Tom Moeller

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The Philadelphia Federal Reserve reported that its General
Factory Sector Business Conditions Index increased roughly five points to 23.8
during September following declines during the prior two months. The figure
compared to expectations for 18.0 in the Action Economics Forecast Survey.
Roughly 39% of firms reported an improvement in business activity while 15%
reported deterioration.

The ISM-Adjusted General Business Conditions Index
constructed by Haver Analytics rose to 57.9 this month, but remained below the
March high of 60.2. This figure is comparable to the ISM Composite Index.
During the last ten years, there has been a 71% correlation between the adjusted
Philadelphia Fed Index and real GDP growth.

The increase in the overall current conditions index
reflected broad-based component improvement. The new orders, shipments, delivery
times and inventory indicators each rose.

The employment series moved the other way, and declined to
the lowest level in nine months. Nevertheless, 18% of respondents raised job
levels while 12% lowered them. During the last ten years, there has been a 74%
correlation between the jobs index and the m/m change in manufacturing sector
payrolls. The average workweek reading also fell following sharp improvement in July.

The prices paid measure strengthened to the highest level in
six months. Thirty-eight percent of respondents (NSA) reported paying higher
prices, while three percent paid less. The prices received index improved and
was just below January's high.

The index measuring expected business conditions in six
months jumped to 55.2 from 42.3. It was the highest level since March and
reflected higher readings for new orders, shipments, prices paid and the
employee workweek. Though the employment reading eased m/m, 36% of respondents
expected to raise hiring while six percent expected a decrease.

The survey panel consists of 150 manufacturing companies in
Federal Reserve District III (consisting of southeastern PA, southern NJ and
Delaware). The diffusion indexes represent the percentage of respondents
indicating an increase minus the percentage indicating a decrease in activity.
The ISM-adjusted figure, calculated by Haver Analytics, is the average of five
diffusion indexes: New orders, production, employment, supplier deliveries and
inventories with equal weights (20% each). Each diffusion index is the sum of
the percent responding &quot;higher&quot; and one-half of the percent responding
&quot;same.&quot;

The figures from the Philadelphia Federal Reserve can be
found in Haver's SURVEYS database. The Action Economics figure is
available in AS1REPNA.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >Philadelphia Fed - Manufacturing
 Business Outlook Survey (%, SA)</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Sep'16</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >General Factory Sector Business
 Conditions</td>
 <td >23.8</td>
 <td >18.9</td>
 <td >19.5</td>
 <td >11.6</td>
 <td >4.8</td>
 <td >3.6</td>
 <td >18.3</td>
 </tr>
 <tr>
 <td class="firstcol" >ISM-Adjusted Business Conditions</td>
 <td >57.9</td>
 <td >55.2</td>
 <td >52.5</td>
 <td >46.1</td>
 <td >48.2</td>
 <td >49.4</td>
 <td >53.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;New Orders</td>
 <td >29.5</td>
 <td >20.4</td>
 <td >2.1</td>
 <td >5.3</td>
 <td >4.9</td>
 <td >3.0</td>
 <td >14.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Shipments</td>
 <td >37.8</td>
 <td >29.4</td>
 <td >12.2</td>
 <td >1.4</td>
 <td >6.9</td>
 <td >3.1</td>
 <td >16.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Unfilled Orders</td>
 <td >17.0</td>
 <td >14.5</td>
 <td >7.2</td>
 <td >-8.1</td>
 <td >-5.5</td>
 <td >-5.1</td>
 <td >3.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Delivery Time</td>
 <td >14.5</td>
 <td >10.5</td>
 <td >7.4</td>
 <td >-6.4</td>
 <td >-4.6</td>
 <td >-4.1</td>
 <td >0.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Inventories</td>
 <td >-1.4</td>
 <td >-6.1</td>
 <td >0.7</td>
 <td >-24.8</td>
 <td >-9.7</td>
 <td >-1.5</td>
 <td >1.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Number of Employees</td>
 <td >6.6</td>
 <td >10.1</td>
 <td >10.9</td>
 <td >-5.1</td>
 <td >-5.7</td>
 <td >3.9</td>
 <td >10.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Average Workweek</td>
 <td >11.9</td>
 <td >18.8</td>
 <td >3.8</td>
 <td >-8.8</td>
 <td >-5.5</td>
 <td >-1.8</td>
 <td >3.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Prices Paid</td>
 <td >34.4</td>
 <td >21.1</td>
 <td >19.1</td>
 <td >20.8</td>
 <td >13.5</td>
 <td >1.5</td>
 <td >21.6</td>
 </tr>
 </tbody>
 </table>
 
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The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index increased roughly five points to 23.8 during September following declines during the prior two months. The figure compared to [...]

Philadelphia Fed Factory Conditions Index Rebounds

Carol Stone, CBE

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The Federal Reserve's Financial Accounts data show continued slowing of debt issuance in U.S. financial markets in Q1 2017. The total came to $1,197 billion at a seasonally adjusted annual rate, down from $1,742 billion in Q4.







The Financial Accounts data are in Haver's FFUNDS database. Associated information is compiled in the Integrated Macroeconomic Accounts produced jointly with the Bureau of Economic Analysis (BEA); these are carried in Haver's USNA database.


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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col">Financial Accounts (SAAR, Bil.$)</th>
 <th>Q2'17</th>
 <th>Q1'17</th>
 <th>Q4'16</th>
 <th>2016</th>
 <th>2015</th>
 <th>2014</th>
 <th>2013</th>
 </tr>
 </thead>
 
 <tr>
 <td class="firstcol" scope="col">Total Borrowing*</td>
 <td>1197</td>
 <td>1742</td>
 <td>3101</td>
 <td>2550</td>
 <td>2108</td>
 <td>2308</td>
 <td>2036</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Federal Government</td>
 <td>-523</td>
 <td>464</td>
 <td>1285</td>
 <td>843</td>
 <td>725</td>
 <td>736</td>
 <td>857</td>
 </tr>
 <tr>
 <td class="firstcol">Households</td>
 <td>474</td>
 <td>569</td>
 <td>510</td>
 <td>515</td>
 <td>405</td>
 <td>404</td>
 <td>236</td>
 </tr>
 
 <td class="firstcol">Nonfinancial Corporate Business</td>
 <td>582</td>
 <td>16</td>
 <td>518</td>
 <td>402</td>
 <td>515</td>
 <td>408</td>
 <td>392</td>
 <tr>
 <td class="firstcol">Financial Sectors</td>
 <td>269</td>
 <td>81</td>
 <td>501</td>
 <td>433</td>
 <td>163</td>
 <td>318</td>
 <td>250</td>
 </tr>
 
 
 
 *Previously called "credit market borrowing" and includes debt securities plus loans. The total here includes noncorporate business, state and local government and foreign sectors, not shown separately.
 
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The Federal Reserve's Financial Accounts data show continued slowing of debt issuance in U.S. financial markets in Q1 2017. The total came to $1,197 billion at a seasonally adjusted annual rate, down from $1,742 billion in Q4. The [...]

PUT NEW TT HERE: U.S. Financial Accounts Exhibit Mixed Pattern of Q1 Borrowing as Total Borrowed Slowed

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Borrowing in U.S. financial markets picked up in Q2 2017, according to the Federal Reserve's Financial Accounts data, which show debt issuance of $2,378 billion at a seasonally adjusted annual rate. This compares to $1,333 billion SAAR in Q1. The Q2 amount was 12.4% of GDP versus 7.0% in Q1, taking this ratio back to the general range of 10-15% has prevailed since 2012. For comparison, the ratio averaged almost 29% in the five years before the Great Recession and just under 20% over long stretches before then.

The federal government was again the main source of change in the credit markets, as it raised $578 billion SAAR in Q2, turning around from the net paydown of $414 billion in Q1. The latter unusual movement reflected a debt ceiling situation in March. In Q2, practices returned to a more normal pattern, and the Treasury raised $624 billion in Treasury bills and $383 billion in marketable coupon securities. However, nonmarketable debt continued to be liquidated, falling $423 billion, especially in the Treasury Savings Plan G Fund, a tax-deferred savings vehicle for federal employees, down $129 billion, and the defined-benefit pension plan, down $230 billion.

Households added debt in Q2 at a $542 billion annual rate, up from $495 billion in Q1. Home mortgage borrowing was $276 billion SAAR, versus the $331 billion pace in Q1. Consumer credit growth was fairly steady at $170 billion in Q2 compared with $191 billion in Q1. Including depository institution loans and "other" loans (some of these to nonprofit organizations and miscellaneous businesses and funds), total household borrowing amounted to 3.8% of disposable personal income in Q2, up from 3.5% in Q1. This ratio remains low, compared to the obviously much larger ratios just ahead of the Great Recession, but also compared to a range of 5-8% across long spans of years before then. So people continue to be conservative in their use of credit.

Corporate business borrowing moderated somewhat in Q2, $438 billion SAAR versus $612 billion in Q1. Their issuance of securities was $268 billion, down from $431 billion, and loans grew at a fairly steady $170 billion rate, very similar to Q1's $180 billion. Financial institutions increased their debt usage notably in Q2, $484 billion, up from $261 billion in Q1.

Press reports of these Financial Accounts highlight household balance sheets and net worth, and with a continuing rise in the stock market, they describe the latest quarter-end amount, $96.2 trillion, as yet another record (level, not seasonally adjusted). Holdings of corporate shares rose $783 billion (quarterly rate, not seasonally adjusted), similar to the Q1 increase of $812 billion. Homeowners' equity rose $395 billion, following a gain of $385 billion in Q1.

Net wealth of the total economy moved ahead $2.0 trillion in Q2 to $88.7 trillion from $86.7 trillion at end-Q1 (also levels, not seasonally adjusted). The total market value of domestic corporations rose to $34.3 trillion from $33.2 trillion. Net financial claims on the "rest of the world" remained steady at -$6.15 trillion versus -$6.11 trillion. The remainder of the net wealth measure consists of nonfinancial assets held by households, noncorporate business and governments; these totaled $60.6 trillion at end-Q2, up $931 billion from end-Q1.

The Financial Accounts data are in Haver's FFUNDS database. Associated information is compiled in the Integrated Macroeconomic Accounts produced jointly with the Bureau of Economic Analysis (BEA); these are carried in Haver's USNA database.


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 <thead>
 <tr>
 <th class="firstcol" scope="col">Financial Accounts (SAAR, Bil.$)</th>
 <th>Q2'17</th>
 <th>Q1'17</th>
 <th>Q4'16</th>
 <th>2016</th>
 <th>2015</th>
 <th>2014</th>
 <th>2013</th>
 </tr>
 </thead>
 
 <tr>
 <td class="firstcol" scope="col">Total Borrowing*</td>
 <td>2378</td>
 <td>1333</td>
 <td>1815</td>
 <td>2521</td>
 <td>2112</td>
 <td>2305</td>
 <td>2044</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Federal Government</td>
 <td>578</td>
 <td>-414</td>
 <td>567</td>
 <td>843</td>
 <td>725</td>
 <td>736</td>
 <td>857</td>
 </tr>
 <tr>
 <td class="firstcol">Households</td>
 <td>542</td>
 <td>495</td>
 <td>546</td>
 <td>510</td>
 <td>403</td>
 <td>402</td>
 <td>241</td>
 </tr>
 
 <td class="firstcol">Nonfinancial Corporate Business</td>
 <td>438</td>
 <td>612</td>
 <td>19</td>
 <td>402</td>
 <td>510</td>
 <td>406</td>
 <td>395</td>
 <tr>
 <td class="firstcol">Financial Sectors</td>
 <td>484</td>
 <td>261</td>
 <td>76</td>
 <td>421</td>
 <td>163</td>
 <td>318</td>
 <td>250</td>
 </tr>
 
 
 
 *Previously called "credit market borrowing" and includes debt securities plus loans. The total here includes borrowing by noncorporate business, state and local government and foreign sectors, not shown separately.
 
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Borrowing in U.S. financial markets picked up in Q2 2017, according to the Federal Reserve's Financial Accounts data, which show debt issuance of $2,378 billion at a seasonally adjusted annual rate. This compares to $1,333 billion [...]

U.S. Financial Accounts Show Larger Borrowing, Mainly by the Federal Government

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The Conference Board's Composite Index of Leading Economic
Indicators increased 0.4% (4.4% y/y) in August following an unrevised 0.3% July
gain. A 0.2% rise had been expected in the Action Economics Forecast Survey.
Three-month growth remained firm at 5.5% (AR).

Performance amongst the components of the leading indicator
series was mostly positive. Building permits, a steeper interest rate yield
curve, consumer expectations for business/economic condition, the ISM new orders
and the average workweek series each contributed positively to the overall index
rise. Stock prices and factory orders for both consumer and capital goods had
neutral effects. Initial claims for unemployment insurance had a negative effect
on the index.

The Index of Coincident Economic Indicators held steady m/m,
up 1.9% y/y, following a 0.3% rise. Gains in payroll employment, personal income
less transfer payments and business sales were countered by a decline in
industrial production. Three-month growth in the index slowed to 1.4% (AR), its
weakest since March.

The Index of Lagging Economic Indicators rose 0.3% (2.5% y/y)
following three months of 0.2% gain. Commercial &amp; industrial loans
outstanding, the consumer credit-to-personal income ratio, the ratio of business
inventories-to-sales and the average duration of unemployment each contributed
positively to the index change. Growth in labor costs contributed negatively,
but banks' prime lending rate and the change in the services CPI had neutral
effects. Three-month growth of 2.6% in the index was fairly steady.

The ratio of coincident to lagging indicators is often
considered to be a leading indicator of economic activity. If economic growth is
slowing, both sets of indicators will be rising, but the gains in the coincident
index will be slower than the lagging; thus, the ratio will fall. This ratio
declined during August to a record low.

The Conference Board figures are available in Haver's BCI
database; the components are available there, and most are also in USECON.
The expectations are in the AS1REPNA database. Visit the Conference
Board's <a href="http://www.conference-board.org/">site</a> for coverage of
leading indicator series from around the world.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Business Cycle Indicators (%)</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >Aug Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Leading</td>
 <td >0.4</td>
 <td >0.3</td>
 <td >0.6</td>
 <td >4.4</td>
 <td >1.2</td>
 <td >4.4</td>
 <td >5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Coincident</td>
 <td >0.0</td>
 <td >0.3</td>
 <td >0.1</td>
 <td >1.9</td>
 <td >1.6</td>
 <td >2.3</td>
 <td >2.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Lagging</td>
 <td >0.3</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >2.5</td>
 <td >3.4</td>
 <td >3.7</td>
 <td >3.6</td>
 </tr>
 </tbody>
 </table>
 
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The Conference Board's Composite Index of Leading Economic Indicators increased 0.4% (4.4% y/y) in August following an unrevised 0.3% July gain. A 0.2% rise had been expected in the Action Economics Forecast Survey. Three-month growth [...]

U.S. Leading Economic Indicators Strengthen

Robert Brusca

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The data facts 
Japan's index for all industries, which has separate components for industry, construction, and services (the tertiary sector), showed a slight downtick in July as it fell to 105.0 from June's 105.1. The construction component was dead flat month-to month at a reading of 119.4. The industry reading fell to 101.5 in July from 102.3 in June; it is however above its May value but then below its April value. The services sector ticked up to a slightly stronger reading at 104.9 in July from 104.8 in June. The services sector, however, is still below both of its readings for May and April.

What they mean... 
As always, there are several ways to look at these indexes and their performances. The chart shows year-on-year growth rates by sector. On that graphic, we can easily see that construction has been the leading growth sector followed by the industrial sector and followed in turn by services. Both construction and industry appear to have had relatively strong gains in recent months, but both are fading and are off peak as of July. The services sector, while not as strong as the other two, has nonetheless also seen its pace slow.

Growth rankings show moderate results 
These general observations are confirmed by more formal growth rankings. In the table, we rank each sector on its year-on-year growth rate compared to its own history. On that basis, the overall all-industry index has a 73rd percentile standing. Ranked over values since 2008, the all-industry 12-month gain has been stronger about 27% of the time. The construction sector has done a bit better than that. Ranked on the same criteria, it has been stronger only 22% of the time. The tertiary index typically grows slower than the other sectors, but even accounting for that as the ranking procedure measures its current growth relative to its past performance, the tertiary index has only at 56th percentile standing, barely above the 50% level that denotes its median growth rate.

Index levels are not impressive 
While the all-industry index does not score strongly on growth metrics, it has been growing steadily. When the index level is compared to its historic values, the ranking (of course) is much higher. The overall index level standing has been higher only about 8% of the time; the construction sector has been higher only about 2% of the time; and the services sector has been stronger less than 5% of the time. The industry sector, despite its recent somewhat better growth, lags the other sectors as its level has been better nearly 14% of the time. Despite a recent growth spurt, the industrial sector has been lagging in Japan and currently is undergoing another lull.

BOJ policy 
Against this background, the Bank of Japan just met and decided to hold its policy unchanged. There was one dissent as one member thought the BOJ was not likely to reach is policy objective on its current policy path. Still, BOJ policy is unchanged. In addition to the METI indexes, today chain grocery store sales were released and they weakened in August from one year ago, falling by 0.5% year-on-year. Grocery store sales are about as steady as any sector sales are. The weakness there is not good news. Clearly, the BOJ faces challenges and it is not clear where they should turn next or if steady-as-she-goes policy is good enough.

ECB policy 
Elsewhere the ECB has released added commentary on its policy and it notes that Europe's improved growth has yet to feed into prices and boost inflation. As a result, the ECB is surprising observers by staying true to its price objective and it is not cutting back on its stimulus in any way with prices still lagging their objective (single mandate) so badly.

Fed policy 
In the U.S., the Fed continues to follow its 'Fleetwood Mac' strategy and go its own way and to jam the square peg of policy action into the round hole of 'policy framework' to rationalize it. The Fed did, as expected, announce its great balance sheet shrinking act would commence in October. Janet Yellen noted that it was still likely that there would be a rate hike before yearend (likely in December) based on a majority of Fed members still looking for another hike in their 'dots' presentation. Still, Yellen joined the chorus of voices from Japan to Europe in having no explanation for the weak inflation. She went out of her way to note the various ways that the U.S. jobs market has improved despite the fact that it has generated little-to-no wage/price pressures. Moreover, there is some evidence trend inflation has weakened she admitted. What is left unexplained by the Fed is why with inflation 'too low' around the world a tight U.S. labor market should change that. Indeed, Yellen complained several times that the inflation under-shoots of the past could be explained by a too-strong dollar or by falling oil prices, but that the current episode of price weakness was simply not what the Fed had been expecting. She once again dismissed the special factors in the U.S. price index such as lower prices for cell-phone services as one-off events. But why dismiss that? We live in an age of Schumpeterian technological change. Not all price impacts are the smooth and continuous functions economists embrace in their models. Do you throw out reality when it doesn't fit your model? That's an odd choice.

The global economy offers few clues... 
Looking back across the global economy, we find that the OECD has just boosted its outlook by a tick this month. Australia has a view of an improving economy, but Switzerland has cut back its outlook. New Zealand's Q2 growth rate was just revised slightly higher. Despite the OECD lifting its growth-gauge a touch, it also warned that self-sustained growth may not yet be in force as it lamented the lack of progress on structural reforms and noted the still weak inflation background. In an unrelated development - as if to underscore the risk in the global economy- S&P downgraded China's sovereign debt rating following a period of heated credit growth. The rating on China's long-term outlook remained unchanged. On balance, there are still a lot of issues and concerns. If the global growth scene is a jigsaw puzzle, it still has many missing pieces although a good number of new pieces have been slotted into the puzzle. Growth numbers continue to come on line with solid-to-strong performance, but inflation remains elusive. Today a U.S. report on manufacturing in the Philadelphia Fed's region was quite strong while the U.S. leading economic index continued to expand, although somewhat modestly. There is no threat to growth. Asset markets remain strong. Some worry about asset bubbles. Some worry that inflation is ready to pounce out of nowhere and overwhelm central bankers; they argue for relentless increases in rates regardless of the presence or absence of inflation.

First we try their souls... then we put their reputations on trial 
It is truly a time that tries men's and women's souls, that is if they are monetary policy-makers. The ECB is being strict to its lone inflation mandate in making policy. The Fed is pushing rates up relentlessly, but slowly, even absent hitting all its policy goals. Japan has pulled out all the money stops, but that may not be enough. What are central bankers going to do? Is it virtue to be true to your policy edict or to press head based on the lessons you have learned in the past? If so, what are those lessons? (1) Are they that central bankers tend to keep rates too low for too long, or (2) as Ben Bernanke once said, is it true that in the wake of great economic downturns policymakers have tended to return rates to 'normal' too soon? Where is the Wisdom? What is the Fallacy? Policymakers are in search of truth. But judging from Janet Yellen's comments yesterday and what is emerging from the policy discussion in Japan, there may be more that central bankers do not know than they are really willing to let on. Are they making policy from the strength of their wisdom or frozen by the fear of the known? And if it is the unknown that is dominant, how does policymaking inspire confidence?


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The data facts Japan's index for all industries, which has separate components for industry, construction, and services (the tertiary sector), showed a slight downtick in July as it fell to 105.0 from June's 105.1. The construction [...]

Japan's All-Industry Index (METI) Backs Off In July; Global Policy Conundrums Continue

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The Federal Housing Finance Agency's (FHFA) index of U.S.
house prices rose 6.3% y/y during July compared to a peak 7.0% y/y gain in
April. Recent figures show an even sharper deceleration in house price
inflation. During the last three months, prices improved at a slow 2.8% annual
rate. In July, prices rose 0.2% following a 0.1% June uptick. These gains
compared to monthly increases in the range of 0.4%-to-0.9% during the prior four months.

The performance of home prices continued to vary greatly
around the country. On the strong side were the Pacific and Mountain regions
where prices rose 8.2% y/y. Over the last three months, however, prices rose at
3.4%-to-4.4% annual rates.

These strong y/y gains were followed by the South Atlantic,
East South Central, New England and East South Central regions where prices rose
roughly 6.0% y/y. Recently, however, gains have slowed sharply.

Slower house price inflation occurred amongst states in
Middle Atlantic region where prices rose 4.4% y/y. The rate of gain during the
last three months declined more sharply to 1.4%. In the West North Central
region, prices rose 4.2% y/y and at a 1.7% rate in the last three months.

In New England, home prices have not risen on average during
the last three months, and in the South Atlantic &amp; East North Central
states, gains have slowed markedly to 1.0% to 3.0%.

An exception to the slowdown story is the East South Central
region where home price inflation remained a firm 9.4% during the last three months.

The FHFA house price index is a weighted repeat sales index,
measuring average price changes in repeat sales of the same property. An
associated quarterly index also includes refinancings on the same kinds of
properties. The indexes are based on transactions involving conforming,
conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
Only mortgage transactions on single-family properties are included. The FHFA
data are available in Haver's USECON database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >FHFA U.S. House Price Index, 
 Purchase Only (SA %)</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Jul Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >0.2</td>
 <td >0.1</td>
 <td >0.4</td>
 <td >6.3</td>
 <td >6.2</td>
 <td >5.6</td>
 <td >5.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Pacific</td>
 <td >-0.5</td>
 <td >0.4</td>
 <td >1.1</td>
 <td >8.2</td>
 <td >8.1</td>
 <td >8.0</td>
 <td >9.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Mountain</td>
 <td >0.3</td>
 <td >0.3</td>
 <td >0.3</td>
 <td >8.2</td>
 <td >8.0</td>
 <td >7.9</td>
 <td >7.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; South Atlantic</td>
 <td >0.4</td>
 <td >-0.0</td>
 <td >0.1</td>
 <td >6.6</td>
 <td >7.2</td>
 <td >6.5</td>
 <td >5.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; East South Central</td>
 <td >0.5</td>
 <td >1.2</td>
 <td >0.6</td>
 <td >6.4</td>
 <td >5.3</td>
 <td >4.8</td>
 <td >3.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; New England</td>
 <td >0.2</td>
 <td >0.3</td>
 <td >-0.5</td>
 <td >6.1</td>
 <td >4.0</td>
 <td >3.6</td>
 <td >3.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; East North Central</td>
 <td >0.6</td>
 <td >-0.0</td>
 <td >0.2</td>
 <td >5.9</td>
 <td >5.4</td>
 <td >4.5</td>
 <td >4.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West South Central</td>
 <td >-0.0</td>
 <td >-0.6</td>
 <td >1.0</td>
 <td >5.5</td>
 <td >6.1</td>
 <td >6.4</td>
 <td >5.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Middle Atlantic</td>
 <td >0.5</td>
 <td >0.4</td>
 <td >-0.5</td>
 <td >4.4</td>
 <td >3.6</td>
 <td >2.7</td>
 <td >2.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West North Central</td>
 <td >-0.5</td>
 <td >0.2</td>
 <td >0.7</td>
 <td >4.2</td>
 <td >5.7</td>
 <td >4.3</td>
 <td >4.1</td>
 </tr>
 </tbody>
</table>
&nbsp;
<table width="100%" class="centered" border="0" cellSpacing="0">
 <tbody>
 <tr>
 <td>
 Mountain: Montana, Idaho, Wyoming, Nevada, Utah,
 Colorado, Arizona and New Mexico. 
 South Atlantic: Delaware, Maryland, D.C., Virginia, West Virginia, North
 Carolina, South Carolina, Georgia and Florida. 
 Pacific: Alaska, California, Hawaii, Oregon, Washington. 
 West South Central: Oklahoma, Arkansas, Texas and Louisiana. 
 East North Central: Michigan, Wisconsin, Illinois, Indiana and Ohio. 
 East South Central: Kentucky, Tennessee, Mississippi and Alabama. 
 New England: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island
 and Connecticut. 
 Middle Atlantic: New York, New Jersey and Pennsylvania. 
 West North Central: North Dakota, South Dakota, Minnesota, Nebraska,
 Iowa, Kansas and Missouri.
 </td></tr>
 </tbody>
 </table>
 
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The Federal Housing Finance Agency's (FHFA) index of U.S. house prices rose 6.3% y/y during July compared to a peak 7.0% y/y gain in April. Recent figures show an even sharper deceleration in house price inflation. During the last [...]

U.S. FHFA House Price Increases Moderate

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Initial filings for unemployment insurance fell sharply to
259,000 during the week ended September 16 from 282,000 in the prior week,
revised from 284,000. Expectations had been for
300,000 initial claims in the Action Economics Forecast Survey. The four-week
moving average increased to 268,750.

The latest initial claims figure covers the survey period for
September nonfarm payrolls. There was an 11.6% increase from 232,000 in the
August period. During the last ten years, there has been a
74% correlation between the level of initial claims and the m/m change in payroll employment.

Continuing claims for unemployment insurance increased
to 1.980 million (-5.4% y/y) in the week ended September 9, after falling to 1.936 million
the week before. The four-week moving average of claimants fell to 1.953 million.

The insured unemployment rate remained at the record low of 1.4%.

Insured rates of unemployment varied widely across the
country. For the week ended September 2, the lowest rates were in South Dakota
(0.22%), Nebraska (0.42%), North Carolina (0.50%), Utah (0.51%), Indiana (0.54%)
and Florida (0.56%). The highest rates were found in Massachusetts (1.73%),
California (1.80%), Pennsylvania (1.89%), Alaska (2.03%), Connecticut (2.05%)
and New Jersey (2.55%). These state data are not seasonally adjusted.

Data on weekly unemployment insurance are contained in
Haver's WEEKLY database and they are summarized monthly in USECON.
Data for individual states are in REGIONW. The expectations figure is
from the Action Economics Forecast Survey, carried in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
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 <tr>
 <th class="firstcol" >Unemployment Insurance (SA, 000s)</th>
 <th>09/16/17</th>
 <th>09/09/17</th>
 <th>09/02/17</th>
 <th>Y/Y %</th>
 <th>2016</th>
 <th>2015</th>
 <th>2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Initial Claims</td>
 <td >259</td>
 <td >282</td>
 <td >298</td>
 <td >3.3</td>
 <td >263</td>
 <td >278</td>
 <td >308</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Continuing Claims</td>
 <td >--</td>
 <td >1,980</td>
 <td >1,936</td>
 <td >-5.4</td>
 <td >2,136</td>
 <td >2,267</td>
 <td >2,599</td>
 </tr>
 <tr>
 <td class="firstcol" >Insured Unemployment Rate (%)</td>
 <td >--</td>
 <td >1.4</td>
 <td >1.4</td>
 <td >
 1.5 
 (Sep 2016)
 </td>
 <td >1.6</td>
 <td >1.7</td>
 <td >2.0</td>
 </tr>
 </tbody>
 </table>
 
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Initial filings for unemployment insurance fell sharply to 259,000 during the week ended September 16 from 282,000 in the prior week, revised from 284,000. Expectations had been for 300,000 initial claims in the Action Economics [...]

U.S. Initial Jobless Insurance Claims Decline

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The Mortgage Bankers Association reported that its total
Mortgage Applications Volume Index backpedaled 9.7% (-21.3% y/y) in the week
ended September 15 and reversed the prior week's gain. Purchase applications
fell 10.8% (+1.6% y/y) following a 10.9% rise. Applications to refinance were
off 8.5% and remained down by roughly one-third y/y.
The effective interest rate on a 15-year mortgage rose to 3.46%
from 3.40%. The effective rate on a 30-year fixed-rate loan was little-changed
at 4.16%. The rate on a Jumbo 30-year loan eased slightly to 4.05%. For
adjustable 5-year mortgages, the effective interest rate rose to 3.42%.
The average mortgage loan size slipped to $297,800, up 7.1%
y/y. For purchases, the average loan size rose to $313,900 (3.4% y/y); for
refinancings, it declined to $282,900 (+7.4% y/y).
Applications for adjustable rate loans rose 22.5% y/y, while
applications for fixed rate loans fell 23.3% y/y.
The survey covers over 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 SURVEYW
database.
<table width="1769" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="755">MBA Mortgage Applications (%,
 SA)</th>
 <th scope="col" width="144">09/15/ 17</th>
 <th scope="col" width="144">09/08/17</th>
 <th scope="col" width="144">09/01/17</th>
 <th scope="col" width="144">Y/Y</th>
 <th scope="col" width="144">2016</th>
 <th scope="col" width="145">2015</th>
 <th scope="col" width="145">2014</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" width="755">Total Market Index</td>
 <td align="center" width="144">-9.7</td>
 <td align="center" width="144">9.9</td>
 <td align="center" width="144">3.3</td>
 <td align="center" width="144">-21.3</td>
 <td align="center" width="144">15.6</td>
 <td align="center" width="145">17.9</td>
 <td align="center" width="145">-41.4</td>
 </tr>
 <tr>
 <td class="firstcol" width="755">&nbsp;Purchase</td>
 <td align="center" width="144">-10.8</td>
 <td align="center" width="144">10.9</td>
 <td align="center" width="144">1.4</td>
 <td align="center" width="144">1.6</td>
 <td align="center" width="144">13.3</td>
 <td align="center" width="145">15.5</td>
 <td align="center" width="145">-12.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="755">&nbsp;Refinancing</td>
 <td align="center" width="144">-8.5</td>
 <td align="center" width="144">8.9</td>
 <td align="center" width="144">5.1</td>
 <td align="center" width="144">-35.1</td>
 <td align="center" width="144">17.3</td>
 <td align="center" width="145">19.7</td>
 <td align="center" width="145">-52.8</td>
 </tr>
 <tr>
 <td class="firstcol" width="755">15-Year Mortgage Effective Interest Rate
 (%)</td>
 <td align="center" width="144">3.46</td>
 <td align="center" width="144">3.40</td>
 <td align="center" width="144">3.44</td>
 <td align="center" width="144">3.04 (Sep. '16)</td>
 <td align="center" width="144">3.22</td>
 <td align="center" width="145">3.37</td>
 <td align="center" width="145">3.54</td>
 </tr>
 </tbody>
</table>

&nbsp;
U.S. Existing Home Sales Ease, as Prices Also Dip 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>
September 20, 2017
Sales of existing homes fell 1.3% (+2.1% y/y) during July to
5.440 million units (AR) from a slightly revised 5.510 million in June. It was
the lowest volume of sales since August 2016. Expectations were for 5.570
million sales in the Action Economics Forecast Survey.
Sales of existing single-family homes fell 0.8% (+1.7% y/y)
to 4.840 million while sales of co-ops and condos dropped 4.8% (+5.3% y/y) to
600,000.
By region, total existing home sales fell the most in the
northeast, 14.5% (-1.5% y/y), to 650,000 from 760,000 in June. Sales in the
Midwest fell 5.3% (-1.6% y/y) to 1.250 million from 1.320 million. But sales
improved in the west, 5.0% (+5.0%) to 1.260 million from 1.200 million, and
those in the south gained 2.2% (+3.6% y/y) in July to 2.280 million from 2.230
million in June.
The median price of all existing homes sold decreased 1.9%
(6.2% y/y) to $258,300.
The number of homes on the market was down 1.0% (-9.0% y/y)
to 1.92 million. There was a 4.2 months' supply of those homes available for
sale, up from a recent low of 3.5 months in January, but down from 4.8 months a
year ago.
The data on existing home sales, prices and affordability are
compiled by the National Association of Realtors and can be found in Haver's USECON
database. The regional price, affordability and inventory data are available in
the REALTOR database. The expectations figure is from the Action
Economics Forecast Survey, reported in the AS1REPNA database.
<table width="1769" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="706">Existing Home Sales (SAAR,
 000s)</th>
 <th scope="col" width="151">Aug</th>
 <th scope="col" width="151">Jul</th>
 <th scope="col" width="151">Jun</th>
 <th scope="col" width="151">Y/Y %</th>
 <th scope="col" width="151">2016</th>
 <th scope="col" width="152">2015</th>
 <th scope="col" width="152">2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="706">Total</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">5,440</td>
 <td align="center" width="151">5,510</td>
 <td align="center" width="151">2.1</td>
 <td align="center" width="151">5,440</td>
 <td align="center" width="152">5,234</td>
 <td align="center" width="152">4,923</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="706">&nbsp;&nbsp; Northeast</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">650</td>
 <td align="center" width="151">760</td>
 <td align="center" width="151">-1.5</td>
 <td align="center" width="151">735</td>
 <td align="center" width="152">685</td>
 <td align="center" width="152">641</td>
 </tr>
 <tr>
 <td class="firstcol" width="706">&nbsp;&nbsp; Midwest</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">1,250</td>
 <td align="center" width="151">1,320</td>
 <td align="center" width="151">-1.6</td>
 <td align="center" width="151">1,296</td>
 <td align="center" width="152">1,231</td>
 <td align="center" width="152">1,134</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="706">&nbsp;&nbsp; South</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">2,280</td>
 <td align="center" width="151">2,230</td>
 <td align="center" width="151">3.6</td>
 <td align="center" width="151">2,217</td>
 <td align="center" width="152">2,148</td>
 <td align="center" width="152">2,048</td>
 </tr>
 <tr>
 <td class="firstcol" width="706">&nbsp;&nbsp; West</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">1,260</td>
 <td align="center" width="151">1,200</td>
 <td align="center" width="151">5.0</td>
 <td align="center" width="151">1,193</td>
 <td align="center" width="152">1,170</td>
 <td align="center" width="152">1,100</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="706">Single-Family</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">4,840</td>
 <td align="center" width="151">4,880</td>
 <td align="center" width="151">1.7</td>
 <td align="center" width="151">4,828</td>
 <td align="center" width="152">4,624</td>
 <td align="center" width="152">4,333</td>
 </tr>
 <tr>
 <td class="firstcol" width="706">Median Price Total ($, NSA)</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">258,300</td>
 <td align="center" width="151">263,300</td>
 <td align="center" width="151">6.2</td>
 <td align="center" width="151">232,067</td>
 <td align="center" width="152">219,867</td>
 <td align="center" width="152">206,708</td>
 </tr>
 </tbody>
</table>

&nbsp;
FOMC Holds Rates Steady; Asset Sales to Begin Soon 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;September
20, 2017
At today's meeting of the Federal Open Market Committee, the
targeted federal funds rate was held steady in a range of 1.00% to 1.25%. This
followed two increases earlier this year.
Additionally, the Fed indicated that shrinking its
bondholdings would begin &quot;relatively soon.&quot;
The Fed expects moderate economic growth to continue and that
inflation would stabilize near its two percent objective.
The press release for today's FOMC meeting can be
found <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20170726a.htm">here</a>.
Haver's SURVEYS database contains the economic projections from the
Federal Reserve Board.
<table width="1769" class="centered" border="0" cellSpacing="0">
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 <thead>
 <tr>
 <th class="firstcol" scope="col" width="563"></th>
 <th scope="col" width="200">Current</th>
 <th scope="col" width="200">Last</th>
 <th scope="col" width="200">2016</th>
 <th scope="col" width="200">2015</th>
 <th scope="col" width="201">2014</th>
 <th scope="col" width="201">2013</th>
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 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" width="563">Federal Funds Rate Target</td>
 <td align="center" width="200">1.00%-1.25%</td>
 <td align="center" width="200">1.00%-1.25%</td>
 <td align="center" width="200">0.40%</td>
 <td align="center" width="200">0.13%</td>
 <td align="center" width="201">0.09%</td>
 <td align="center" width="201">0.11%</td>
 </tr>
 </tbody>
</table>


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</html>

The Mortgage Bankers Association reported that its total Mortgage Applications Volume Index backpedaled 9.7% (-21.3% y/y) in the week ended September 15 and reversed the prior week's gain. Purchase applications fell 10.8% (+1.6% y/y) [...]

U.S. Mortgage Loan Applications Decline as Interest Rates Rise

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

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Andrew Cates

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

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


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


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


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


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


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

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

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Charts of the Week: The Upside Risks

Kathleen Stephansen, CBE

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

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

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

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

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

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



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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

United Kingdom

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

Sandy Batten

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief: 2017

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