Robert Brusca

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French consumer confidence from INSEE continued to step back in October, falling to 100 from September's 101. Confidence had spiked at 108 in the midst of French election fever; however, June was a one-hit wonder as confidence jumped to 108 from May's 102 then fell back to 104 in July and has edged lower month-by-month since then. Still, confidence averaged 97 for all of 2016 and ended the year at 99. The value 99 is the average for the confidence reading back to January 1990. So in October, confidence is a thin tick above average. The ranking for the monthly confidence standing is at its 56th percentile, implying that it is just a small margin above its median (which occurs at a rank percentile reading of 50). Confidence in France is only slightly above 'normal' according to comparisons with the mean and the median. While that is not a poor standing, it is a weaker one than might be expected given the relatively elevated Markit-survey private sector readings being posted by France. Its services sector and manufacturing sector each are being assessed as only having been better less than 10% of the time over the past six years. Yet, consumer confidence is only middling.

The French PMI scores from Markit have been strong by recent standards as the French economy has been recovering. Hollande may not have been very popular (beware: understatement), but he did turn over the economy to the new PM, Emmanuel Macron, in good shape.

In October, the French household rate for past living standards is at a -39, an improvement from September's -41. Their anticipation for the next 12 months, however, slips this month to -23 from -22 in September. Despite the difference in the actual values of the monthly diffusion indexes, the past living-standard rating is actually a higher ranking than is the outlook for the next 12 months. The past living standard ranks in its 71st percentile while the next 12-month outlook stands in its 66th percentile. Still, the ranks are reasonably well-elevated above their respective medians (at 50) and represent solid assessments for living standards.

The prospect for unemployment over the next 12 months is seeing a slippage to 15 from 16 and a percentile standing value of 25.7. A low ranking for unemployment expectations is a good sign. Unemployment 'fears' are lower than this month's value only about one-quarter of the time.

Price developments assessed over the past 12 months as well as over the next 12 months show less price weakness. The 12-month past diffusion score rises to -50 from -53 while the outlook score rises relatively sharply to -20 from -29. Price weakness in the past has been weaker only about 11% of the time. The outlook for prices finds prices having been expected to be stronger only about 14% of the time. While the raw diffusion scores are solidly negative, the outlook reading on inflation expectations is getting into relatively strong territory for the outlook.

French households note that the environment for saving slipped in October relative to September and the outlook is slipping as well. The past environment deteriorated by 8 points month-to-month; the outlook is now weaker by five points. The assessment of being favorable to save is at one of its lowest levels over the past 12 months at a 1.2 percentile ranking. However, the ability to save is now close to its mean value as firms look ahead and as the October reading has a 50.6 percentile standing, a slight margin above its historic median.

The current environment for spending grades out pretty well in October. Conditions slip on the month and form a reading of -6, a drop from a reading of -3. But the current reading still has a historic standing in its 82.3 percentile, marking it as better only about 18% of the time.

Households are concerned about their financial situation. Over the last 12 months, the assessment slipped by one point to a near neutral 50.3 percentile standing. Looking ahead over the next 12 months, the standing slips to -15 from -12 to a 22.2 percentile standing. That means expected financial conditions have been worse between one fifth to one quarter of the time.

There have been some very consistent and strong PMI readings for France that are not filtering through to the consumer. The two big current readings are in good shape; I refer to low fears of unemployment and a solid-to-strong assessment of spending conditions. Despite a long period of very contained inflation, inflation fears seem to be creeping. That is surprising since the ECB has been trying to boost inflation up to its target (near 2%) but has been unsuccessful. In a separate survey today for all of the EMU, it was reported that inflation expectations for the whole euro area rose by just one small tick in a survey conducted by the ECB. While living standards are on firm-footing, the future is somewhat in doubt as we see in the low ranking for expected financial conditions. Things are fine. Things have been fine. Fears of unemployment are low. It's a good time to spend (now)...but the future? That's the problem.

As the ECB gets ready to dismantle some of its growth support programs, we find the German economy operating at a strong pace with extremely low unemployment and very high confidence. But France, as the second largest EMU economy and having strong PMI readings, does not have the bravado to match Germany. French households are worried about the future. Some of the Macron labor market reforms, while good for the economy - especially one that has to compete in the same currency area with Germany, a next-door neighbor - are not popular and may give rise to some anxiety in households. Labor market reforms can be good for increasing a country's competitiveness since the conditions in competitor countries may be more favorable for producers there. But if being competitive policy changes cause some reduction in living standards, wages and job security, the public will not see those changes are for the better. It's a paradox of sorts. But it is true that businesses and countries must change to meet the competition. The economics of denial may keep an economy running under what seem to be constant conditions for a while, but eventually that will end if it is not competitive. And it might end in a bang. France is going through such a tension now as Macron has championed labor market reforms which are not popular but may very well be necessary for survival. Consumer confidence may be undergoing a tug-of-war over how it now views the future. And while the Macron reforms have not been popular, he did not make so many changes as to anger unions. France may yet have to take another step to move its labor rules into the 21st century, but it is done for now.


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French consumer confidence from INSEE continued to step back in October, falling to 100 from September's 101. Confidence had spiked at 108 in the midst of French election fever; however, June was a one-hit wonder as confidence jumped [...]

French Consumer Confidence Continues to Move South (Not the South of France)

Tom Moeller

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Economic growth of 3.0% (2.3% y/y) during Q3'17 roughly
matched growth during Q2. Together, these were the firmest quarters since the
middle of 2014. The latest figure surpassed expectations for a 2.6% rise in the
Action Economics Forecast Survey. The Commerce Department indicated that
Hurricane Harvey reduced oil &amp; gas output, while Hurricane Irma lessened
agriculture production.

The change in business inventories added 0.7 percentage
points to growth last quarter following a one-tenth of a percentage point Q2
addition. Improvement in net exports added a 0.4 percentage point to growth, the
most in a year. Exports grew 2.3% (2.3% y/y), the weakest advance in three
quarters. Imports fell 0.8% (+3.2% y/y), the first decline since Q1'16.

Domestic final sales growth of 1.8% (2.3% y/y) was the
weakest advance since Q1'16 as it decelerated from 2.7% in Q2. Consumer spending
growth slowed to 2.4% (2.6% y/y) from 3.3% as nondurable goods consumption
halved to 2.1% (2.5% y/y). Gasoline &amp; fuel oil consumption declined 4.8%
(-1.3% y/y) while clothing purchases fell 0.5% (+1.6% y/y. Durable goods
consumption growth quickened to 8.3% (6.2% y/y) as motor vehicle buying
strengthened 14.7% (4.3% y/y). Spending on home furnishings and appliances
advanced 7.4% (6.6% y/y), but recreational goods purchases eased 0.2% (+8.5 y/y)
following three straight quarters of double-digit growth. Services spending grew
1.5% (2.1% y/y), the weakest quarterly gain in four years. Housing utilities
spending gained 0.2% (0.6% y/y) after a 3.4% rise. Recreation spending
strengthened 3.7% (3.0% y/y) while restaurant &amp; hotel expenditures rose 2.8% (1.2% y/y).

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Business fixed investment grew 3.9% (4.4% y/y). Three-quarter
growth averaging 5.9% was the quickest in three years and up from a 0.6% decline
last year. Equipment spending grew a steady 8.6% (5.9% y/y) as investment in
information processing equipment jumped 12.9% (8.6% y/y). Industrial equipment
investment grew 5.6% (7.6% y/y) and intellectual property product investment
improved 4.3% (3.3% y/y). Structures investment fell 5.2% (+3.3% y/y) after a 7.0% rise.

Residential investment fell 6.0% following a 7.3% decline.
Year-to-year growth of 0.9% was down from the peak 13.5% advance during all of 2012.

Government sector spending eased 0.1% (-0.2% y/y), off for
the third straight quarter. State &amp; local government spending fell 0.9%
(-0.3% y/y) following a 1.5% decline. Federal government investment increased
1.2% after a 1.9% Q2 gain, but it was unchanged y/y. Defense spending grew 2.3%
(0.1% y/y) after a 4.7% rise. Nondefense spending eased 0.5% (-0.0% y/y), off
for the third straight quarter.

The GDP price index strengthened 2.2% (1.8% y/y), the
quickest increase in five quarters. The gain was led by a 5.1% increase (4.0%
y/y) in the residential investment price index. The government consumption price
index rose 2.5% both q/q and y/y. The personal consumption price index gained
1.5% (1.5% y/y), up from the 0.3% Q2 increase and the business fixed investment
price index rose 1.3% (1.3% y/y).

The GDP figures can be found in Haver's USECON and USNA
database. USNA contains virtually all of the Bureau of Economic Analysis' detail
in the national accounts, including the integrated economic accounts and the
recently added GDP data for U.S. Territories. The Action Economics consensus
estimates can be found in AS1REPNA.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM" ;>Chained
 2009 $ (%, AR</a>)</th>
 <th scope="col" >Q3'17 (Advance Estimate)</th>
 <th scope="col" >Q2'17 </th>
 <th scope="col" >Q1'17</th>
 <th scope="col" >Q3'17 Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 <tbody>
 <tr>
 <td class="firstcol" >Gross Domestic Product</td>
 <td >3.0</td>
 <td >3.1</td>
 <td >1.2</td>
 <td >2.3</td>
 <td >1.5</td>
 <td >2.9</td>
 <td >2.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Inventory Effect</td>
 <td >0.7</td>
 <td >0.12</td>
 <td >-1.5</td>
 <td >0.1</td>
 <td >-0.4</td>
 <td >0.3</td>
 <td >-0.1</td>
 </tr>
 <tr>
 <td class="firstcol" >Final Sales</td>
 <td >2.26</td>
 <td >2.95</td>
 <td >2.7</td>
 <td >2.2</td>
 <td >1.9</td>
 <td >2.6</td>
 <td >2.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Foreign Trade Effect</td>
 <td >0.4</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >-0.1</td>
 <td >-0.2</td>
 <td >-0.7</td>
 <td >0.0</td>
 </tr>
 <tr>
 <td class="firstcol" >Domestic Final Sales</td>
 <td >1.8</td>
 <td >2.7</td>
 <td >2.4</td>
 <td >2.3</td>
 <td >2.1</td>
 <td >3.3</td>
 <td >2.7</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="9" >Demand Components</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Personal Consumption Expenditures</td>
 <td >2.4</td>
 <td >3.3</td>
 <td >1.9</td>
 <td >2.6</td>
 <td >2.7</td>
 <td >3.6</td>
 <td >2.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Business Fixed Investment</td>
 <td >3.9</td>
 <td >6.7</td>
 <td >7.1</td>
 <td >4.4</td>
 <td >-0.6</td>
 <td >2.3</td>
 <td >6.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Residential Investment</td>
 <td >-6.0</td>
 <td >-7.3</td>
 <td >11.1</td>
 <td >0.9</td>
 <td >5.5</td>
 <td >10.2</td>
 <td >3.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Government Spending</td>
 <td >-0.1</td>
 <td >-0.2</td>
 <td >-0.6</td>
 <td >-0.2</td>
 <td >0.8</td>
 <td >1.4</td>
 <td >-0.6</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="9" >Chain-Type Price Index</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; GDP&nbsp;&nbsp;&nbsp;</td>
 <td >2.2</td>
 <td >1.0</td>
 <td >2.0</td>
 <td >1.8</td>
 <td >1.3</td>
 <td >1.1</td>
 <td >1.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Personal Consumption
 Expenditures</td>
 <td >1.5</td>
 <td >0.3</td>
 <td >2.2</td>
 <td >1.5</td>
 <td >1.2</td>
 <td >0.3</td>
 <td >1.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp; Less Food/Energy</td>
 <td >1.3</td>
 <td >0.9</td>
 <td >1.8</td>
 <td >1.3</td>
 <td >1.8</td>
 <td >1.3</td>
 <td >1.6</td>
 </tr>
 </tbody>
 
 

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Economic growth of 3.0% (2.3% y/y) during Q3'17 roughly matched growth during Q2. Together, these were the firmest quarters since the middle of 2014. The latest figure surpassed expectations for a 2.6% rise in the Action Economics [...]

U.S. GDP Growth Remains Firm in Q3, Despite Storm Effects

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 <a href="/comment/171027a.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/171027a.png"></a>
 <a href="/comment/171027g.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/171027g.png"></a>

Economic growth of 3.0% (2.3% y/y) during Q3'17 roughly
matched growth during Q2. Together, these were the firmest quarters since the
middle of 2014. The latest figure surpassed expectations for a 2.6% rise in the
Action Economics Forecast Survey. The Commerce Department indicated that
Hurricane Harvey reduced oil &amp; gas output, while Hurricane Irma lessened
agriculture production.

The GDP figures can be found in Haver's USECON and USNA
database. USNA contains virtually all of the Bureau of Economic Analysis' detail
in the national accounts, including the integrated economic accounts and the
recently added GDP data for U.S. Territories. The Action Economics consensus
estimates can be found in AS1REPNA.


	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM" ;>Chained
 2009 $ (%, AR</a>)</th>
 <th scope="col" >Q3'17 (Advance Estimate)</th>
 <th scope="col" >Q2'17 </th>
 <th scope="col" >Q1'17</th>
 <th scope="col" >Q4'16</th>
 <th scope="col" >Q3'17 Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 <tbody>
 <tr>
 <td class="firstcol" >Gross Domestic Product</td>
 <td >3.0</td>
 <td >3.1</td>
 <td >1.2</td>
 <td >1.8</td>
 <td >2.3</td>
 <td >1.5</td>
 <td >2.9</td>
 <td >2.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Inventory Effect</td>
 <td >0.7</td>
 <td >0.12</td>
 <td >-1.5</td>
 <td >1.1</td>
 <td >0.1</td>
 <td >-0.4</td>
 <td >0.3</td>
 <td >-0.1</td>
 </tr>
 <tr>
 <td class="firstcol" >Final Sales</td>
 <td >2.26</td>
 <td >2.95</td>
 <td >2.7</td>
 <td >0.7</td>
 <td >2.2</td>
 <td >1.9</td>
 <td >2.6</td>
 <td >2.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Foreign Trade Effect</td>
 <td >0.4</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >-1.6</td>
 <td >-0.1</td>
 <td >-0.2</td>
 <td >-0.7</td>
 <td >0.0</td>
 </tr>
 <tr>
 <td class="firstcol" >Domestic Final Sales</td>
 <td >1.8</td>
 <td >2.7</td>
 <td >2.4</td>
 <td >2.3</td>
 <td >2.3</td>
 <td >2.1</td>
 <td >3.3</td>
 <td >2.7</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="9" >Demand Components</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Personal Consumption Expenditures</td>
 <td >2.4</td>
 <td >3.3</td>
 <td >1.9</td>
 <td >2.9</td>
 <td >2.6</td>
 <td >2.7</td>
 <td >3.6</td>
 <td >2.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Business Fixed Investment</td>
 <td >3.9</td>
 <td >6.7</td>
 <td >7.1</td>
 <td >0.2</td>
 <td >4.4</td>
 <td >-0.6</td>
 <td >2.3</td>
 <td >6.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Residential Investment</td>
 <td >-6.0</td>
 <td >-7.3</td>
 <td >11.1</td>
 <td >7.1</td>
 <td >0.9</td>
 <td >5.5</td>
 <td >10.2</td>
 <td >3.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Government Spending</td>
 <td >-0.1</td>
 <td >-0.2</td>
 <td >-0.6</td>
 <td >0.2</td>
 <td >-0.2</td>
 <td >0.8</td>
 <td >1.4</td>
 <td >-0.6</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="9" >Chain-Type Price Index</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; GDP&nbsp;&nbsp;&nbsp;</td>
 <td >2.2</td>
 <td >1.0</td>
 <td >2.0</td>
 <td >2.0</td>
 <td >1.8</td>
 <td >1.3</td>
 <td >1.1</td>
 <td >1.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Personal Consumption
 Expenditures</td>
 <td >1.5</td>
 <td >0.3</td>
 <td >2.2</td>
 <td >2.0</td>
 <td >1.5</td>
 <td >1.2</td>
 <td >0.3</td>
 <td >1.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp; Less Food/Energy</td>
 <td >1.3</td>
 <td >0.9</td>
 <td >1.8</td>
 <td >1.3</td>
 <td >1.3</td>
 <td >1.8</td>
 <td >1.3</td>
 <td >1.6</td>
 </tr>
 </tbody>
 
 

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Economic growth of 3.0% (2.3% y/y) during Q3'17 roughly
matched growth during Q2. Together, these were the firmest quarters since the
middle of 2014. The latest figure surpassed expectations for a 2.6% rise in the
Action Economics Forecast Survey. The Commerce Department indicated that
Hurricane Harvey reduced oil &amp; gas output, while Hurricane Irma lessened
agriculture production.
The change in business inventories added 0.7 percentage
points to growth last quarter following a one-tenth of a percentage point Q2
addition. Improvement in net exports added a 0.4 percentage point to growth, the
most in a year. Exports grew 2.3% (2.3% y/y), the weakest advance in three
quarters. Imports fell 0.8% (+3.2% y/y), the first decline since Q1'16.
Domestic final sales growth of 1.8% (2.3% y/y) was the
weakest advance since Q1'16 as it decelerated from 2.7% in Q2. Consumer spending
growth slowed to 2.4% (2.6% y/y) from 3.3% as nondurable goods consumption
halved to 2.1% (2.5% y/y). Gasoline &amp; fuel oil consumption declined 4.8%
(-1.3% y/y) while clothing purchases fell 0.5% (+1.6% y/y. Durable goods
consumption growth quickened to 8.3% (6.2% y/y) as motor vehicle buying
strengthened 14.7% (4.3% y/y). Spending on home furnishings and appliances
advanced 7.4% (6.6% y/y), but recreational goods purchases eased 0.2% (+8.5 y/y)
following three straight quarters of double-digit growth. Services spending grew
1.5% (2.1% y/y), the weakest quarterly gain in four years. Housing utilities
spending gained 0.2% (0.6% y/y) after a 3.4% rise. Recreation spending
strengthened 3.7% (3.0% y/y) while restaurant &amp; hotel expenditures rose 2.8%
(1.2% y/y).&nbsp;&nbsp; 
Business fixed investment grew 3.9% (4.4% y/y). Three-quarter
growth averaging 5.9% was the quickest in three years and up from a 0.6% decline
last year. Equipment spending grew a steady 8.6% (5.9% y/y) as investment in
information processing equipment jumped 12.9% (8.6% y/y). Industrial equipment
investment grew 5.6% (7.6% y/y) and intellectual property product investment
improved 4.3% (3.3% y/y). Structures investment fell 5.2% (+3.3% y/y) after a
7.0% rise.
Residential investment fell 6.0% following a 7.3% decline.
Year-to-year growth of 0.9% was down from the peak 13.5% advance during all of
2012.
Government sector spending eased 0.1% (-0.2% y/y), off for
the third straight quarter. State &amp; local government spending fell 0.9%
(-0.3% y/y) following a 1.5% decline. Federal government investment increased
1.2% after a 1.9% Q2 gain, but it was unchanged y/y. Defense spending grew 2.3%
(0.1% y/y) after a 4.7% rise. Nondefense spending eased 0.5% (-0.0% y/y), off
for the third straight quarter.
The GDP price index strengthened 2.2% (1.8% y/y), the
quickest increase in five quarters. The gain was led by a 5.1% increase (4.0%
y/y) in the residential investment price index. The government consumption price
index rose 2.5% both q/q and y/y. The personal consumption price index gained
1.5% (1.5% y/y), up from the 0.3% Q2 increase and the business fixed investment
price index rose 1.3% (1.3% y/y).&nbsp; 
The GDP figures can be found in Haver's USECON and USNA
database. USNA contains virtually all of the Bureau of Economic Analysis' detail
in the national accounts, including the integrated economic accounts and the
recently added GDP data for U.S. Territories. The Action Economics consensus
estimates can be found in AS1REPNA.

 
 <tr>
 <th class="firstcol" scope="col" width="575"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM" ;>Chained
 2009 $ (%, AR</a>)</th>
 <th scope="col" width="148">Q3'17 (Advance Estimate)</th>
 <th scope="col" width="148">Q2'17 </th>
 <th scope="col" width="149">Q1'17</th>
 <th scope="col" width="149">Q3'17 Y/Y</th>
 <th scope="col" width="149">2016</th>
 <th scope="col" width="149">2015</th>
 <th scope="col" width="149">2014</th>
 </tr>
 <tbody>
 <tr>
 <td class="firstcol" width="575">Gross Domestic Product</td>
 <td align="center" width="148">3.0</td>
 <td align="center" width="148">3.1</td>
 <td align="center" width="149">1.2</td>
 <td align="center" width="149">2.3</td>
 <td align="center" width="149">1.5</td>
 <td align="center" width="149">2.9</td>
 <td align="center" width="149">2.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="575">&nbsp; Inventory Effect</td>
 <td align="center" width="148">0.7</td>
 <td align="center" width="148">0.12</td>
 <td align="center" width="149">-1.5</td>
 <td align="center" width="149">0.1</td>
 <td align="center" width="149">-0.4</td>
 <td align="center" width="149">0.3</td>
 <td align="center" width="149">-0.1</td>
 </tr>
 <tr>
 <td class="firstcol" width="575">Final Sales</td>
 <td align="center" width="148">2.26</td>
 <td align="center" width="148">2.95</td>
 <td align="center" width="149">2.7</td>
 <td align="center" width="149">2.2&nbsp;</td>
 <td align="center" width="149">1.9</td>
 <td align="center" width="149">2.6</td>
 <td align="center" width="149">2.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="575">&nbsp; Foreign Trade Effect</td>
 <td align="center" width="148">0.4</td>
 <td align="center" width="148">0.2</td>
 <td align="center" width="149">0.2</td>
 <td align="center" width="149">-0.1</td>
 <td align="center" width="149">-0.2</td>
 <td align="center" width="149">-0.7</td>
 <td align="center" width="149">0.0</td>
 </tr>
 <tr>
 <td class="firstcol" width="575">Domestic Final Sales</td>
 <td align="center" width="148">&nbsp;1.8</td>
 <td align="center" width="148">2.7</td>
 <td align="center" width="149">2.4</td>
 <td align="center" width="149">2.3</td>
 <td align="center" width="149">2.1</td>
 <td align="center" width="149">3.3</td>
 <td align="center" width="149">2.7</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="8" width="1616">Demand Components</td>
 </tr>
 <tr>
 <td class="firstcol" width="575">&nbsp; Personal Consumption Expenditures</td>
 <td align="center" width="148">2.4</td>
 <td align="center" width="148">3.3</td>
 <td align="center" width="149">1.9</td>
 <td align="center" width="149">2.6</td>
 <td align="center" width="149">2.7</td>
 <td align="center" width="149">3.6</td>
 <td align="center" width="149">2.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="575">&nbsp; Business Fixed Investment</td>
 <td align="center" width="148">3.9</td>
 <td align="center" width="148">6.7</td>
 <td align="center" width="149">7.1</td>
 <td align="center" width="149">4.4</td>
 <td align="center" width="149">-0.6</td>
 <td align="center" width="149">2.3</td>
 <td align="center" width="149">6.9</td>
 </tr>
 <tr>
 <td class="firstcol" width="575">&nbsp; Residential Investment</td>
 <td align="center" width="148">-6.0</td>
 <td align="center" width="148">-7.3</td>
 <td align="center" width="149">11.1</td>
 <td align="center" width="149">0.9</td>
 <td align="center" width="149">5.5</td>
 <td align="center" width="149">10.2</td>
 <td align="center" width="149">3.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="575">&nbsp; Government Spending</td>
 <td align="center" width="148">-0.1</td>
 <td align="center" width="148">-0.2&nbsp;</td>
 <td align="center" width="149">-0.6</td>
 <td align="center" width="149">-0.2</td>
 <td align="center" width="149">0.8</td>
 <td align="center" width="149">1.4</td>
 <td align="center" width="149">-0.6</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="8" width="1616">Chain-Type Price Index</td>
 </tr>
 <tr>
 <td class="firstcol" width="575">&nbsp; GDP&nbsp;&nbsp;&nbsp;</td>
 <td align="center" width="148">2.2</td>
 <td align="center" width="148">&nbsp;1.0</td>
 <td align="center" width="149">2.0</td>
 <td align="center" width="149">1.8</td>
 <td align="center" width="149">1.3</td>
 <td align="center" width="149">1.1</td>
 <td align="center" width="149">1.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="575">&nbsp;&nbsp; Personal Consumption
 Expenditures</td>
 <td align="center" width="148">1.5</td>
 <td align="center" width="148">0.3</td>
 <td align="center" width="149">2.2</td>
 <td align="center" width="149">1.5</td>
 <td align="center" width="149">1.2</td>
 <td align="center" width="149">0.3</td>
 <td align="center" width="149">1.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="575">&nbsp;&nbsp;&nbsp;&nbsp; Less Food/Energy</td>
 <td align="center" width="148">&nbsp;1.3</td>
 <td align="center" width="148">0.9</td>
 <td align="center" width="149">1.8</td>
 <td align="center" width="149">1.3</td>
 <td align="center" width="149">1.8</td>
 <td align="center" width="149">1.3</td>
 <td align="center" width="149">1.6</td>
 </tr>
 </tbody>






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The Federal Reserve Bank of Kansas City reported that its
index of regional manufacturing sector business activity jumped to 23 in October
following an unrevised uptick to 17 during September. The figure was at the
highest level since March 2011. The ISM-Adjusted index strengthened to 62.2
(NSA), also its highest level since March 2011. During the last ten years, there
has been a 57% correlation between this index and the q/q change in real GDP.

Movement amongst the index components was mixed. Inventory
measures surged. Export orders along with domestic new &amp; unfilled orders
also rose last month. Shipments held steady, while supplier delivery times
backed away from a ten-year high, signifying sharply slower product delivery speeds.

Employment jumped to the highest level since March 2011.
Thirty-four percent of respondents reported increased hiring while 11% reported
a decline in job levels. The employee workweek measure also strengthened.

The index of finished goods prices held steady after last
month's sharp increase. It remained up significantly since the January 2015 low.
The raw materials prices index improved m/m, and also significantly improved
versus the 2015 low.

The overall expectations index increased sharply to the
highest level since March. Expected new orders, shipments, employment, the
employee workweek, exports and production each strengthened. Capital spending
improved modestly.

Expectations for finished goods prices ticked higher m/m and
remained up sharply since the September 2015 low. Expected raw material prices
also gained moderately and remained up compared to 2015.

The diffusion indexes are calculated as the percentage of
total respondents reporting increases minus the percentage reporting declines.
The survey included 94 responses from plants in Colorado, Kansas, Nebraska,
Oklahoma, Wyoming and northern New Mexico. Data for the Kansas City Fed Survey
can be found in Haver's SURVEYS database.

<a href="/comment/171026j.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/171026j.png"></a>
 <a href="/comment/171026z.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/171026z.png"></a>

<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >Kansas City Federal Reserve Manufacturing Survey (SA)</th>
 <th>Oct</th>
 <th>Sep</th>
 <th>Aug</th>
 <th>Oct '16</th>
 <th>2016</th>
 <th>2015</th>
 <th>2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Conditions Versus One Month Ago (% Balance)</td>
 <td >23</td>
 <td >17</td>
 <td >16</td>
 <td >4</td>
 <td >-2</td>
 <td >-6</td>
 <td >6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >ISM-Adjusted Composite Index (NSA)</td>
 <td >62.2</td>
 <td >59.2</td>
 <td >57.9</td>
 <td >51.1</td>
 <td >48.5</td>
 <td >46.8</td>
 <td >52.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; New Orders Volume</td>
 <td >27</td>
 <td >10</td>
 <td >25</td>
 <td >9</td>
 <td >-1</td>
 <td >-8</td>
 <td >7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Number of Employees</td>
 <td >21</td>
 <td >18</td>
 <td >14</td>
 <td >3</td>
 <td >-6</td>
 <td >-10</td>
 <td >5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Production</td>
 <td >20</td>
 <td >22</td>
 <td >22</td>
 <td >12</td>
 <td >1</td>
 <td >-5</td>
 <td >7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Prices Received for Finished Product</td>
 <td >13</td>
 <td >13</td>
 <td >8</td>
 <td >-6</td>
 <td >-7</td>
 <td >-5</td>
 <td >5</td>
 </tr>
 <tr>
 <td class="firstcol" >Expected Conditions in Six Months</td>
 <td >32</td>
 <td >26</td>
 <td >23</td>
 <td >16</td>
 <td >9</td>
 <td >4</td>
 <td >17</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; New Orders Volume</td>
 <td >45</td>
 <td >27</td>
 <td >39</td>
 <td >17</td>
 <td >19</td>
 <td >11</td>
 <td >26</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Number of Employees</td>
 <td >35</td>
 <td >26</td>
 <td >26</td>
 <td >18</td>
 <td >8</td>
 <td >6</td>
 <td >18</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Production</td>
 <td >47</td>
 <td >38</td>
 <td >38</td>
 <td >30</td>
 <td >20</td>
 <td >11</td>
 <td >28</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Prices Received for Finished Product</td>
 <td >32</td>
 <td >29</td>
 <td >34</td>
 <td >8</td>
 <td >6</td>
 <td >9</td>
 <td >26</td>
 </tr>
 </tbody>
 </table>
 
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The Federal Reserve Bank of Kansas City reported that its index of regional manufacturing sector business activity jumped to 23 in October following an unrevised uptick to 17 during September. The figure was at the highest level since [...]

Kansas City Federal Reserve Factory Index Strengthens

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<a href="/comment/171026l.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/171026l.png" align="left"></a>
The chart shows that year-on-year growth rates for money and credit flows in the EMU have stabilized at less-than-strong growth rates. Both have steadied over the past year with money growth at a pace of about 5% and credit growth at a pace of 1.5% for private credit. In real terms, credit growth has been flat or even contracting. Money growth in real terms has been at a 3.5% pace. Obviously, the growth in nominal money supply is more than sufficient to support economic growth, but there is a down shift in monetary velocity that is robbing even 5% nominal money growth from creating much stimulus. While some recent ECB comments have looked favorably at some categories of credit that have picked up, in the overall scene the gruel is thin. There is not much here to cheer about and that is the main reason that the ECB is so tentative in legging out of its stimulative policy.

<a href="/comment/171026m.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/171026m.png" align="left"></a>
Not much money surprise from global money supplies 
While globally PMI gauges continue to post firm-to-strong readings, key monetary center countries are showing a steady-as-she-goes tact with no pick up for monetary stimulus. Japan is a minor exception here with a very gradual upturn in its money growth rate in train. But in the EMU, M2's growth rate has been flat. In the U.K., M4 is now decelerating relatively sharply. And in the U.S., money growth has been eroding around last year, coinciding with the Federal Reserve's commencement of rate hikes. In fact, the divergence in year-over-year money growth rates is extremely small. Since 1991, there is only one two-month period in early-1998 when money growth rate divergence has come anywhere close to the consensus pace of monetary expansion that exists today in the EMU, the U.S., Japan, and the U.K. Despite this convergence, credit expansion is quite varied in these economies.


At its policy meeting today, the ECB made the following announcements <a href="https://www.ecb.europa.eu/press/pr/date/2017/html/ecb.mp171026.en.html">(ECB monetary policy decisions here)</a>.
ECB on rates: The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

Nonstandard policy: As regards non-standard monetary policy measures, purchases under the asset purchase programme (APP) will continue at the current monthly pace of 60 billion euros until the end of December 2017. From January 2018 the net asset purchases are intended to continue at a monthly pace of 30 billion euros until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the APP in terms of size and/or duration.

Reinvestment: The Eurosystem will reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.

Commentary on ECB action/statements 
The ECB is not making any change or announcing plans to make any changes in interest rates. It will reduce its purchase program amount from January 2018 and will extend purchases at the reduced pace through September (as always depending on events). Repurchase programs will remain in place to maintain the size of the portfolio apart from the phase down activity.

Summing up 
Despite the fact that this is a step to reduce ECB intrusion into the capital markets, German commentators are not happy that the program is going to be kept even though it is being shrunk. However, the ECB has undertaken its decision relative to events conditions in the EMU and should events change these policies could be altered as well. Inflation continues to undershoot the ECB's goal. Of course, there is unhappiness with these programs in Germany, partly for ideological reasons and partly because of German economic circumstances. German inflation is now one of the higher rates among EMU members and the German economy shows evidence of having little slack left with a record low rate of unemployment since German reunification. However, EMU-wide conditions show more resource and labor market slack than what exists in Germany alone.



<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/171026.png" width="660" height="280">
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The chart shows that year-on-year growth rates for money and credit flows in the EMU have stabilized at less-than-strong growth rates. Both have steadied over the past year with money growth at a pace of about 5% and credit growth at [...]

ECB Meets and Makes Plan to Reduce Purchases; Germans Are Hot But Money and Credit Are Not

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 <a href="/comment/171026f.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/171026f.png"></a>
 <a href="/comment/171026g.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/171026g.png"></a>

The National Association of Realtors (NAR) reported that
pending home sales held steady (-3.5% y/y) during September at an index level of
106.0 (2001=100). This followed a revised 2.8% August decline, initially
reported as -2.6%. Sales remained at the lowest level since January 2016 and
were 6.7% below the peak during April 2016.

Changes in pending home sales were mixed m/m across regions of
the country. In the South, the index declined 2.3% (-5.0% y/y), off 10.4% from the
March 2017 peak. The index for the Midwest gained 1.4% (-2.5% y/y), but remained down
8.4% from its March 2016 peak. The index for the West rose 1.9% (-2.9% y/y) and remained
up sharply versus early this month. The index for the Northeast improved 1.2% (-2.4% y/y)
from the lowest level since late-2015.

The pending home sales index measures home sales when the
sales contract is signed, analogous to the new home sales report. In contrast,
existing home sales are recorded when the sale is closed. In developing the
pending home sales index, the NAR found that the level of monthly sales contract
activity parallels the level of closed existing home sales in the following two
months. The series dates back to 2001, and the data are available in Haver's PREALTOR database.

<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" >Pending Home Sales (SA,
 2001=100)</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Sep 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 >106.0</td>
 <td >106.0</td>
 <td >109.1</td>
 <td >-3.5</td>
 <td >109.8</td>
 <td >108.8</td>
 <td >101.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Northeast</td>
 <td >94.5</td>
 <td >93.4</td>
 <td >97.7</td>
 <td >-2.4</td>
 <td >96.3</td>
 <td >90.7</td>
 <td >83.9</td>
 </tr>
 <tr>
 <td class="firstcol" >Midwest</td>
 <td >102.9</td>
 <td >101.5</td>
 <td >103.3</td>
 <td >-2.5</td>
 <td >107.3</td>
 <td >107.1</td>
 <td >100.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >South</td>
 <td >115.9</td>
 <td >118.6</td>
 <td >123.1</td>
 <td >-5.0</td>
 <td >122.8</td>
 <td >123.0</td>
 <td >115.5</td>
 </tr>
 <tr>
 <td class="firstcol" >West</td>
 <td >102.7</td>
 <td >100.8</td>
 <td >102.3</td>
 <td >-2.9</td>
 <td >102.5</td>
 <td >102.4</td>
 <td >93.1</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The National Association of Realtors (NAR) reported that pending home sales held steady (-3.5% y/y) during September at an index level of 106.0 (2001=100). This followed a revised 2.8% August decline, initially reported as -2.6%. [...]

U.S. Pending Home Sales Hold Steady

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

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

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) eased 0.2% (-3.6% y/y) in January to 100.7 after rising 1.5% to 100.9 in December and falling 2.9% in November to 99.4. The level of home affordability has risen 12.0% from its low of 89.9 in October 2023. It remains 43.8% below the high of 179.2 in April 2020.

The slip in affordability in January reflected a 1.6% drop (+5.0% y/y) in the median price of an existing single-family home to $402,000 which was offset by a rise in mortgage rates to 7.04% from 6.80% in December. The price decline was the sixth in the last seven months from the record $432,900 in June. The rise in mortgage rates compared to a September low of 6.26% and a 7.14% high during May. It remained increased from a December 2020 low of 2.73%. These changes raised the principal & interest payment by 0.8% (8.4% y/y) to $2,148 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a steady 24.8% of income during January. They remained up from a low of 14.0% in April 2020.

The rise in housing costs in January was accompanied by improvement in median family income. It increased 0.7% (4.5% y/y) to a record $103,850 after rising 0.3% in December and 0.4% in November.

Housing affordability was mixed m/m across the country in January. The index rose 0.4% (-5.9% y/y) to 134.2 in the Midwest. It remains the most affordable region of the country. In the South, the index eased 0.6% (-2.5% y/y) to 103.3 and the affordability index in the Northeast fell 1.9% (-8.7% y/y) to 89.9. In the West, where homes are the least affordable, the index weakened 1.8% (-5.5% y/y) to 69.8 in January.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013; since then, it fell below 100 for the first time in June 2022 (98.8).

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Home prices ease but mortgage rates rise.
- Median income strengthens.
- Affordability weakens in most of country.

U.S. Housing Affordability Is Little Changed in January

Carol Stone, CBE

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Yesterday, March 13, the Federal Reserve published the Financial Accounts for Q4 2024. They show, among numerous other things, that domestic nonfinancial participants in the U.S. economy had borrowings that represented 11.4% of GDP during Q4. This is down moderately from 12.3% in Q3 and produced an amount for the whole year of 2024 of 11.9% of GDP. The quarterly amounts cited here are at seasonally adjusted annual rates.

In Q4, the largest borrowing sector was the federal government, which used $2,602.9 billion, or 8.8% of GDP, up from $2,261 billion in Q3, or 7.7% of GDP.  Households borrowed $624.3 billion or 2.1% of GDP; this amount included $294.3 billion of home mortgages and $133.1 billion of consumer credit.

Nonfinancial business corporations actually paid down debt of $64.1 billion in Q4, or 0.2% of GDP. In Q1 of 2024, businesses had borrowed $698.2 billion and for the whole year, they borrowed $436.6 billion or 1.5% of GDP. State and local governments paid down $46.0 billion in Q4; for the whole year they did use $97.8 billion or 0.3% of GDP.

In addition to domestic borrowers, the foreign sector borrowed $341.3 billion in Q4, or 1.1% of GDP and up from $196.7 billion in Q3.  For all of 2024, foreign participants used $345.5 billion, or 1.2% of GDP.

The Financial Accounts data are in Haver's **FFUNDS** database. The Federal Reserve is the main source, while associated information is compiled in the Integrated Macroeconomic Accounts produced jointly with the Bureau of Economic Analysis (BEA); those nonfinancial data are carried in Haver's **USNA** database as well as in **FFUNDS**. Note that revisions are common throughout the accounts with every quarterly release.

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- Nonfinancial sectors together borrowed 11.4% of GDP in Q4.
- Not surprisingly, the largest borrowing sector was the federal government.
- Households had sizable amounts of home mortgage borrowing, though this was less than in Q3.
- Businesses paid down debt in Q4.

U.S. Economic Sectors Borrowed Moderately in Q4 and for All of 2024

Andrew Cates

**Falling US growth momentum**
The latest Blue Chip Economic Indicators survey reflects a shifting global economic landscape, with the US experiencing a notable loss of momentum. After climbing above 2.0% on the back of a strong economic performance in late 2024, consensus forecasts for US growth in 2025 have now been revised downward for the first time in nearly a year. This reversal reflects weaker-than-expected economic data and emerging challenges tied to the policy shifts of the new administration. The downgrade in US growth projections also coincides with a further downward revision to an already subdued outlook for the UK and the euro area, reinforcing concerns about a sluggish global growth outlook (chart 1).

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**Global inflation expectations**
In the meantime the same survey reveals growing concerns about the inflation outlook in the US and Europe this year, and possibly reflecting the impact of US tariff policies on global price pressures. Japan’s inflation forecast for 2025 has also surged, as rising import costs and shifting trade dynamics have additionally contributed to stronger price pressures. This all stands in contrast to China with inflation expectations for this year falling below 1%, reinforcing concerns about deflation and weak demand (chart 2).

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**Global bond markets**
Recent shifts in 10-year government bond yields reflect changing market expectations. While yields have risen sharply in Germany, China, and Japan, they have fallen in the US. Germany’s increase is tied to expanded defense spending and industrial subsidies, while China’s reflects a shift toward more aggressive fiscal easing, with its deficit target rising to 4% of GDP to counter deflation and weak demand. In contrast, falling US yields signal a reassessment of growth expectations under the new administration. This divergence suggests capital may be flowing toward economies with stronger fiscal stimulus, potentially weakening the dollar, increasing borrowing costs for US businesses, and complicating efforts to revive domestic manufacturing.

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**Overseas holdings of US Securities**
Latest data show that foreign-holdings of US long-term securities have risen steadily over the past decade, with a notable acceleration in the past two years. The most recent data additionally highlights a significant increase in foreign ownership of US corporate equities, reflecting, until recently, investor confidence in US companies.

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**Industrialisation versus de-industrialisation**
Recent US policy shifts—particularly higher tariffs on Chinese imports—aim to address the long-term decline in domestic manufacturing jobs. However, their effectiveness is uncertain, given the growing role of automation and AI in reshaping industrial production. While tariffs may offer short-term relief, they are unlikely to reverse decades of global manufacturing shifts. China’s rise from a low-value agrarian economy to an industrial powerhouse has reshaped trade patterns, while US industrial employment has steadily declined, mirroring trends in other advanced economies. Meanwhile, Vietnam and other emerging markets have absorbed manufacturing capacity, benefiting from shifting supply chains. The real challenge for US policymakers is not just bringing back jobs but ensuring domestic industries stay competitive amid changing cost structures and technological advancements.

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**Global competitiveness**
Historically, China's low unit labour costs provided it with a significant advantage, fuelling its manufacturing boom and accelerating the offshoring of US industrial jobs. However, as China's wages have risen due to economic development and increased productivity, and as US unit labour costs have remained relatively stable, the gap has narrowed considerably. Yet, still high labour costs in the US – coupled with rising trade barriers and rising input costs - still pose a challenge to the effectiveness of US policies, as firms may still find it difficult to maintain competitiveness without significant productivity gains. Indeed, as suggested above, there is a real risk that firms may instead accelerate their shift toward automation or relocate production to other low-cost regions (e.g. Vietnam), undermining the broader economic rationale for these interventions. The erosion of economic goodwill, combined with rising costs and financial market instability, additionally suggest that while the strategic objectives of US policy may be clear, the long-term implications remain highly uncertain.

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The recent financial market volatility, marked by sharp swings in bond yields and equity market repricing, reflects growing uncertainty about the trajectory of the US economy amid a rapidly shifting policy environment. The US administration’s latest tariff measures, and their conflicting objectives, have amplified uncertainty, stifled risk appetite and further ignited inflation concerns (charts 1 and 2). Markets are grappling with the inflationary impact of rising import costs, the potential supply chain disruptions caused by abrupt shifts in trade policy, and the broader implications of protectionism on corporate investment. Meanwhile, recent policy announcements from Germany and China, coupled with firming inflationary pressures in Japan, have pushed global (ex-US) bond yields sharply higher, potentially amplifying global financial instability (charts 3 and 4). These shifts could profoundly reshape global trade and investment, not just through economic fundamentals but also through a growing erosion of goodwill toward the United States. As policy unpredictability forces companies and governments to hedge against potential disruptions, trust in the stability of US economic leadership is weakening. At the same time, concerns are mounting over the effectiveness of US policy choices, particularly in relation to one of its core ambitions—reshoring manufacturing jobs (charts 5 and 6). The question remains whether these interventions will achieve their intended goals or simply accelerate automation and supply chain realignment elsewhere.

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Charts of the Week: From Blue to Red

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The Producer Price Index for final demand held steady (+3.2% y/y) during February after increasing 0.6% in January, revised from 0.4% and rising an unrevised 0.5% in December according to the Bureau of Labor Statistics (BLS). The February reading compared to a 0.2% rise expected in the Action Economics Forecast Survey. Producer prices excluding food, energy & trade services rose 0.2% (3.3% y/y) last month after an unrevised 0.3% January increase, and an unrevised 0.4% gain in December. The PPI excluding food & energy eased 0.1% (+3.4% y/y) after rising 0.5% in January, revised from 0.3%. A 0.3% increase had been expected.

Energy prices declined 1.2% (-3.7% y/y) during February, after rising 1.8% in January. Gasoline costs fell 4.7% (-8.2% y/y) after rising 0.3% while home heating oil prices declined 9.8% (-12.2% y/y) after a 6.5% strengthening. Electric power prices rose 0.5% (0.9% y/y) in February following a 0.4% January decline and natural gas costs strengthened 1.3% (6.7% y/y) following a 3.8% surge. Diesel fuel prices declined 3.9% (-18.5% y/y) after a 10.5% jump.

Final demand food prices rose 1.7% (5.9% y/y) in February, following a 1.0% January gain. Egg prices jumped 28.1% (136.6% y/y) following a 44.0% increase. Prices for fresh and dry vegetables rose 6.0% (-16.3% y/y) after falling 22.3% in January. Beef & veal prices declined 1.8% (+9.5% y/y) after a 5.7% rise while dairy product prices rose 0.1% (5.7% y/y) after a 0.4% increase.

Final demand goods prices excluding food & energy rose 0.4% (2.1% y/y) in February following a 0.2% rise. Core finished consumer goods prices rose 0.4% (2.1% y/y) after a decline of 0.2% in January. Core nondurable goods prices strengthened 0.6% (2.3% y/y) last month after falling 0.4% in January. Durable consumer goods prices improved 0.2% (1.6% y/y), after edging 0.1% higher in January. Capital equipment prices rose 0.2% (2.5% y/y) last month following a 0.3% gain. Core government-purchased goods prices rose 0.2% (2.4% y/y) in January, after a 0.6% January increase.

Final demand services prices declined 0.2% (+3.9% y/y) last month after rising 0.6% in January. Trade services prices fell 1.0% (+4.0% y/y) last month following a 1.2% gain. Trade of finished goods prices declined 1.1% (3.6% y/y) and reversed the January rise. Prices for final demand transportation and warehousing services held steady (+2.6% y/y) in February, after strengthening 0.9% in January. Services prices less these costs rose 0.2% (4.0% y/y) last month, after a rise of 0.3% in January.

Construction costs eased 0.1% (+1.7% y/y) in February, after increasing 0.4% during January.

Prices for intermediate demand of processed goods rose 0.5% (0.3% y/y) following a 1.0% jump. Processed energy goods prices rose 0.5% last month after increasing 3.6% in January, while food prices rose 2.0% following a 0.7% January gain.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Energy prices weaken and food prices firm.
- Price gains in core goods pick up.
- Services prices decline.

U.S. PPI Is Unchanged in February; Rise in Core Index Moderates

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Initial claims for unemployment insurance were 220,000 seasonally adjusted in the week ended March 8, just slightly less than the 222,000 the week before; that earlier amount was revised marginally from 221,000 reported before. In the latest week, the Action Economics Forecast Survey had expected 230,000. In this March 8 week, the four-week moving average was 226,000.

The total number of unemployment insurance beneficiaries was 1.87 million in the week ended March 1, down from 1.897 million in the week ended February 22. The four-week moving average was 1.872 million through the March 1st week, up from 1.866 million the week before.

The insured unemployment rate, that is, the total number of beneficiaries as a percent of covered employment, remained at 1.2%, which has held since March 2023.

Economic conditions vary widely across states and territories. In the week ended February 22, the highest rates were in Rhode Island (3.37%), New Jersey (2.90%), Massachusetts (2.58%), Minnesota (2.57%) and California (2.42%). The lowest rates were in Florida (0.36%), Alabama (0.44%), Virginia (0.46%), Tennessee and North Carolina (both 0.56%) and Mississippi (0.58%). Rates in other notable states include New York (2.08%), Pennsylvania (2.03%) and Texas (1.12%). These state rates 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. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims were less than forecast.
- Total recipients of unemployment insurance also fell.
- Insured unemployment rate still 1.2%.

Economy in Brief: October 2017

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French Consumer Confidence Continues to Move South (Not the South of France)

French Consumer Confidence Continues to Move South (Not the South of France)

U.S. GDP Growth Remains Firm in Q3, Despite Storm Effects

U.S. GDP Growth Remains Firm in Q3, Despite Storm Effects

U.S. GDP Growth Remains Firm in Q3, Despite Storm Effects

Kansas City Federal Reserve Factory Index Strengthens

ECB Meets and Makes Plan to Reduce Purchases; Germans Are Hot But Money and Credit Are Not

U.S. Pending Home Sales Hold Steady