Tom Moeller

The consumer price index (CPI-U) fell just slightly last month, according to the Bureau of Labor Statistics, after an unrevised 0.1% dip during August. Consensus expectations had been for a 0.1% uptick. The latest figure lowered the [...]

U.S. CPI Fell Again With Lower Gasoline Prices

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015f.jpg" align="left" border="0" height="265" width="353">
What a shock to those that thought that decoupling was a
reality. The US slowdown clearly has spread to Japan and to Europe. The
August drop in output is just one of the visible signs. July&#8217;s 1.3%
rise in IP is sandwiched between drops of 3.5% in August and 2.2% in
June. The global slowdown is everywhere. The financial crisis, of
course, is going to deepen it. The developing world &#8216;demand
juggernauts&#8217; India and China will not escape the slowing either. 
 

The decline is hitting Japan especially hard in transportation
as high gas prices have adversely impacted consumer budgets in the US.
A key issue for Japan is that car sales have plummeted. Even makers of
fuel efficient cars have seen demand fall off. The most highly sought
after models have been in short supply. Thus, even fuel efficient auto
makers are having trouble &#8211; no one escapes the downturn. 
 

The outlook is for weakness to continue and probably to
deepen. The hit to industrial output in Japan, while relatively severe,
is not over. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr class="even">
<th colspan="9" scope="col">Japan
Industrial Production Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
<td>Qtr-2-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">seas adjusted</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>% AR</td>
</tr>
<tr>
<td class="firstcol">Mining &amp; mfg</td>
<td>-3.5%</td>
<td>1.3%</td>
<td>-2.2%</td>
<td>-16.4%</td>
<td>-10.1%</td>
<td>-4.7%</td>
<td>4.4%</td>
<td>-6.0%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>-3.6%</td>
<td>1.5%</td>
<td>-2.2%</td>
<td>-16.1%</td>
<td>-10.2%</td>
<td>-4.7%</td>
<td>4.4%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-3.5%</td>
<td>1.2%</td>
<td>-2.1%</td>
<td>-16.4%</td>
<td>-10.1%</td>
<td>-4.7%</td>
<td>4.4%</td>
<td>-6.2%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>-0.2%</td>
<td>-2.9%</td>
<td>-1.6%</td>
<td>-17.5%</td>
<td>-13.5%</td>
<td>-10.0%</td>
<td>-6.2%</td>
<td>-20.9%</td>
</tr>
<tr>
<td class="firstcol">T-port</td>
<td>-9.8%</td>
<td>4.0%</td>
<td>-5.0%</td>
<td>-36.9%</td>
<td>-19.3%</td>
<td>-7.8%</td>
<td>9.7%</td>
<td>-9.3%</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Product
Group</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-3.3%</td>
<td>3.6%</td>
<td>-3.1%</td>
<td>-11.3%</td>
<td>-8.0%</td>
<td>-3.2%</td>
<td>6.3%</td>
<td>7.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-2.3%</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-11.7%</td>
<td>-7.1%</td>
<td>-2.6%</td>
<td>4.0%</td>
<td>-7.0%</td>
</tr>
<tr>
<td class="firstcol">Investment Goods</td>
<td>-5.2%</td>
<td>-0.5%</td>
<td>-2.9%</td>
<td>-29.8%</td>
<td>-18.5%</td>
<td>-10.9%</td>
<td>2.8%</td>
<td>-22.1%</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>1.6%</td>
<td>4.2%</td>
<td>1.9%</td>
<td>35.1%</td>
<td>15.3%</td>
<td>4.3%</td>
<td>-1.1%</td>
<td>28.2%</td>
</tr>
<tr>
<td class="firstcol">Electricity &amp; Gas</td>
<td>-7.6%</td>
<td>6.3%</td>
<td>-3.4%</td>
<td>-19.2%</td>
<td>-21.9%</td>
<td>-5.1%</td>
<td>2.9%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
</body></html>

What a shock to those that thought that decoupling was a reality. The US slowdown clearly has spread to Japan and to Europe. The August drop in output is just one of the visible signs. July’s 1.3% rise in IP is sandwiched between [...]

Japanese IP Dives – Back on Trend to Lower Results

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015d.jpg" width="353">
The U.S. government&#39;s budget deficit for fiscal year 2008 widened sharply to $454.8B versus a deficit during FY 2007 of $161.5B. Reversing recent trends of strengthening revenues, the deficit spread resulted from an outright decline in revenues, while outlays picked up smartly.
As a percentage of GDP the budget deficit last year totaled roughly 3.2%, a contrast to FY07&#39;s marginal 1.2%. Receipts were 17.8% of GDP, down from 18.8% and outlays rose to 21.0%.
The Government&#39;s financial data are available in Haver&#39;s USECON database, with extensive detail available in the specialized GOVFIN. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015e.jpg" width="353">
Net revenues last fiscal year fell 1.7%, reversing FY07&#39;s 6.7% increase. Both individual income taxes and corporate taxes fell, the former by 1.5% and the latter, 17.8%. The &quot;stimulus&quot; rebates were the main factor in the lower individual taxes, as well as weaker capital gains and less growth in wages and salaries. Corporate taxes were lowered by weakening profits. Also, during the September hurricanes, impacted companies were able to postpone their September tax installments. In contrast, various unemployment and social insurance grew 3.6%, somewhat soft, but well within recent growth ranges.
U.S. government outlays grew just 9.1% during last fiscal year, a significant pickup from 2007&#39;s 2.8% rise. Defense spending (19% of total outlays) surged by 13.2%, with both war-related and standard uses contributing. Medicare expenditures (12% of outlays) slowed to &quot;just&quot; a 4.1% increase after the prior 13.8% increase. Social security spending (21% of outlays) also slowed, rising 5.3% from 6.9% in FY07. Net interest payments increased 4.6% in FY08, similar to the previous 5.0%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>+$45.7B</td>
<td>$-111.9B</td>
<td>+$112.9B (9/07)</td>
<td>-$454.8B</td>
<td>-$162.8B</td>
<td>-$248.2B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$272.4B</td>
<td>$157.0B</td>
<td>-4.5%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$226.7B</td>
<td>$268.9B</td>
<td>31.4%</td>
<td>9.1%</td>
<td>2.8%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
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The U.S. government's budget deficit for fiscal year 2008 widened sharply to $454.8B versus a deficit during FY 2007 of $161.5B. Reversing recent trends of strengthening revenues, the deficit spread resulted from an outright decline [...]

U.S. Budget Deficit Widens to Record in Fiscal 2008

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015b.jpg" width="353">
Retail sales fell 1.2% last month, the Commerce Department reported this morning. Both August and July sales were revised lower, August to a 0.9% decrease from 0.7% reported last month, and July to a 0.1% increase from 0.3% in last month&#39;s data. This puts the entire Q3 down at a 4% annual rate from Q2. The Action Economics survey shown in Haver&#39;s AS1REPNA database looked for a 1.0% decline in September. All the retail sales data are contained in Haver&#39;s USECON database.
Not only were total sales down in September, but every major store group saw lower sales, except for stores and gas stations. Drug stores, more formally known as &quot;health &amp; personal care stores&quot;, were up 0.4%, and gas stations, 0.1%. [This latter seems odd, in view of falling gasoline prices, but it seems to be a seasonal phenomenon; sales not seasonally adjusted were down 7.8%, while September&#39;s seasonal factor falls 8.1%.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015c.jpg" width="353">
Among other major store groups, the biggest decline was at auto dealers, which saw a 3.8% plunge after their brief recovery in August, which itself was revised a bit lower. Furniture stores and electronics &amp; appliance stores continued their steep downtrends, losing 2.3% and 1.5%, respectively. Furniture sales were off 10.7% from a year ago, their 13th consecutive year-on-year decline.
Individual store reports made a week ago indicated that discounters had done better than full-price retailers. This was evident in today&#39;s data in the comparative performance of general merchandise stores as a whole, which were off 0.4%, and mainline department stores down 1.5%. The subcategory we might call &quot;discounters&quot;, that is, the whole general merchandise group less the department stores, rose 0.1% (see second graph). This isn&#39;t great, but it is in fact better than other segments.
Other noteworthy sectors include restaurants, down 0.5% in September, and nonstore retailers (mostly electronic shopping), down 0.8%. This latter group, as Tom Moeller has highlighted here before, has been weakening. A month ago, he reported it down 3.9% annualized from three months before; the comparable number this month is 10.7%! This category also includes fuel oil dealers, so falling oil prices could be pulling it down. This level of detail won&#39;t be published until next month&#39;s release.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a> (%)</td>
<td>-1.2</td>
<td>-0.5</td>
<td>-0.6</td>
<td>-1.0</td>
<td>4.0</td>
<td>5.8</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-0.6</td>
<td>-0.9</td>
<td>0.1</td>
<td>3.6</td>
<td>4.4</td>
<td>6.8</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>-0.7</td>
<td>-0.6</td>
<td>0.1</td>
<td>1.6</td>
<td>4.1</td>
<td>6.2</td>
<td>6.4</td>
</tr>
</tbody>
</table>
</body>
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Retail sales fell 1.2% last month, the Commerce Department reported this morning. Both August and July sales were revised lower, August to a 0.9% decrease from 0.7% reported last month, and July to a 0.1% increase from 0.3% in last [...]

U.S. Retail Sales Drop 1.2% in September

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015a.jpg" align="left" border="0" height="265" width="353">
The PPI emitted mixed signals in September. The headline
finished goods PPI dropped a sharp 0.4% as energy prices fell. But the
core PPI for consumer goods rose by a sharp 0.5% an uncomfortable
harbinger for the CPI core that is due for release tomorrow. 
 

Wholesale food prices were tempered in September rising by
just 0.2%. Food in general has seen its inflation profile lowered as
its Yr/yr pace of 8.1% far exceed its three-month pace of 3.1%. 
 

Finished energy prices are off sharply, dropping by 2.9% in
the month. They are also off at a 16.7% annual rate in the quarter.
That is the constructive side of the inflation trend. But the Fed looks
harder at core inflation and there trends are still worsening. 
 

But for core consumer goods Yr/Yr inflation has gone from 4.4%
over 12 months to 5.1% over six months to 5.3% over three months. That
is an uncomfortable trend. 
 

However, the weakness in the economy and the ongoing financial
crisis will put this PPI on the back burner. The Fed is not giving up
on fighting inflation instead it knows that economic conditions such as
these will snuff out inflation without special action by the central
bank. Extreme economic weakness does that. 
 

For now the economy picture is mess. The economy is weakening
fast. The financial sector is in shambles and inflation is still
accelerating and moving out over the Fed's comfort zone. But we know
that is just a snap shot of an ever changing environment. In fact
inflation is about to be extinguished by the economic weakness that
appears to be getting worse. Meanwhile, the Fed and the Treasury have
made great strides in trying to contain the financial unraveling. Their
attempt at containment appears to be a success &#8211; so far. Aid for the
ailing economy has not yet moved up to the actionable stage but
Congress is making plans for a stimulus plan. This is one of those
times that you must look at the indicators with a broader perspective.
At another time this PPI report would be viewed as a bad PPI and as
trouble for the Fed. But in this environment the report will not gather
headlines &#8211; hardly even footnotes. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Key Trends
In Producer Prices </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sep-08</td>
<td colspan="4">PPI Trends By Type Of Good</td>
<td>CHANGE</td>
</tr>
<tr class="grey5">
<td class="firstcol">PPI</td>
<td>1Mo:M/M</td>
<td>3-Mo:ar</td>
<td>6-Mo:ar</td>
<td>1-Yr</td>
<td>Yr-Ago</td>
<td>Y/Y</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total PPI</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>6.8%</td>
<td>8.7%</td>
<td>4.4%</td>
<td>4.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Finished Consumer Goods</td>
<td>-0.6%</td>
<td>-2.3%</td>
<td>7.5%</td>
<td>10.2%</td>
<td>5.2%</td>
<td>5.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Consumer Foods</td>
<td>0.2%</td>
<td>3.1%</td>
<td>6.1%</td>
<td>8.1%</td>
<td>5.8%</td>
<td>2.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Finished Consumer Goods Excl
Foods</td>
<td>-0.9%</td>
<td>-4.2%</td>
<td>8.0%</td>
<td>11.1%</td>
<td>5.0%</td>
<td>6.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Nondurables less Food</td>
<td>-1.3%</td>
<td>-6.8%</td>
<td>9.7%</td>
<td>14.1%</td>
<td>7.0%</td>
<td>7.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Consumer Nondurable Goods excl
Food &amp; Energy</td>
<td>0.5%</td>
<td>6.8%</td>
<td>6.4%</td>
<td>5.8%</td>
<td>3.4%</td>
<td>2.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Durable Goods</td>
<td>0.4%</td>
<td>3.5%</td>
<td>3.5%</td>
<td>2.5%</td>
<td>0.8%</td>
<td>1.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Finished Core Consumer
Goods</td>
<td>0.5%</td>
<td>5.3%</td>
<td>5.1%</td>
<td>4.4%</td>
<td>2.2%</td>
<td>2.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital Goods</td>
<td>0.5%</td>
<td>5.6%</td>
<td>4.8%</td>
<td>3.7%</td>
<td>1.6%</td>
<td>2.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG Industries</td>
<td>0.5%</td>
<td>6.3%</td>
<td>5.8%</td>
<td>4.3%</td>
<td>1.8%</td>
<td>2.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Non-MFG Industries</td>
<td>0.5%</td>
<td>5.4%</td>
<td>4.4%</td>
<td>3.5%</td>
<td>1.5%</td>
<td>2.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Core PPI</td>
<td>0.4%</td>
<td>5.4%</td>
<td>4.9%</td>
<td>4.1%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Memo: Finished Energy</td>
<td>-2.9%</td>
<td>-16.7%</td>
<td>12.4%</td>
<td>22.3%</td>
<td>10.3%</td>
<td>11.9%</td>
</tr>
</tbody>
</table>
</body></html>

The PPI emitted mixed signals in September. The headline finished goods PPI dropped a sharp 0.4% as energy prices fell. But the core PPI for consumer goods rose by a sharp 0.5% an uncomfortable harbinger for the CPI core that is due [...]

PPI Still Troublesome

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015b.jpg" align="left" border="0" height="265" width="353">
Retail sales fell 1.2% last month, the Commerce Department
reported this morning. Both August and July sales were revised lower,
August to a 0.9% decrease from 0.7% reported last month, and July to a
0.1% increase from 0.3% in last month's data. This puts the entire Q3
down at a 4% annual rate from Q2. The Action Economics survey shown in
Haver's AS1REPNA database looked for a 1.0% decline
in September. All the retail sales data are contained in Haver's USECON
database.
Not only were total sales down in September, but every major
store group saw lower sales, except for stores and gas stations. Drug
stores, more formally known as "health &amp; personal care stores",
were up 0.4%, and gas stations, 0.1%. [This latter seems odd, in view
of falling gasoline prices, but it seems to be a seasonal phenomenon;
sales not seasonally adjusted were down 7.8%, while September's
seasonal factor falls 8.1%.]<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015c.jpg" align="right" border="0" height="265" width="353">
Among other major store groups, the biggest decline was at
auto dealers, which saw a 3.8% plunge after their brief recovery in
August, which itself was revised a bit lower. Furniture stores and
electronics &amp; appliance stores continued their steep
downtrends, losing 2.3% and 1.5%, respectively. Furniture sales were
off 10.7% from a year ago, their 13th consecutive year-on-year decline.
Individual store reports made a week ago indicated that
discounters had done better than full-price retailers. This was evident
in today's data in the comparative performance of general merchandise
stores as a whole, which were off 0.4%, and mainline department stores
down 1.5%. The subcategory we might call "discounters", that is, the
whole general merchandise group less the department stores, rose 0.1%
(see second graph). This isn't great, but it is in fact better than
other segments.
Other noteworthy sectors include restaurants, down 0.5% in
September, and nonstore retailers (mostly electronic shopping), down
0.8%. This latter group, as Tom Moeller has highlighted here before,
has been weakening. A month ago, he reported it down 3.9% annualized
from three months before; the comparable number this month is 10.7%!
This category also includes fuel oil dealers, so falling oil prices
could be pulling it down. This level of detail won't be published until
next month's release.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail
Sales &amp; Food Services</a> (%)</td>
<td>-1.2</td>
<td>-0.5</td>
<td>-0.6</td>
<td>-1.0</td>
<td>4.0</td>
<td>5.8</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>-0.6</td>
<td>-0.9</td>
<td>0.1</td>
<td>3.6</td>
<td>4.4</td>
<td>6.8</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Less Gasoline</td>
<td>-0.7</td>
<td>-0.6</td>
<td>0.1</td>
<td>1.6</td>
<td>4.1</td>
<td>6.2</td>
<td>6.4</td>
</tr>
</tbody>
</table>
U.S. Budget Deficit Widens to
Record&nbsp;in Fiscal 2008 
by <a href="/comment/Stone.html">Carol
Stone</a> October 15, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015d.jpg" align="left" border="0" height="265" width="353">
The U.S. government's budget deficit for fiscal year 2008
widened sharply to $454.8B versus a deficit during FY 2007 of $161.5B.
Reversing recent trends of strengthening revenues, the deficit spread
resulted from an outright decline in revenues, while outlays picked up
smartly.
As a percentage of GDP the budget deficit last year totaled
roughly 3.2%, a contrast to FY07's marginal 1.2%. Receipts were 17.8%
of GDP, down from 18.8% and outlays rose to 21.0%.
The Government's financial data are available in Haver's USECON
database, with extensive detail available in the specialized GOVFIN.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015e.jpg" align="right" border="0" height="265" width="353">
Net revenues last fiscal year fell 1.7%, reversing FY07's 6.7%
increase. Both individual income taxes and corporate taxes fell, the
former by 1.5% and the latter, 17.8%. The "stimulus" rebates were the
main factor in the lower individual taxes, as well as weaker capital
gains and less growth in wages and salaries. Corporate taxes were
lowered by weakening profits. Also, during the September hurricanes,
impacted companies were able to postpone their September tax
installments. In contrast, various unemployment and social insurance
grew 3.6%, somewhat soft, but well within recent growth ranges.
U.S. government outlays grew just 9.1% during last fiscal
year, a significant pickup from 2007's 2.8% rise. Defense spending (19%
of total outlays) surged by 13.2%, with both war-related and standard
uses contributing. Medicare expenditures (12% of outlays) slowed to
"just" a 4.1% increase after the prior 13.8% increase. Social security
spending (21% of outlays) also slowed, rising 5.3% from 6.9% in FY07.
Net interest payments increased 4.6% in FY08, similar to the previous
5.0%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> &nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>+$45.7B</td>
<td>$-111.9B</td>
<td>+$112.9B 
(9/07)</td>
<td>-$454.8B</td>
<td>-$162.8B</td>
<td>-$248.2B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$272.4B</td>
<td>$157.0B</td>
<td>-4.5%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$226.7B</td>
<td>$268.9B</td>
<td>31.4%</td>
<td>9.1%</td>
<td>2.8%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
PPI Still Troublesome 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 15, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015a.jpg" align="left" border="0" height="265" width="353">
The PPI emitted mixed signals in September. The headline
finished goods PPI dropped a sharp 0.4% as energy prices fell. But the
core PPI for consumer goods rose by a sharp 0.5% an uncomfortable
harbinger for the CPI core that is due for release tomorrow. 
 

Wholesale food prices were tempered in September rising by
just 0.2%. Food in general has seen its inflation profile lowered as
its Yr/yr pace of 8.1% far exceed its three-month pace of 3.1%. 
 

Finished energy prices are off sharply, dropping by 2.9% in
the month. They are also off at a 16.7% annual rate in the quarter.
That is the constructive side of the inflation trend. But the Fed looks
harder at core inflation and there trends are still worsening. 
 

But for core consumer goods Yr/Yr inflation has gone from 4.4%
over 12 months to 5.1% over six months to 5.3% over three months. That
is an uncomfortable trend. 
 

However, the weakness in the economy and the ongoing financial
crisis will put this PPI on the back burner. The Fed is not giving up
on fighting inflation instead it knows that economic conditions such as
these will snuff out inflation without special action by the central
bank. Extreme economic weakness does that. 
 

For now the economy picture is mess. The economy is weakening
fast. The financial sector is in shambles and inflation is still
accelerating and moving out over the Fed's comfort zone. But we know
that is just a snap shot of an ever changing environment. In fact
inflation is about to be extinguished by the economic weakness that
appears to be getting worse. Meanwhile, the Fed and the Treasury have
made great strides in trying to contain the financial unraveling. Their
attempt at containment appears to be a success &#8211; so far. Aid for the
ailing economy has not yet moved up to the actionable stage but
Congress is making plans for a stimulus plan. This is one of those
times that you must look at the indicators with a broader perspective.
At another time this PPI report would be viewed as a bad PPI and as
trouble for the Fed. But in this environment the report will not gather
headlines &#8211; hardly even footnotes. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup><thead><tr>
<th colspan="7" scope="col">Key Trends
In Producer Prices </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sep-08</td>
<td colspan="4">PPI Trends By Type Of Good</td>
<td>CHANGE</td>
</tr>
<tr class="grey5">
<td class="firstcol">PPI</td>
<td>1Mo:M/M</td>
<td>3-Mo:ar</td>
<td>6-Mo:ar</td>
<td>1-Yr</td>
<td>Yr-Ago</td>
<td>Y/Y</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total PPI</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>6.8%</td>
<td>8.7%</td>
<td>4.4%</td>
<td>4.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Finished Consumer Goods</td>
<td>-0.6%</td>
<td>-2.3%</td>
<td>7.5%</td>
<td>10.2%</td>
<td>5.2%</td>
<td>5.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Consumer Foods</td>
<td>0.2%</td>
<td>3.1%</td>
<td>6.1%</td>
<td>8.1%</td>
<td>5.8%</td>
<td>2.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Finished Consumer Goods Excl
Foods</td>
<td>-0.9%</td>
<td>-4.2%</td>
<td>8.0%</td>
<td>11.1%</td>
<td>5.0%</td>
<td>6.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Nondurables less Food</td>
<td>-1.3%</td>
<td>-6.8%</td>
<td>9.7%</td>
<td>14.1%</td>
<td>7.0%</td>
<td>7.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Consumer Nondurable Goods excl
Food &amp; Energy</td>
<td>0.5%</td>
<td>6.8%</td>
<td>6.4%</td>
<td>5.8%</td>
<td>3.4%</td>
<td>2.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Durable Goods</td>
<td>0.4%</td>
<td>3.5%</td>
<td>3.5%</td>
<td>2.5%</td>
<td>0.8%</td>
<td>1.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Finished Core Consumer
Goods</td>
<td>0.5%</td>
<td>5.3%</td>
<td>5.1%</td>
<td>4.4%</td>
<td>2.2%</td>
<td>2.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital Goods</td>
<td>0.5%</td>
<td>5.6%</td>
<td>4.8%</td>
<td>3.7%</td>
<td>1.6%</td>
<td>2.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG Industries</td>
<td>0.5%</td>
<td>6.3%</td>
<td>5.8%</td>
<td>4.3%</td>
<td>1.8%</td>
<td>2.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Non-MFG Industries</td>
<td>0.5%</td>
<td>5.4%</td>
<td>4.4%</td>
<td>3.5%</td>
<td>1.5%</td>
<td>2.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Core PPI</td>
<td>0.4%</td>
<td>5.4%</td>
<td>4.9%</td>
<td>4.1%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Memo: Finished Energy</td>
<td>-2.9%</td>
<td>-16.7%</td>
<td>12.4%</td>
<td>22.3%</td>
<td>10.3%</td>
<td>11.9%</td>
</tr>
</tbody>
</table>
Japanese IP Dives &#8211; Back on Trend
to Lower Results 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 15, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081015f.jpg" align="left" border="0" height="265" width="353">
What a shock to those that thought that decoupling was a
reality. The US slowdown clearly has spread to Japan and to Europe. The
August drop in output is just one of the visible signs. July&#8217;s 1.3%
rise in IP is sandwiched between drops of 3.5% in August and 2.2% in
June. The global slowdown is everywhere. The financial crisis, of
course, is going to deepen it. The developing world &#8216;demand
juggernauts&#8217; India and China will not escape the slowing either. 
 

The decline is hitting Japan especially hard in transportation
as high gas prices have adversely impacted consumer budgets in the US.
A key issue for Japan is that car sales have plummeted. Even makers of
fuel efficient cars have seen demand fall off. The most highly sought
after models have been in short supply. Thus, even fuel efficient auto
makers are having trouble &#8211; no one escapes the downturn. 
 

The outlook is for weakness to continue and probably to
deepen. The hit to industrial output in Japan, while relatively severe,
is not over.

<table border="0" cellspacing="0" width="100%"> <colgroup></colgroup>
<thead><tr class="even">
<th colspan="9" scope="col">Japan
Industrial Production Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
<td>Qtr-2-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">seas adjusted</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>% AR</td>
</tr>
<tr>
<td class="firstcol">Mining &amp; mfg</td>
<td>-3.5%</td>
<td>1.3%</td>
<td>-2.2%</td>
<td>-16.4%</td>
<td>-10.1%</td>
<td>-4.7%</td>
<td>4.4%</td>
<td>-6.0%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>-3.6%</td>
<td>1.5%</td>
<td>-2.2%</td>
<td>-16.1%</td>
<td>-10.2%</td>
<td>-4.7%</td>
<td>4.4%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-3.5%</td>
<td>1.2%</td>
<td>-2.1%</td>
<td>-16.4%</td>
<td>-10.1%</td>
<td>-4.7%</td>
<td>4.4%</td>
<td>-6.2%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>-0.2%</td>
<td>-2.9%</td>
<td>-1.6%</td>
<td>-17.5%</td>
<td>-13.5%</td>
<td>-10.0%</td>
<td>-6.2%</td>
<td>-20.9%</td>
</tr>
<tr>
<td class="firstcol">T-port</td>
<td>-9.8%</td>
<td>4.0%</td>
<td>-5.0%</td>
<td>-36.9%</td>
<td>-19.3%</td>
<td>-7.8%</td>
<td>9.7%</td>
<td>-9.3%</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Product
Group</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-3.3%</td>
<td>3.6%</td>
<td>-3.1%</td>
<td>-11.3%</td>
<td>-8.0%</td>
<td>-3.2%</td>
<td>6.3%</td>
<td>7.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-2.3%</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-11.7%</td>
<td>-7.1%</td>
<td>-2.6%</td>
<td>4.0%</td>
<td>-7.0%</td>
</tr>
<tr>
<td class="firstcol">Investment Goods</td>
<td>-5.2%</td>
<td>-0.5%</td>
<td>-2.9%</td>
<td>-29.8%</td>
<td>-18.5%</td>
<td>-10.9%</td>
<td>2.8%</td>
<td>-22.1%</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>1.6%</td>
<td>4.2%</td>
<td>1.9%</td>
<td>35.1%</td>
<td>15.3%</td>
<td>4.3%</td>
<td>-1.1%</td>
<td>28.2%</td>
</tr>
<tr>
<td class="firstcol">Electricity &amp; Gas</td>
<td>-7.6%</td>
<td>6.3%</td>
<td>-3.4%</td>
<td>-19.2%</td>
<td>-21.9%</td>
<td>-5.1%</td>
<td>2.9%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081014a.jpg" width="353">
According to the International Council of Shopping Centers chain store sales rose last week, but they still have been quite anemic. The 0.7% increase was the first of any magnitude since late July. Since then weekly sales have been either down, unchanged or up just 0.1%. The level of sales in early October was 0.6% below the September average which fell 1.9% from August.
The level of sales during the latest week was near the lowest since December of last year.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The chain store sales figures are available in Haver&#39;s SURVEYW database.
Credit Card Debt and Payment Use from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/wp/wp2008/wp0802.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/11/08</th>
<th scope="col">10/04/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>484.7</td>
<td>481.5</td>
<td>1.0%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


</html>

According to the International Council of Shopping Centers chain store sales rose last week, but they still have been quite anemic. The 0.7% increase was the first of any magnitude since late July. Since then weekly sales have been [...]

U.S. Chain Store Sales Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081014b.jpg" width="353">
According to the National Federation of Independent Business (NFIB), small business optimism rose another 2.0% during September to the highest level since February. The rise to an index level of 91.1 added to a gain of 3.3% during August.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
The percent expecting the economy to improve rose again, last month to the highest level since late 2005.
The percentage planning to raise employment dipped slightly to 7%, still near the highest level since February. The percentage of respondents with one or more job openings improved to 18% which was the highest level since June. During the last ten years there has been a 71% correlation between the NFIB employment percentage and the y/y change in nonfarm payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081014c.jpg" width="353">
The percentage of firms actually raising prices fell to 20%, the lowest level since April. During the last ten years there has been a 64% correlation between the y/y change in the producer price index and the level of the NFIB price index. The percentage of firms planning to raise prices also fell further to 24% which was the least since February.
The largest, single most important problems seen by business were poor sales (20%), inflation (16%), insurance cost and availability (10%) and taxes (17%). The latter, however, still was reduced from 27% in early 2007.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The NFIB figures can be found in Haver&#39;s SURVEYS database.
The Federal Reserve and other central banks announce further measures to provide broad access to liquidity and funding to financial institutions. Visit the U.S. Federal Reserve site <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081013a.htm"> here</a> for more info.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>92.9</td>
<td>91.1</td>
<td>-4.5%</td>
<td>96.7</td>
<td>98.9</td>
<td>101.6</td>
</tr>
</tbody>
</table>
</body>
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According to the National Federation of Independent Business (NFIB), small business optimism rose another 2.0% during September to the highest level since February. The rise to an index level of 91.1 added to a gain of 3.3% during [...]

U.S. Small Business Optimism Rose Further

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Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

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

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The **Industrial Materials Price Index** from the Foundation for International Business and Economic Research (FIBER) increased 0.6% (0.4% y/y) during the last four-week period after rising 1.6% in the prior four weeks.

**Miscellaneous** group prices increased 1.7% (9.7% y/y) in the latest four week period. The price of tallow (used in the soap industry) jumped 10.6% (15.7% y/y) in four weeks. Framing lumber prices gained 5.8% (37.6% y/y) but natural rubber prices fell 2.9% (+13.0% y/y) in four weeks.

Prices in the **Metals** group strengthened 1.4% (-2.9% y/y) over the most recent four weeks. Zinc prices jumped 4.0% (-4.6% y/y) and tin prices rose 2.7% (0.4% y/y). Aluminum prices increased 2.4% (8.4% y/y) over four weeks while steel scrap prices gained 1.8% (-11.2% y/y). Lead prices rose 0.4% (-8.7% y/y) and copper scrap prices fell 1.8% (+0.2% y/y) during the last four week period.

Prices in the **Textile** group edged 0.3% higher (1.6% y/y) during the last four weeks. Cotton prices rose 0.8% in that same period and 2.5% y/y. Burlap costs improved 2.0% in four weeks and 11.4% y/y.

**Crude Oil & Benzene** group prices weakened 2.4% (-13.8% y/y) in the latest four week period. The cost of West Texas Intermediate crude oil fell 9.2% to $67.27 per barrel and remained 18.0% lower y/y. It fell to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 6.2% (-31.7% y/y). Excluding crude oil, the industrial commodity price index rose 1.3% (1.6% y/y) during the last four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

**Summer of ’25: The Data** from N.Y. Federal Reserve President & CEO John C. Williams is available [here](https://www.newyorkfed.org/newsevents/speeches/2025/wil250716).

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- Prices movement by category is mixed.
- Lumber & metals prices strengthen.
- Crude oil prices decline.

FIBER: Industrial Commodities Prices Continue to 	Rise in Latest Four Weeks

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Total housing starts increased 4.6% (-0.5% y/y) in June to 1.321 million units (SAAR) after falling a little-revised 9.7% in May to 1.263 million, revised from 1.256 million, and rising 3.2% in April to 1.398 million, revised from 1.392, according to the U.S. Census Bureau. Total starts in June were 27.4% below their peak of 1.820 million units reached in April 2022. The Action Economics Forecast Survey expected 1.30 million starts in June.

Single-family starts in June fell 4.6% (-10.0% y/y) to 883,000 after declining 2.3% in May to 926,000, revised from 924,000, and holding steady at 948,000 in April, revised from 920,000. Multi-family starts rebounded 30.0% in June (26.6% y/y) to 438,000 after declining 25.1% in May to 337,000, revised from 332,000, and increasing 10.6% to 450,000 in April, revised from 472,000.

All of the increase in starts last month was due to a 73.3% surge (52.9% y/y) in the Northeast to 182,000 units, following a decline of 42.6% in May. Offsetting this increase, starts in the South weakened 0.7% (-9.0% y/y) to 674,000 after falling 9.0% in May. Starts in the West declined 1.4% (-1.7% y/y) to 286,000 after rising 22.4% in May. Housing starts in the Midwest declined 5.3% (+1.7% y/y) to 179,000 after falling 18.5% in May.

Building permits improved 0.2% (-4.4% y/y) last month to 1.397 million after falling 2.0% in May and declining 4.0% in April. Single-family permits fell 3.7% (-8.4% y/y) in June to 866,000 after weakening 2.6% in May. Multi-family permits rose 7.3% (+2.9% y/y) after easing 0.8% in May. Building permits fell 11.4% (-7.6% y/y) in the Northeast and in the West, permits fell 5.1% (-9.2% y/y). In the South, building permits rose 4.4% (-4.2% y/y), while in the Midwest, building permits held steady (+4.1% y/y).

The housing starts and building permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Increase recovers half of prior month’s drop.
- Multi-family starts surge but single-family starts fall.
- Building permits rise negligibly after two months of decline.

U.S. Housing Starts Rebound in June

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No one will be critical of Japan’s efforts to free itself of its torpor into disinflation and deflation that it suffered for many years. The Bank of Japan struggled long and hard to remove the contraction in prices from its economy since falling prices can have a pernicious effect on growth and investment. Japan still faces challenges: it has a contracting population and faces dealing with tariff demands from the United States as negotiations on that front continue to drag and have become harder to settle than Japan had expected. Despite the current inflation overshoot, on data back to January 2011, Japan’s to-date inflation is only averaging 1%; that is still well below its 2% target and ample reason for the Bank of Japan to continue to move carefully to corral inflation especially if inflation has stopped accelerating – as it seems to have done. Against this background, we look at Japan’s CPI report.

**Current inflation: June**
Japan has dispatched deflation and currently faces an inflation problem. In June, the BOJ’s preferred gauge for the CPI excluding fresh foods & energy rose 0.4% month-to-month for the second month in a row; it rose by 0.2% in April. Japan’s headline inflation rate seems to have fallen into line A traditional ‘core reading’ excluding all food & energy flies under the BOJ’s target pace. But the BOJ’s preferred inflation gauge shows a 3.4% rise over 12 months and then gains at a pace of 3.7% over both six months and three months. All of those numbers are too hot to handle.

**Line-items**
Education costs in Japan are falling sharply and sequentially. Medical care costs are deescalating too. And while food & beverage prices continue to overshoot, 2% by a wide margin, the pace of total food & beverage inflation has been falling. No broad category has steadily accelerating inflation. But the BOJ’s preferred gauge of inflation, a specialized core measure excluding energy & fresh foods, sees inflation ramping up and staying high over three months and six months.

**Diffusion/breadth**
Among the eight major categories, year-on-year inflation has accelerated compared to where it was one-year ago in four of the eight. Inflation is above the 2% benchmark for four of eight categories as well.

**Acceleration or not...**
The chart on sequential inflation for the BOJ’s preferred core gauge shows that this measure has accelerated since August or December of last year and since then has more or less marked time oscillating without any clear trend.

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**BOJ policy and communication**
With interest rates having been elevated, this may be the peak for inflation rates in the wake of past interest rate increases- but the BOJ moves to-date have been more about communication and signaling than about actual restraint. These sorts of determinations about the impact of policy are always preliminary and never made clear until time passes and we are able to observe how the trend unfolds. Has inflation really peaked or not?

**BOJ actions**
The BOJ has raised its policy rate in very small and careful steps with an eye to not disrupt markets. Until early 2024, the BOJ has promoted a negative policy rate coupled with policy of yield curve control. However, in early 2024 the BOJ switched the -0.1% target rate to +0.1% and then moved it up to 0.25% just after mid-year 2024, then, early in 2025, it hiked it again to 0.5%. These have been cautious step-wise moves that after three hikes leave the official rate higher by less than one percentage point. But it also reversed an eight-year period of having a negative policy rate and one coupled with yield curve control policy. The BOJ’s careful steps may owe to some learning from the Federal Reserve’s SNAFU when it announced a coming end to its policy of QE for the first time creating a ‘taper tantum.’   

**The environment**
While Japan’s economy is growing, it has logged four quarters of negative growth in the past seven quarters (Q/Q). Year-on-year growth is positive for three quarters in a row after two in a row that logged declines. The economy is not strong, but it is growing in Q1; it grew by 1.7% over the past four quarters even though the Q/Q change was -0.2%, annualized.

**Summing up**
The BOJ is taking policy steps slowly with national elections hovering in the background, keeping monetary policy out of the way of election discussions. So far, we would regard the BOJ’s anti-inflation steps as being more about communicating an end to a period of super easy policy than as a frontal-attack on rising inflation. Given that, Japan’s prices declined for many months from August 2020 to March 2020; the BOJ is being careful to try to arrest inflation increases without pummeling prices and restarting deflation. From January 2011 to September 2022, Japan had only 12 (out of 141) months of inflation above 2% on its preferred gauge. It is now on a run of 33 (well 32 out of 33) months in a row with year-on-year inflation at or above 2%. It is understandable that the BOJ is walking on eggshells when it comes to hiking rates. If its inflation requires a monetary brake, the BOJ has more to do. If inflation merely needs to be ‘reminded’ that the period of excess is over, the recent flattening of inflation could be a sign that the message has been heard. A turn lower for inflation may still be achievable without draconian monetary steps.

Japan

Japan’s Ex-Fresh-Food Ex-Energy Inflation Runs Hot

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Total retail sales increased 0.6% (3.9% y/y) during June following an unrevised 0.9% May decline and an unrevised 0.1% April easing. A 0.1% uptick had been expected in the Action Economics Forecast Survey. Sales excluding autos rose 0.5% (3.3% y/y) following a 0.2% May decline, revised from -0.3%, and an unrevised no change in April. A 0.3% rise had been expected.

Sales in the retail control group, which excludes autos, building materials, gasoline and food services, rose 0.5% (4.0% y/y) in June after gaining 0.2% in May, revised from 0.4%, and minimally revised 0.2% April decline. These sales are used in the construction of personal consumption expenditures in the NIPA accounts. These sales rose 3.2% (AR) last quarter following a 3.7% Q1 rise.

Light vehicle sales increased 1.2% (6.5% y/y) in June after declines of 3.8% and 0.7% in the prior two months. This compares to a 0.3% June decline (2.6% y/y) in unit sales of motor vehicles last month which followed an 8.8% May slump. Gasoline station sales eased lightly (-4.4% y/y) during June after a 1.3% drop during May. Gasoline prices held steady (-7.6% y/y) last month. Sales of building materials & garden equipment rose 0.9% (-1.1% y/y) after a 2.7% decline during May.

Apparel store sales increased 0.9% (3.9% y/y) during June following a 0.3% gain. General merchandise store sales rose 0.5% (3.2% y/y) after they edged 0.1% higher in May, but department store sales declined 0.8% (-3.6% y/y) following a 0.3% dip. Nonstore retail sales increased 0.4% (4.5% y/y) following a 0.6% gain. Sporting goods & hobby shop sales improved 0.2% (1.6% y/y) after strengthening 1.0% in May. To the downside, furniture & home furnishings store sales slipped 0.1% (+4.5% y/y) after declining 0.6% in May. Electronics & appliance store sales also eased 0.1% (-0.2% y/y) following a 0.3% May decline.

In the nondiscretionary sales sector, food & beverage store sales rose 0.5% (2.5% y/y) last month following a 0.5% decline in May. Health & personal care store sales also rose 0.5% (8.3% y/y) after easing 0.1% in May.

Restaurant & drinking establishment sales increased 0.6% (6.6% y/y) in June following a 0.1% slip during May.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economic Forecast Survey in **AS1REPNA**.

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- Increase led by surge in sales excluding autos.
- Nonauto sales also improve.
- Sales in the control group (used to estimate PCE) strengthen.

U.S. Retail Sales Rebound in June

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The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo rose 3.1% to 33 (-19.5% y/y) during July after falling 5.9% to 32 in June. The reading matched expectations in the Informa Global Markets Survey. The NAHB figures are seasonally adjusted. During the last ten years, there has been a 72% correlation between the y/y change in the home builders index and the y/y change in housing starts.

The index of present sales conditions in the housing market rose 2.9% (-21.7% y/y) to 36 following two straight months of decline. The index for conditions in the next six months increased 7.5% (-10.4% y/y) to 43 following three consecutive monthly declines.

Home builders reported that the traffic of prospective buyers reading fell 4.8% to 20 (-25.9% y/y), the lowest level since December 2024.

Amongst the regional indexes, the index for the Midwest gained 12.8% both m/m and y/y while the index for the West rose 13.6% (-32.4% y/y). The index for the Northeast improved 9.1% (2.1% y/y) but the index for the South fell 3.3% (-32.6% y/y).

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions asking builders to rate market conditions as "good," "fair," "poor" or "very high" to "very low." The figure is thus a diffusion index with numerical results six over 50 indicating a predominance of "good" readings. The weights assigned to the individual index components are .5920 for single-family detached sales, present time, .1358 for single-family detached sales, next months and .2722 for traffic of prospective buyers. The results are included in Haver’s **SURVEYS** database. The expectations figure is available in Haver's **MMSAMER** database.

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- Increase follows two months of decline.
- Two of three components rise.
- Regional indexes are mixed.

Economy in Brief: 2008

Jump to:

U.S. CPI Fell Again With Lower Gasoline Prices

Japanese IP Dives – Back on Trend to Lower Results

U.S. Budget Deficit Widens to Record in Fiscal 2008

U.S. Retail Sales Drop 1.2% in September

PPI Still Troublesome

U.S. Retail Sales Drop 1.2% in September

U.S. Chain Store Sales Rose

U.S. Small Business Optimism Rose Further