% in the latest week from 8.5% in the September 4 week.

The average size of a mortgage fell 0.5% w/w (-16.3% y/y) to $378,400 in the week ending September 11, after rising 2.1% w/w (-5.2% y/y) to $380,200 in the week ending September 4. The average size of a purchase loan declined 0.7% w/w to $442,500 in the September 11 week after rising 1.5% w/w to $445,600 in the September 4 week. The average size of a loan to refinance a mortgage fell 2.1% w/w to $279,800 in the week ending September 11 after rising 2.1% w/w to $285,800 in the September 4 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.

- Applications for loans to purchase a house and applications for loan refinancing both declined in the latest week.
- Interest rate on 30-year fixed-rate loans rose 13bp to 7.18%.
- Average loan size fell moderately in the September 11 week.

U.S. Mortgage Applications Declined in the September 11 Week

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The Empire State Manufacturing Index of General Business Conditions fell sharply to a lower-than-expected 7.6 in September following a 5.0-point increase to 20.6 in August, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of 14.1 for September had been expected in the Action Economics Forecast Survey. The positive September figure indicated that business activity in New York State expanded for the sixth straight month but at the slowest pace since June and well below August’s level (the highest since December 2021). Nevertheless, it was a sharp improvement from -7.0 in September 2025 and a low of -29.7 in January 2024. The percentage of respondents reporting an increase in general business conditions was 33.9% in September, down from 43.8% in August; the percentage reporting a decrease was 26.3%, up from August’s 23.1%. The latest survey was conducted between September 2 and September 10.

The headline index reflects the answer to a single question concerning the state of economic activity and is not calculated from the components. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index eased to 53.7 in September following a 2.1-point decline to 55.4 in August, representing the ninth consecutive expansion but at the slowest pace in three months; it was up from 46.1 in September 2025 and well above a low of 43.0 in January 2024. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories, with equal weights (20% each).

In the latest survey, the new orders index fell to 2.0 in September after a 4.9-point decrease to 17.3 in August, marking the weakest of nine successive months of expansion; it was a sharp improvement from a low of -30.7 in January 2024 but a drop from a high of 19.6 in April 2023. The shipments index plunged to -3.2 in September following a 12.7-point fall to 11.7 in August, representing the first negative shipments reading since March; it was well above a low of -21.7 in April 2024 but below a high of 21.0 in June 2023. The unfilled orders index fell to 5.9 in September after a 10.5-point jump to 15.5 in August, indicating unfilled orders expanded for the eighth straight month but at a slower pace; the index reached a low of -24.2 in January 2024. The inventories index rebounded to 8.9 in September following a 9.2-point slide to -5.2 in August, signaling inventory growth at the strongest rate since May. Meanwhile, the delivery times index slipped to 18.8 in September from 20.6 in August (the highest reading since April 2022), with 25.7% of respondents reporting longer delivery times and 6.9% reporting shorter times, indicating that delivery times continued to lengthen.

On the labor front, the number of employees index rose to 10.6 in September after a 2.1-point decline to 9.3 in August, indicating employment expanded for the eighth straight month. The index remained well above a low of -9.3 in December 2023 but below a peak of 24.9 in February 2022. In September, 19.0% of respondents reported an increase in employment while 8.4% reported a decline. The average workweek index jumped to 17.0 in September from 6.9 in August, remaining positive for the eighth month running and at the strongest level since November 2021.

Inflation pressures remained elevated in September. The prices paid index advanced to 63.1 in September, the highest level since July 2022, after a 6.3-point rise to 58.6 in August. The index was above a low of 25.9 in December 2024 and a low of 19.9 in July 2023, albeit remaining well below a peak of 84.9 in April 2022. In September, 63.7% of respondents reported higher prices paid while only 0.6% reported lower prices paid. The prices received index increased to 28.1 in September, a three-month high, from 22.7 in August. The index was above a low of 7.5 in December 2024 and a low of 7.7 in July 2023 but far below a high of 51.9 in March 2022. In September, 30.6% of respondents reported higher prices received while 2.6% reported lower prices received.

Firms remained optimistic about the future business outlook in the latest survey. The index for future business conditions eased to 29.0 in September, the 17th straight month of positive readings, after a 4.2-point gain to 32.1 in August, with 50.5% of respondents expecting business conditions to improve over the next six months. Future new orders pulled back to 25.3 in September, the lowest level since April, from 37.1 in August; future shipments slid to 25.5, a five-month low, from 33.7. Growth in future employment decelerated to 20.0 in September from 28.2 in August (the strongest reading since March 2022). Capital spending plans remained positive for the 11th consecutive month in September, with the future capital expenditures index easing to 14.9, a three-month low, from August’s 16.5. Expected prices paid climbed to 67.3 in September, the highest level since June 2022, from 57.7 in August, while expected prices received declined to 42.3 from 48.7.

The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- General Business Conditions Index down 13.0 pts. to 7.6 in Sept.; sixth straight expansion.
- New orders (2.0), down 15.3 pts.; weakest level since Dec. ’25, still indicating expansion.
- Shipments (-3.2), down 14.9 pts.; first negative reading since March.
- Unfilled orders (5.9), down 9.6 pts. but staying positive; inventories (8.9), highest since May.
- Employment (10.6), up 1.3 pts.; eighth consecutive expansion.
- Prices paid (63.1), highest since July '22; prices received (28.1), a three-month high.
- Firms still optimistic: Future Business Conditions Index down to a still-expansionary 29.0; future prices paid rising to 67.3, highest since June ’22.

U.S. Empire State Manufacturing Index Cools Sharply in September

Robert Brusca

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The ZEW financial experts in September see broadly improving **macroeconomic conditions** in the euro area, Germany, the United States, and China. There are step-ups in each of these areas, mostly by modest increases of four to seven points month-to-month. However, Germany shows a month-to-month increase of 14 points, the largest gain of the group. The percentile standings of the readings show an above-median (which means an above 50th percentile reading) for the euro area at a 59.8 percentile and for China at a 77.3 percentile. Both Germany and the U.S. lag their medians, with Germany at a 38.9 percentile standing and the U.S. at a 44.5 percentile standing.

**Economic expectations** are little changed and mixed among the three countries: Germany, the U.S., and China. The U.S. sees a slight setback as its monthly reading falls by 3.2 points; German expectations edge up by 0.5; China’s reading falls by 4.1 points. Only the reading for Germany stands above its 50th percentile, at the 59th percentile standing.

**Inflation expectations** are probably the big story this month, with big changes in all the reporting units of over 20 points on the month and all of them jumping up well over their median estimates, with rankings ranging from a 52.3 percentile standing in the U.S. to an 81.8 percentile standing in China. The outlook for inflation has suddenly worsened largely on events in the Middle East, rising oil prices, and increased pessimism about prospects for peace in the Middle East anytime soon.

Because of this **short-term interest rate expectations** are also higher, rising by 39 points in the U.S., 19 points in the euro area, and over 13 points in China month-to-month. All the readings for short-term rate expectations are above their medians, well above their respective 50th percentiles, with standings ranging from a low of the 71st percentile for the U.S. to the mid-80th percentile for both the euro area and China.

There are smaller increases, although increases in each of the areas, for **long-term interest rate expectations**, with the largest increases for the U.S. at 11.5 points on the month, whereas Germany and China log increases of about 3.8 to 3.9 points. Percentile standings show that long-term rate expectations are only above the 50th percentile standing for China, whereas for Germany they are at the 37th percentile. For the U.S., they are at the 44th percentile. Though the sharp increase in inflation expectations seems to have caught short-term interest rates off guard, longer-term interest rates have followed suit with only relatively small adjustments, not jumping to draconian levels, at least not yet. This would suggest that, with the rise in short-term expectations, financial experts think that central banks are still in control of inflation developments. That’s good news.

Not surprisingly, against this background **stock market expectations** deteriorated in each region. The smallest decline was in Germany, a decline of 4.4 points, while the largest was in China, a decline of 11.8 points. Germany is the only area where the stock assessments are below their 50th percentile. The euro area just makes the 50th percentile mark at 50.5. The U.S. comes in at a 58.3 percentile, while China has a 62.1 percentile standing assessment for the month. Generally speaking, the acceleration of inflation expectations has created some setback on stocks but hasn't had a draconian impact there either.

**The outlook** is that the economic situation has improved slightly in the month and economic expectations have a mixed performance and are generally slightly subpar. Inflation expectations jump sharply and have had a big impact on short-term rates, a more moderate impact on long-term rates, and a modest impact on stock values. Because of the sharp one-month rise in inflation expectations, we're going to want to watch these developments very closely.

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ZEW Current Situation Improves; Inflation Expectations Jump!

Economy in Brief: January 2007

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