Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061226a.jpg" width="353">
It seem appropriate on the Day after Christmas to look at consumer spending; last Friday here, Tom Moeller called our attention to the total PCE increase in November of 0.5% in current dollars and also 0.5% in real terms.One of the aspects of the BEA&#39;s monthly data release that has always been fascinating for us is the detail available in the &quot;Underlying Tables&quot;, a supplement to the full national accounts; historically these tables were known as &quot;unpublished data&quot;, which were available only by phone from BEA or to specific subscribers to these extra tables. Now these are more widely disseminated on the BEA&#39;s website and, of course, in Haver&#39;s USNA database.All of our following discussion is in nominal terms so we can talk about the percentage distribution, a calculation that is not valid in chain dollar terms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061226b.jpg" width="353">
First in the major tables, we can see that energy expenditures are declining: 2.8% in November, the fourth consecutive nominal decrease; they are even below the year-ago period by 1.5%. This carries them down from a peak of 6.5% of total PCE in July to &quot;just&quot; 5.5% last month.
If we also exclude food, so we can look at the so-called &quot;core&quot; items, we see that they have diminished enough to allow non-core spending to increase more. In September, for instance, as total PCE was flat, non-core spending rose 0.6%. In October and November, it also expanded more than the total, so its share has increased to 80.63%, the highest since July 2005. The low this year was 79.82% in July.
What are people doing with their extra &quot;spending money&quot;? More home theater. As seen in the second graph, audio and video equipment outlays have surged over the last three months following a pause from February through August. A further breakdown shows the renewed expansion in TV receivers, audio and video, and a 5% spike in computers in November. Among nondurable goods, spending on toys and flowers began to grow in September as well.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061226c.jpg" width="353">
Services saw less pronounced responses; transportation has slowed generally, with modest outright declines in both local and intercity travel. Consumers&#39; medical care expenses show less growth. Recreational services are erratic; movie theater outlays show a seesaw pattern, perhaps corresponding to the release of big-name films (although we couldn&#39;t correlate quickly a list of movie releases to the pattern in the BEA figures), but the trend is generally weak. Expenditures on spectator sports are also up-and-down monthly, but show modest growth overall.
Presently, then, it looks that consumers are trying to make their homes more a location of activity and entertainment, with less reliance on energy-involving travel. And perhaps, we can speculate, the availability of home electronics means they are going out less to movies, cultural events and sports. At the same time, the breakdown of the core &quot;food&quot; category does show that people are spending more on &quot;purchased&quot; meals, that is, on eating out, with particularly strong growth in the alcohol component.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">PCE: Select Items, &nbsp;SAAR, Bil.$</th>
<th scope="col">Nov 2006 </th>
<th scope="col">Oct 2006 </th>
<th scope="col">Sept 2006 </th>
<th scope="col">Nov 2005 </th>
<th scope="col">2005 </th>
<th scope="col">2004 </th>
<th scope="col">2003 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>9,425.2</td>
<td>9,374.7</td>
<td>9,348.5</td>
<td>8,916.4</td>
<td>8,742.4</td>
<td>8,211.5</td>
<td>7,703.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>0.3</td>
<td>-0.0</td>
<td>5.7</td>
<td>6.5</td>
<td>6.6</td>
<td>4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy G &amp; S</td>
<td>515.3</td>
<td>530.2</td>
<td>551.5</td>
<td>523.2</td>
<td>501.9</td>
<td>425.3</td>
<td>376.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % of Total</td>
<td>5.5</td>
<td>5.7</td>
<td>5.9</td>
<td>5.9</td>
<td>5.7</td>
<td>5.2</td>
<td>4.9</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE ex Food &amp; Energy</td>
<td>7,599.8</td>
<td>7,553.8</td>
<td>7,515.4</td>
<td>7,162.1</td>
<td>7,039.1</td>
<td>6,671.4</td>
<td>6,280.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % of Total</td>
<td>80.63</td>
<td>80.58</td>
<td>80.39</td>
<td>80.32</td>
<td>80.52</td>
<td>81.42</td>
<td>81.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>0.6</td>
<td>0.5</td>
<td>0.6</td>
<td>6.1</td>
<td>5.5</td>
<td>6.2</td>
<td>4.4</td>
</tr>
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It seem appropriate on the Day after Christmas to look at consumer spending; last Friday here, Tom Moeller called our attention to the total PCE increase in November of 0.5% in current dollars and also 0.5% in real terms.One of the [...]

Discretionary Consumer Spending Picks Up in US as Energy Outlays Fall

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222h.jpg" width="353">
Businesses in France and Italy, mostly manufacturers, reported some tapering down of confidence in December surveys. Conditions in general are much better than in the previous couple of years, but readings in these surveys have eased since the summer.
In France, the INSEE monthly survey was off 2 points in December to 106 from 108 in November. This put the average for all of 2006 at 107. The December value is up from 102 last December and the average of 101 for all of 2005. These indexes are a synthetic measure, scaled to average 100 over time. So businesses assess their conditions as 7% &quot;better than average&quot; this month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222i.jpg" width="353">
The mixed and skittish nature of business conditions is suggested, though, by the fact that the current assessment of industrial production dropped suddenly to -2 in December from +14 and +21 in November and October, respectively. These data are net balances, the percentage experiencing or expecting positive outcomes less the percentage on the negative side. Wide swings tend to appear in these French data, so it&#39;s hard to judge the significance of any single month. Order books also give an ambiguous picture. The net balance in December was -7, worse than recent readings, particularly the -3 that prevailed in July, August and September. However, such erosion is modest compared with the much bigger declines that characterized the last five years.
In Italy, the privately conducted ISAE survey showed flat business confidence in December at 96.7 on a base of 2000=100. The peak in this survey was 98.2 in June. All of 2006 averaged 95.8, a noticeable improvement from readings in the mid-to-high 80s that carried through from 2001 until this year. Near-term production forecasts eased to +17 from a peak of +23 in June, but again, lower expectations were the norm for much of the time since 2001. Order books at Italian companies are even clearer in this distinction: the December balance is +5, the highest number since November 2000, and in fact the non-negative readings since June are the first since December 2000.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222j.jpg" width="353">
So industry in Italy and France is experiencing improved conditions, suggesting they have weathered the near-recession in 2000-2001 and the growing competition from Asian manufacturers. But we&#39;d guess that recent high energy and commodity prices, along with a strong euro, have slowed them down lately. Hopefully the let-up in oil and copper prices will help stabilize their activity, although other metals, especially tin, lead and nickel, are still strong.

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<th scope="col" class="firstcol">Business Surveys, SA</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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<tr class="odd">
<td class="firstcol">FRANCE: Business Climate Indicator</td>
<td>106</td>
<td>108</td>
<td>107</td>
<td>102</td>
<td>107</td>
<td>101</td>
<td>104</td>
</tr>
<tr>
<td class="firstcol">Industrial Production Trend, % Bal</td>
<td>-2</td>
<td>14</td>
<td>21</td>
<td>-4</td>
<td>5</td>
<td>-12</td>
<td>5</td>
</tr>
<tr class="odd">
<td class="firstcol">Order Books</td>
<td>-7</td>
<td>-4</td>
<td>-5</td>
<td>-15</td>
<td>-6</td>
<td>-17</td>
<td>-15</td>
</tr>
<tr>
<td class="firstcol">ITALY: ISAE Business Confidence Indicator, 2000=100</td>
<td>96.7</td>
<td>96.7</td>
<td>97.0</td>
<td>91.4</td>
<td>95.8</td>
<td>87.5</td>
<td>89.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Production Forecast, % Bal</td>
<td>17</td>
<td>19</td>
<td>20</td>
<td>15</td>
<td>19</td>
<td>12</td>
<td>15</td>
</tr>
<tr>
<td class="firstcol">Order Books</td>
<td>5</td>
<td>3</td>
<td>2</td>
<td>-10</td>
<td>-1</td>
<td>-18</td>
<td>-15</td>
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Businesses in France and Italy, mostly manufacturers, reported some tapering down of confidence in December surveys. Conditions in general are much better than in the previous couple of years, but readings in these surveys have eased [...]

Business Enthusiasm Cools a Bit in France & Italy Amid Generally Constructive Climate

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222d.jpg" width="353">
The University of Michigan&#39;s full month reading of consumer sentiment in December slipped 0.4% to 91.7, but that was less than the 2.1% drop in the preliminary report. Consensus expectations for a reading of 90.2.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Consumer expectations for the economy improved from the preliminary read but they still fell 2.4% for the second consecutive monthly decline. Business conditions during the next twelve months fell 6.3% (+1.0% y/y) and long term expected business cosnditions were unchanged for the second month (+10.2% y/y). Expected personal finances slipped for the second consecutive month (-3.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222e.jpg" width="353">
The reading of current economic conditions actually improved 2.0%, about the same as in the preliminary report. Perceived buying conditions for large household goods rose 3.2% (-1.8% y/y) but perceptions of current personal finances were unchanged (0.0s% y/y).
The reading of whether it&#39;s a good time to buy house fell m/m but remained up from the lows this past Summer.
Expected inflation during the next year increased to 3.5% but for the next five years expected inflation fell to 3.4%. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year.
Consumers&#39; opinion about gov&#39;t economic policy slipped m/m to just 89 versus a midmonth read of 86.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">December (Final)</th>
<th scope="col">December (Prelim.</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>91.7</td>
<td>90.2</td>
<td>92.1</td>
<td>0.2%</td>
<td>87.2</td>
<td>88.6</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>108.1</td>
<td>108.2</td>
<td>106.0</td>
<td>-0.9%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>81.2</td>
<td>78.6</td>
<td>83.2</td>
<td>1.2%</td>
<td>75.7</td>
<td>77.4</td>
<td>88.5</td>
</tr>
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The University of Michigan's full month reading of consumer sentiment in December slipped 0.4% to 91.7, but that was less than the 2.1% drop in the preliminary report. Consensus expectations for a reading of 90.2. During the last ten [...]

U.S. Consumer Sentiment Recovered Some

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222b.jpg" width="353">
New orders for durable goods rose 1.9% last month, a gain after the offsetting volatility of the prior two months when orders fell 8.2% in October after an 8.7% September spike. Consensus expectations had been for a 1.5% rise n total orders during November.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods..
A 14.4% rise in total aircraft &amp; parts orders last month, however, still added volatility. In addition, orders for motor vehicles &amp; parts rose 0.2% (-3.9% y/y). Less transportation altogether, slipped 1.1%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222c.jpg" width="353">
And broad based order declines in other industries continued to raise questions about the health of the factory sector. Orders for nondefense capital goods less aircraft fell 1.4% reflecting a 1.5% (+5.2% y/y) slide in electrical equipment orders and an 8.9% (+3.8% y/y) drop in machinery. During the last ten years there has been an 86% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Primary metals orders fell 1.9% (+4.1% y/y), down for the third month in the last four. To the upside were orders for computer s &amp; electronic products which rose 7.5% (10.4% y/y).
Shipments of durable goods increased another slight 0.1% (2.7% y/y) after the downwardly revised 0.3% October uptick. Less the transportation sector shipments fell 0.1% (+4.6% y/y) for the second decline in the last three months. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Durable inventories rose just 0.3% (7.8% y/y), the weakest monthly increase since a decline in February. Less the transportation sector inventories also increased a modest 0.2% (8.4% y/y) and the inventory to shipments ratio outside of transportation rose to the highest level since July of last year.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>1.9%</td>
<td>-8.2%</td>
<td>-0.0%</td>
<td>9.0%</td>
<td>6.4%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.1%</td>
<td>-1.6%</td>
<td>3.4%</td>
<td>9.4%</td>
<td>7.6%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-0.2%</td>
<td>-14.8%</td>
<td>-8.4%</td>
<td>21.4%</td>
<td>5.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-1.4%</td>
<td>-3.9%</td>
<td>6.2%</td>
<td>12.3%</td>
<td>2.8%</td>
<td>-2.0%</td>
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New orders for durable goods rose 1.9% last month, a gain after the offsetting volatility of the prior two months when orders fell 8.2% in October after an 8.7% September spike. Consensus expectations had been for a 1.5% rise n total [...]

U.S. Durable Goods Orders Rebounded, But ...

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222a.jpg" width="353">
November personal income again rose a bit less than expectations with a 0.3% increase after a downwardly revised 0.3% increase in October.
The PCE chain price index was unchanged after an unrevised 0.2% decline in October. Prices less food &amp; energy also were unchanged for the first time since 2002. The three month change in core prices fell to 1.8% (AR) and the six month change fell to 2.1%, its lowest this year.
Disappointment in income continued as rental income fell 2.8% (-7.9% y/y) after a downwardly revised 4.7% skid in October. Proprietors&#39; income also rose just 0.1% (2.9% y/y) but October&#39;s increase was revised up to 0.6%.
Wage &amp; salary disbursements increased 0.3% (6.3% y/y) although the October increase was lessened a bit to 0.5%. Factory sector wages slipped marginally (+3.9% y/y) following a downwardly revised 0.4% gain while wages in the private service-producing industries rose a moderate 0.4% (6.8% y/y).
Interest income rose 0.4% (6.3% y/y) for the second month and dividend income surged 1.1% (11.7% y/y) for the third month.
Disposable personal income increased 0.3% (5.1% y/y) after a downwardly revised 0.2% October. Personal taxes increased 0.5% (11.8% y/y) after the 1.1% October jump.
Real disposable personal income rose 0.3% (3.2% y/y) last month and the three month growth in real income was 6.4% (AR). Real disposable income per capita rose 0.2% (2.2% y/y) and three month growth was 5.4% (AR).
Personal consumption surged 0.5% after the upwardly revised 0.3% gain during October. Expectations had been for a 0.6% increase. Real consumer spending rose 0.5%, the same as in October.
The personal savings rate was a more negative -1.0% last month and so far in 2006 has averaged -0.9%. Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2Q06garn.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.3%</td>
<td>0.3%</td>
<td>5.9%</td>
<td>5.2%</td>
<td>6.2%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.5%</td>
<td>0.3%</td>
<td>5.7%</td>
<td>6.5%</td>
<td>6.6%</td>
<td>4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-1.0%</td>
<td>-0.7%</td>
<td>-0.3% (Nov. &#39;05)</td>
<td>-0.4%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>1.9%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.0%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
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November personal income again rose a bit less than expectations with a 0.3% increase after a downwardly revised 0.3% increase in October. The PCE chain price index was unchanged after an unrevised 0.2% decline in October. Prices less [...]

U.S. Personal Income Again Light, Core Prices Ease

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222a.jpg" width="353">
November personal income again rose a bit less than expectations with a 0.3% increase after a downwardly revised 0.3% increase in October.
The PCE chain price index was unchanged after an unrevised 0.2% decline in October. Prices less food &amp; energy also were unchanged for the first time since 2002. The three month change in core prices fell to 1.8% (AR) and the six month change fell to 2.1%, its lowest this year.
Disappointment in income continued as rental income fell 2.8% (-7.9% y/y) after a downwardly revised 4.7% skid in October. Proprietors&#39; income also rose just 0.1% (2.9% y/y) but October&#39;s increase was revised up to 0.6%.
Wage &amp; salary disbursements increased 0.3% (6.3% y/y) although the October increase was lessened a bit to 0.5%. Factory sector wages slipped marginally (+3.9% y/y) following a downwardly revised 0.4% gain while wages in the private service-producing industries rose a moderate 0.4% (6.8% y/y).
Interest income rose 0.4% (6.3% y/y) for the second month and dividend income surged 1.1% (11.7% y/y) for the third month.
Disposable personal income increased 0.3% (5.1% y/y) after a downwardly revised 0.2% October. Personal taxes increased 0.5% (11.8% y/y) after the 1.1% October jump.
Real disposable personal income rose 0.3% (3.2% y/y) last month and the three month growth in real income was 6.4% (AR). Real disposable income per capita rose 0.2% (2.2% y/y) and three month growth was 5.4% (AR).
Personal consumption surged 0.5% after the upwardly revised 0.3% gain during October. Expectations had been for a 0.6% increase. Real consumer spending rose 0.5%, the same as in October.
The personal savings rate was a more negative -1.0% last month and so far in 2006 has averaged -0.9%. Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2Q06garn.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.3%</td>
<td>0.3%</td>
<td>5.9%</td>
<td>5.2%</td>
<td>6.2%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.5%</td>
<td>0.3%</td>
<td>5.7%</td>
<td>6.5%</td>
<td>6.6%</td>
<td>4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-1.0%</td>
<td>-0.7%</td>
<td>-0.3% (Nov. &#39;05)</td>
<td>-0.4%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>1.9%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.0%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
U.S. Durable Goods Orders Rebounded, But ... 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222b.jpg" width="353">
New orders for durable goods rose 1.9% last month, a gain after the offsetting volatility of the prior two months when orders fell 8.2% in October after an 8.7% September spike. Consensus expectations had been for a 1.5% rise n total orders during November.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods..
A 14.4% rise in total aircraft &amp; parts orders last month, however, still added volatility. In addition, orders for motor vehicles &amp; parts rose 0.2% (-3.9% y/y). Less transportation altogether, slipped 1.1%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222c.jpg" width="353">
And broad based order declines in other industries continued to raise questions about the health of the factory sector. Orders for nondefense capital goods less aircraft fell 1.4% reflecting a 1.5% (+5.2% y/y) slide in electrical equipment orders and an 8.9% (+3.8% y/y) drop in machinery. During the last ten years there has been an 86% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Primary metals orders fell 1.9% (+4.1% y/y), down for the third month in the last four. To the upside were orders for computer s &amp; electronic products which rose 7.5% (10.4% y/y).
Shipments of durable goods increased another slight 0.1% (2.7% y/y) after the downwardly revised 0.3% October uptick. Less the transportation sector shipments fell 0.1% (+4.6% y/y) for the second decline in the last three months. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Durable inventories rose just 0.3% (7.8% y/y), the weakest monthly increase since a decline in February. Less the transportation sector inventories also increased a modest 0.2% (8.4% y/y) and the inventory to shipments ratio outside of transportation rose to the highest level since July of last year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>1.9%</td>
<td>-8.2%</td>
<td>-0.0%</td>
<td>9.0%</td>
<td>6.4%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.1%</td>
<td>-1.6%</td>
<td>3.4%</td>
<td>9.4%</td>
<td>7.6%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-0.2%</td>
<td>-14.8%</td>
<td>-8.4%</td>
<td>21.4%</td>
<td>5.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-1.4%</td>
<td>-3.9%</td>
<td>6.2%</td>
<td>12.3%</td>
<td>2.8%</td>
<td>-2.0%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Recovered Some 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222d.jpg" width="353">
The University of Michigan&#39;s full month reading of consumer sentiment in December slipped 0.4% to 91.7, but that was less than the 2.1% drop in the preliminary report. Consensus expectations for a reading of 90.2.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Consumer expectations for the economy improved from the preliminary read but they still fell 2.4% for the second consecutive monthly decline. Business conditions during the next twelve months fell 6.3% (+1.0% y/y) and long term expected business cosnditions were unchanged for the second month (+10.2% y/y). Expected personal finances slipped for the second consecutive month (-3.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222e.jpg" width="353">
The reading of current economic conditions actually improved 2.0%, about the same as in the preliminary report. Perceived buying conditions for large household goods rose 3.2% (-1.8% y/y) but perceptions of current personal finances were unchanged (0.0s% y/y).
The reading of whether it&#39;s a good time to buy house fell m/m but remained up from the lows this past Summer.
Expected inflation during the next year increased to 3.5% but for the next five years expected inflation fell to 3.4%. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year.
Consumers&#39; opinion about gov&#39;t economic policy slipped m/m to just 89 versus a midmonth read of 86.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">December (Final)</th>
<th scope="col">December (Prelim.</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>91.7</td>
<td>90.2</td>
<td>92.1</td>
<td>0.2%</td>
<td>87.2</td>
<td>88.6</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>108.1</td>
<td>108.2</td>
<td>106.0</td>
<td>-0.9%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>81.2</td>
<td>78.6</td>
<td>83.2</td>
<td>1.2%</td>
<td>75.7</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
Business Enthusiasm Cools a Bit in France & Italy Amid Generally Constructive Climate 
by <a href="/comment/Stone.html">Carol Stone</a> December 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222h.jpg" width="353">
Businesses in France and Italy, mostly manufacturers, reported some tapering down of confidence in December surveys. Conditions in general are much better than in the previous couple of years, but readings in these surveys have eased since the summer.
In France, the INSEE monthly survey was off 2 points in December to 106 from 108 in November. This put the average for all of 2006 at 107. The December value is up from 102 last December and the average of 101 for all of 2005. These indexes are a synthetic measure, scaled to average 100 over time. So businesses assess their conditions as 7% &quot;better than average&quot; this month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222i.jpg" width="353">
The mixed and skittish nature of business conditions is suggested, though, by the fact that the current assessment of industrial production dropped suddenly to -2 in December from +14 and +21 in November and October, respectively. These data are net balances, the percentage experiencing or expecting positive outcomes less the percentage on the negative side. Wide swings tend to appear in these French data, so it&#39;s hard to judge the significance of any single month. Order books also give an ambiguous picture. The net balance in December was -7, worse than recent readings, particularly the -3 that prevailed in July, August and September. However, such erosion is modest compared with the much bigger declines that characterized the last five years.
In Italy, the privately conducted ISAE survey showed flat business confidence in December at 96.7 on a base of 2000=100. The peak in this survey was 98.2 in June. All of 2006 averaged 95.8, a noticeable improvement from readings in the mid-to-high 80s that carried through from 2001 until this year. Near-term production forecasts eased to +17 from a peak of +23 in June, but again, lower expectations were the norm for much of the time since 2001. Order books at Italian companies are even clearer in this distinction: the December balance is +5, the highest number since November 2000, and in fact the non-negative readings since June are the first since December 2000.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061222j.jpg" width="353">
So industry in Italy and France is experiencing improved conditions, suggesting they have weathered the near-recession in 2000-2001 and the growing competition from Asian manufacturers. But we&#39;d guess that recent high energy and commodity prices, along with a strong euro, have slowed them down lately. Hopefully the let-up in oil and copper prices will help stabilize their activity, although other metals, especially tin, lead and nickel, are still strong.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Surveys, SA</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">FRANCE: Business Climate Indicator</td>
<td>106</td>
<td>108</td>
<td>107</td>
<td>102</td>
<td>107</td>
<td>101</td>
<td>104</td>
</tr>
<tr>
<td class="firstcol">Industrial Production Trend, % Bal</td>
<td>-2</td>
<td>14</td>
<td>21</td>
<td>-4</td>
<td>5</td>
<td>-12</td>
<td>5</td>
</tr>
<tr class="odd">
<td class="firstcol">Order Books</td>
<td>-7</td>
<td>-4</td>
<td>-5</td>
<td>-15</td>
<td>-6</td>
<td>-17</td>
<td>-15</td>
</tr>
<tr>
<td class="firstcol">ITALY: ISAE Business Confidence Indicator, 2000=100</td>
<td>96.7</td>
<td>96.7</td>
<td>97.0</td>
<td>91.4</td>
<td>95.8</td>
<td>87.5</td>
<td>89.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Production Forecast, % Bal</td>
<td>17</td>
<td>19</td>
<td>20</td>
<td>15</td>
<td>19</td>
<td>12</td>
<td>15</td>
</tr>
<tr>
<td class="firstcol">Order Books</td>
<td>5</td>
<td>3</td>
<td>2</td>
<td>-10</td>
<td>-1</td>
<td>-18</td>
<td>-15</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221n.jpg" width="353">
We expressed concern just a few weeks ago here about the whether the Canadian economy might be entering a slowdown. Our discussion of Q3 GDP indicated just scattered evidence, but our edginess increased due to an outright contraction in the monthly GDP for September that Statistics Canada calculates from industry data.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221o.jpg" width="353">
In today&#39;s report, the September figure was revised lower, now showing a 0.4% decline instead of the 0.3% reported initially. Then in October, there was almost no movement at all. The total was down a minuscule C$160 million, a change of 0.01%. This was almost exactly divided between good-producing and service-producing sectors, which fell C$80 million and C$79 million, respectively. Among the goods-producing industries, manufacturing is undergoing an active contraction, with declines of 1.8% in September and 0.8% and October; its activity is running 4.2% below last October.
Services are seeing a kind of bifurcated performance, with weakness in those sectors related to the distribution of goods -- wholesale and retail trade, transportation, etc. -- and continuing growth in the purer service areas, such as finance and health care. The pattern in arts, recreation and travel-related has been interesting: those industries were weak back in the summer, but picked up nicely beginning in August. This was the time when gasoline prices turned down, and we wonder if the relief there gave a boost to late summer and autumn recreation.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221m.jpg" width="353">
Further, press reports today also highlighted a fall in retail sales. These were off 0.5% in October in real terms. In current C$, the total was off 0.7%, but some of this is due to a 2.5% decrease at gas stations, likely due to prices. Other store groups, again in current dollars, saw declines, but some of this is monthly volatility in sectors that had been strong in September, especially clothing and shoes. But there were also decreases in furniture, building materials, general merchandise and sporting goods. So consumer demand, which has heretofore held up well, is now showing some hesitation.
In any event, we seem last month to have been right, unfortunately, to be concerned about Canada&#39;s growth prospects and will continue to monitor this developing situation.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/G10/@G4/@G42/@G42.HTM">Canada</a><a href="http://www.haverselect.com/dlx/G10/@G4/@G42/@G42.HTM">: SA, Bil.Chn.97C$</a></th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">Oct 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total GDP</td>
<td>1089.7</td>
<td>1089.8</td>
<td>1094.5</td>
<td>1072.0</td>
<td>1063.0</td>
<td>1034.0</td>
<td>1002.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>-0.0</td>
<td>-0.4</td>
<td>0.3</td>
<td>1.6</td>
<td>2.8</td>
<td>3.1</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods-Producing Industries</td>
<td>-0.0</td>
<td>-1.3</td>
<td>0.1</td>
<td>-1.4</td>
<td>2.0</td>
<td>2.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">Service-Producing Industries</td>
<td>-0.0</td>
<td>-0.0</td>
<td>0.4</td>
<td>3.1</td>
<td>3.2</td>
<td>3.2</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Trade*</td>
<td>356.5</td>
<td>358.3</td>
<td>358.0</td>
<td>335.9</td>
<td>336.4</td>
<td>321.9</td>
<td>309.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>-0.5</td>
<td>0.1</td>
<td>0.8</td>
<td>6.1</td>
<td>4.5</td>
<td>3.9</td>
<td>2.6</td>
</tr>
</tbody>
</table>
</body>
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We expressed concern just a few weeks ago here about the whether the Canadian economy might be entering a slowdown. Our discussion of Q3 GDP indicated just scattered evidence, but our edginess increased due to an outright contraction [...]

Canadian Economy Stalls Out in October

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

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The Consumer Price Index increased 0.3% during November, up from four consecutive months of 0.2% gain. Expectations had been for a 0.2% rise in the Action Economics Forecast Survey. The y/y increase picked up to 2.7% from 2.6% in October and was the quickest rise in four months. The three-month increase rose to 3.0% (AR) from 2.5% but remained below the 4.6% high in April of this year. Prices excluding food & energy rose an expected 0.3% for the fourth consecutive month. Core consumer prices increased 3.7% (AR) during the last three months, up from 1.6% in July, and 3.3% y/y. Food prices rose 0.4% last month (2.4% y/y) after a 0.2% gain while energy prices rose 0.2% (-3.2% y/y) after holding steady in October.

The CPI less food, energy and shelter, another measure of core pricing power, rose 0.3% after a 0.2% gain. The 2.2% y/y rise was increased from a July low of 1.7% but remained below the 7.6% y/y peak in February 2022. It compared to a low of 0.3% y/y in May 2020.

Services costs less energy rose a steady 0.3% in November (4.6% y/y). Shelter costs rose 0.3% following a 0.4% rise in October. Its 4.7% y/y rise compares to an 8.2% peak in March 2023. Owners’ equivalent rent of primary residences increased 0.2% (4.9% y/y), following a 0.4% rise and was the weakest increase since April 2021. Rents of primary residences rose a similarly depressed 0.2% (4.4% y/y) after two consecutive months of 0.3% rise, but the cost of lodging away from home surged 3.2% (3.7% y/y) following a 0.4% October gain. Transportation service prices held steady last month (+7.1% y/y) after rising 0.4% in October, as public transportation prices also were unchanged (2.9% y/y) after a 2.4% October surge. Medical care service costs rose 0.4% (3.7% y/y) the same as in October. Education & communication prices eased 0.2% (+1.8% y/y) for the second straight month. Recreation services prices rose 0.7% (3.5% y/y), the same as in October.

During November, the CPI for goods less food & energy increased 0.3% (-0.6% y/y) after holding steady in October. Home furnishings prices rose 0.7% (-1.0% y/y), as appliance costs also rose 0.7% (-1.0% y/y).  Apparel costs rose 0.2% (1.1% y/y) after a 1.5% decline. Education & communication product costs fell 1.1% (-5.4% y/y) the same as in October while medical care product prices declined 0.1% (NSA, +0.4% y/y) in November. Prices for recreation products weakened 0.5% (-1.5% y/y), the fourth decline in five months. Transportation product prices rose 0.9% (-1.4% y/y) after improving 0.8%. New vehicle prices rose 0.6% (-0.7% y/y) after holding steady while used car & truck prices strengthened 2.0% (-3.4% y/y) after a 2.7% rise.

Food prices rose 0.4% (2.4% y/y) in November following a 0.2% October increase. Egg prices rebounded 8.2% (37.5% y/y) after a 6.4% decline. Meat, poultry & fish prices rebounded 1.1% (1.5% y/y) after falling 0.8% while cereal & bakery product prices weakened 1.1% (-0.5% y/y) after a 1.0% rise. Fruit & vegetable prices rose 0.2% (1.1	% y/y) after increasing 0.4%, while dairy prices eased 0.1% (+1.2% y/y) after rising 1.0% in October. Nonalcoholic beverage prices rose 1.5% (2.8% y/y) after a 0.4% October rise.

Energy prices rose 0.2% (-3.2% y/y) in November after holding steady in October. Gasoline prices rose 0.6	% (-8.1% y/y) after three straight monthly declines. Amongst other energy products, fuel oil & propane prices rose 0.4% (-10.7% y/y) after declining 2.2%. Electricity prices eased 0.4% (3.1% y/y) after a 1.2% gain, while natural gas prices jumped 1.0% (1.8% y/y) following a 0.3% October gain.

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

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- Food prices pick up.
- Services price gains remain steady.
- Core goods prices pick up.

U.S. CPI Picks Up Modestly in November; Core Prices Rise Steadily

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The U.S. Treasury Department reported a U.S. government budget deficit of $624.2 billion budget deficit for the first two months of FY 2025 after a $380.6 billion deficit for the first two months of FY’24. For November alone, the government ran a budget deficit of $366.8 billion, which compared to a deficit of $314.0 billion twelve months earlier. The Action Economics Forecast Survey expected a $356.5 billion deficit in November.

Overall revenues this fiscal year so far declined 7.3% y/y as individual income tax receipts fell 11.6% y/y. The level of corporate tax receipts nearly halved y/y. Social insurance revenues increased 7.4% y/y and excise taxes increased 34.0% y/y in FY’25. Customs duties rose 6.1% y/y in the first two months of FY’15.

Federal government outlays increased 18.3% y/y in early FY’25 after a 16.7% rise early in FY’24. Defense spending rose 13.7% y/y, as it did early in FY’24. Social Security outlays rose 6.9% y/y after rising 12.0% y/y in FY’24. Interest payments rose 8.0% y/y in FY’25 after a 63.7% rise a year earlier. Health program spending rose 12.0% y/y after holding steady early in FY’24 while Medicare payments doubled y/y. Income security outlays rose 31.8% y/y compared to a 15.1% y/y decline in the first two months of FY’24.

Haver's data on Federal Government receipts & outlays are contained in **USECON**. The expectations figure is in the **AS1REPNA** database.


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- Personal income tax receipts weaken.
- Corporate tax payments roughly halve y/y.
- Social Security spending fuels outlay growth.

U.S. Government Budget Deficit Deepens So Far in FY 2025

Kathleen Stephansen, CBE

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Mortgage applications in the week ended December 6 increased 5.4% (15.9% y/y) after rising 2.8% (18.1% y/y) in the week ended November 29. Applications for loans to purchase a house dropped 4.1% (+3.5% y/y) in the December 6 week, after a rise of 5.6% (11.8% y/y) in the November 29 week, while applications to refinance a loan surged 27.2% (42.2% y/y) in the latest week after declining 0.6% (+33.5% y/y) the week before. These data are from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey and the amounts quoted here are seasonally adjusted.

The effective interest rate on a 30-year fixed rate loan was 6.86% in the week ended December 6, down slightly from 6.89% in the November 29 week. The rate on a 5-year ARM dropped 50bps to 5.96% in the latest week from 6.46% in the November 29 week, still higher than 5.84% in mid-September. The rate on a 30-year jumbo loan was 6.94% in the week ended December 6, down slightly from 6.96% in the November 29 week, but slightly higher than 6.90% in mid-October.

The share of applications to refinance an existing mortgage was 46.8% in the December 6 week, sharply higher than the 38.7% share in the November 29 week. The largest share in recent months was 55.7% the week of September 20. The share of applications for ARMs was 5.3% in the latest week, down from 6.0% in the November 29 week. The last time the share was 5.3% was in the week ended February 25, 2022.

The average loan size in the December 6 week was $368,200, down 2.5% from $377,600 in the November 29 week, and up 3.6% from a year ago. The average size of an application for a loan to purchase a house was $416,200 in December 6 week, down from $431,900 in the week before, while the average size of an application to refinance an existing loan increased to $313,600 in the latest week from $291,500 in the November 29 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 to purchase a house drop, while applications to refinance surge.
- Slight decrease in rates on 30-year fixed-rate loans.
- Average loan size decreases modestly.

U.S. Mortgage Applications Rise in the December 6 Week

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U.S. nonfarm business productivity (output per hour) increased an unrevised 2.2% (SAAR) during Q3’24 after a 2.1% rise in Q2 and a 0.7% Q1 gain. The figure matched expectations in the Action Economics Survey. The 2.0% y/y increase remained below its 2.7% gain in 2023 (Q4/Q4) but was improved from a 1.4% decline in 2022. It also was greatly improved versus the 1.2% average between 2009 and 2019. Nonfarm business output increased 3.5% (2.8% y/y) after a 3.0% gain, revised from 3.5%, while hours-worked rose 1.2% (0.7% y/y) after increasing 0.9%.

Compensation growth slowed to 3.1% (4.3% y/y), revised from 4.2%, after a slightly revised 4.8% gain. As a result, unit labor costs grew 0.8% (2.2% y/y) last quarter, revised from 1.9% after a 1.1% decline, revised from a 2.4% increase. The Action Economics survey expected unit labor costs to rise 1.6% last quarter.

In the manufacturing sector, productivity in Q3 improved 0.9% (0.6% (y/y), revised from 1.0%, after rising a minimally changed 0.2% in Q2 and falling 0.7% in Q1. Compensation grew 2.6% (2.4% y/y), revised from 6.4%, following a 5.6% decline in Q2, revised from a 6.2% rise. Unit labor costs rose 1.7% (1.8% y/y), revised from 5.3%, after a 5.8% fall, revised from a 5.8% increase.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Annual increase remains below last year’s gain.
- Compensation growth dips.
- Increase in unit labor costs slows.

U.S. Productivity Growth Is Steady & Unrevised in Q3’24

Winnie Tapasanun

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The NFIB Small Business Optimism Index rose to 101.7 in November, the seventh m/m rise in eight months and the highest level since June 2021, following a 2.2-point increase to 93.7 in October, according to the November 2024 Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the first time in 35 months that the index was above the 50-year average of 98. The index was also up from its recent low of 88.5 in March 2024, 90.6 in November 2023, and a low of 89.0 in April 2023; nevertheless, having remained below a high of 102.5 in June 2021. Nine of the 10 index components rose, none fell, and one was unchanged. The NFIB Small Business Uncertainty Index fell to 98 in November, the lowest level since August, from a record-high 110 in October; however, it was well above its recent low of 65 in November 2023 and a low of 55 in June 2022.

The outlook for business conditions in the next six months turned positive in the latest survey. The net balance of respondents expecting the economy to improve jumped to 36% in November, the sixth m/m rise in seven months and the highest level since June 2020, after a seven-point increase to -5% in October; it was significantly above a record low of -61% in June 2022. Expected real sales gained to a net 14% in November following a five-point rise to -4% in October, posting the highest level since February 2020. The latest reading was up from a low of -21% in May 2023 and a low of -29% in July 2022. A net -13% of respondents reported higher nominal sales in the past three months, up from -20% reported in October and registering the highest reading since June. The latest reading, however, was down from the most recent positive reading of 1% in May 2022 and a peak of 9% in June 2021.

Plans to make capital outlays rose to 28% in November from 22% in October, up from a low of 19% in September and a low of 19% in April 2023. The November number posted the highest reading since January 2022; nevertheless, having remained below a high of 31% in October 2021. Plans to expand the business advanced to 14% in November following a two-point increase to 6% in October; the latest figure, up from a low of 2% in March 2023, registered the best reading since a high of 15% in June 2021. Meanwhile, expected credit conditions edged up to -5% in November after a two-point increase to -6% in October; the latest number was slightly above its recent high of -6% in February 2024 but below a high of -4% in May 2022 and a high of -3% in November 2021.

On the labor front, labor markets remained relatively tight. Forty-eight percent of respondents reported that qualified workers to fill job openings were hard to find in November, up from 46% in October. These numbers were below a high of 57% in September 2023, a high of 61% in May 2022, and a peak of 62% in September 2021. A net 18% planned to increase employment in November, up from 15% in October and 15% in September, but it was down from a high of 26% in May 2022 and a peak of 32% in August 2021. Notably, 36% reported positions not able to be filled in November, up from 35% in October and registering the highest since August. These figures remained below a high of 51% in May 2022.

Overall earnings trends continued to improve in November while having remained in negative territory since December 2019. The figure increased to -26% in November, still a poor reading, following a one-point uptick to -33% in October; these numbers were below a high of -18% in March 2023.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent raising their average selling prices rose to 24% in November after a one-point decline to 21% in October; these numbers, however, were slightly down from 25% in November 2023 and well below a high of 66% in March 2022. The percentage planning to raise prices rose to 28% in November following a one-point increase to 26% in October; these figures were below 34% in November 2023 and a high of 52% in March 2022.

Wage inflation was still relatively high in the November survey. A net 32% of respondents raised compensation during the last three months, slightly up from 31% reported in the October survey. However, it was down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 28% of firms planned to raise worker compensation in the next three months, up from 23% reported in October and registering the highest reading since December 2023; nevertheless, having remained below a high of 30% in November 2023 and a high of 32% in October 2022.

Inflation continued to be an issue facing small businesses, as reported by 20% of NFIB members in November as the single most important problem. Registering the lowest reading since January 2024, the November figure was down from 23% in October and a peak of 37% in July 2022. The quality of labor was the second important concern with 19% in November, slightly down from 20% in October. Other concerns (in November vs. October) included taxes (14% vs. 16%), the cost of labor (11% vs 8%), and government requirements (8% vs. 8%).

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

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- November NFIB Small Business Optimism Index up 8.0 pts. to 101.7.
- Uncertainty Index down 12 pts. to a three-month-low 98.
- Expectations for economy up 41 pts. to 36%, the highest since June ’20.
- Expected real sales up 18 pts. to 14%, the highest since February ’20.
- Inflation (20%) remains top business problem, followed by Quality of Labor (19%); both slightly down from October.

Economy in Brief: December 2006

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