Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071018a.jpg" width="353">
In September, the composite index of leading economic indicators gained back 0.3% of the prior month&#39;s 0.8% decline. It was revised from the initial report of a 0.6% decline, according to the Conference Board. 
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators index and the lagged change in real GDP.
The breadth of one month gains amongst the 10 components of the leading index improved to 75.0% from the abysmal 20% during August. Over a six month period, the breadth of gain amongst the leaders components was stable for the third month at 60%.
Higher stock prices, vendor performance and capital good orders made the largest positive contributions to the index&#39;s rise, offsetting a huge negative .20% contribution from lower building permits.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071018b.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% after a 0.1% rise during August. Over the last ten years there has been a 86% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging index rose a firm 0.5% during August mostly due to higher C&amp;I loans and a longer duration of unemployment. Nevertheless, the ratio of coincident to lagging indicators (a measure of economic excess) fell to its lowest level since 1991. 
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.3%</td>
<td>-0.8%</td>
<td>0.2%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.6%</td>
<td>3.0%</td>
<td>3.5%</td>
<td>0.6%</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Dipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 18, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071018g.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector dipped in October. The decline to 6.8 followed a great improvement in September to 10.9.
During the last ten years there has been a 59% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 42% correlation with q/q growth in real GDP.
Fewer new orders and shipments seemed to account for much of the overall decline in the general index while employment improved. During the last ten years there has been a 75% correlation between the employment index and the three-month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071018h.jpg" width="353">
The prices paid index improved to its highest level since August of last year. During the last ten years there has been a 76% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell slightly but remained near its best level since late in 2004. Expectations for new orders were quite firm and though expectations for the number of employees fell from its recent high, it remained firm.
Subprime Side Effects in the Federal Funds Market from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20071001/cover.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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">October</th>
<th scope="col">September &nbsp;</th>
<th scope="col">Oct. &#145;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>6.8</td>
<td>10.9</td>
<td>2.3&nbsp;</td>
<td>8.1</td>
<td>11.5</td>
<td>28.1</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>40.3&nbsp;</td>
<td>23.1&nbsp;</td>
<td>32.7&nbsp;</td>
<td>36.6</td>
<td>40.1</td>
<td>51.2</td>
</tr>
</tbody>
</table>
U.S. Initial Claims for Unemployment Insurance Jump 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 18, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071018c.jpg" width="353">
Initial claims for unemployment insurance jumped 28,000 to 337,000 last week and reversed all of the improvement of the prior five weeks.
The latest figure covers the survey period for October nonfarm payrolls and claims rose 24,000 (7.7%) from the September period.
The rise by far exceeded Consensus expectations for a gain to 313,000 claims. The four-week moving average of initial claims rose sharply to 316,500 (1.9% y/y).
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071018d.jpg" width="353">
Continuing claims for unemployment insurance rose for the second week in the last five but it did not reverse the declines during the prior two.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment was stable at 1.9%, off the peaks in August of 2.0% held for two consecutive weeks at month- end.
The latest Beige Book covering regional economic activity from the Federal Reserve Board can be found <a href="http:/www.federalreserve.gov/fomc/beigebook/2007/20071017/default.htm"> 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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/13/07 </th>
<th scope="col">10/06/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;337</td>
<td>309</td>
<td>9.4%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,534</td>
<td>3.7%</td>
<td>2,545</td>
<td>3.3%</td>
<td>2,459</td>
</tr>
</tbody>
</table>
EMU Trade Surplus Grows as Imports Steady and Exports Accelerate 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 18, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071018e.jpg" width="353">
European trade is proving to be resilient in the face of a strongly rising euro currency. Some of this is undoubtedly the reflection of true strength, but some is also the acumen of the European exporters who have learned to use markets to hedge and some perhaps to giving back some profit margins as the euro puts an increasingly strong squeeze on margins and makes even hedging less of a dodge for foreign exchange rate induced pressures. Euro area data show that foreign orders have been slipping and remarks by policymakers and businesses leaders indicate that businesses are feeling the pinch. So far the data only show that exports are not just growing but also accelerating. Imports have slowed and that is particularly clear in the six-month growth rates. Over three months both exports and imports are locked into some real strength. The growing surplus is again poised to augment EMU growth in Q3.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
E-zone 13-Trade Trends for Goods
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="2">m/m%</td>
<td colspan="3">% Saar</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr class="grey3">
<td class="firstcol">Balance*</td>
<td>&#128;&#128; 4,345</td>
<td>&#128;&#128; 809</td>
<td>&#128;&#128; 3,301</td>
<td>&#128;&#128; 3,650</td>
<td>&#128;&#128; 2,679</td>
</tr>
<tr class="grey2">
<td colspan="6">Exports</td>
</tr>
<tr class="grey1">
<td class="firstcol">All exports</td>
<td>4.9%</td>
<td>-0.9%</td>
<td>28.9%</td>
<td>11.9%</td>
<td>12.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food and drinks</td>
<td>2.8%</td>
<td>2.5%</td>
<td>36.5%</td>
<td>10.7%</td>
<td>13.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Raw materials</td>
<td>-0.6%</td>
<td>-1.5%</td>
<td>0.4%</td>
<td>9.5%</td>
<td>12.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">MFG</td>
<td>2.8%</td>
<td>-0.3%</td>
<td>26.1%</td>
<td>6.3%</td>
<td>11.5%</td>
</tr>
<tr class="grey2">
<td colspan="6">Imports</td>
</tr>
<tr class="grey1">
<td class="firstcol">All imports</td>
<td>2.0%</td>
<td>2.4%</td>
<td>27.7%</td>
<td>7.1%</td>
<td>6.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food and drinks</td>
<td>-0.1%</td>
<td>0.7%</td>
<td>22.7%</td>
<td>-2.7%</td>
<td>6.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Raw materials</td>
<td>0.2%</td>
<td>2.3%</td>
<td>19.5%</td>
<td>2.1%</td>
<td>6.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">MFG</td>
<td>0.5%</td>
<td>1.5%</td>
<td>23.3%</td>
<td>-0.8%</td>
<td>8.7%</td>
</tr>
<tr class="grey1">
<td colspan="6">*Million Euros; mo or period average</td>
</tr>
</tbody>
</table>
UK Retail Sales Accelerate  
by <a href="/comment/Brusca.html">Robert Brusca</a> October 18, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071018f.jpg" width="353">
UK retail sales are accelerating. The acceleration is real as the volume graph on the left shows. The table&#146;s growth calculations show that upsurge has not been steadily building but is nonetheless across the main categories over the past three months with food sales leading the nominal acceleration part of that due to prices, no doubt. Clothing sales are accelerating too, but that is after a flat six-month growth rate, and to a growth rate marginally stronger than the 12-month rate. The surge in volume growth in the last three months is striking. In the quarter now complete sales volumes are up at a 7.1% annualized pace.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK Real and Nominal Retail Sales
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAGo</td>
</tr>
<tr>
<td class="firstcol">Retail Total</td>
<td>0.5%</td>
<td>0.9%</td>
<td>-0.4%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Food Beverages &amp; Tobacco</td>
<td>0.9%</td>
<td>1.8%</td>
<td>-0.5%</td>
<td>8.8%</td>
<td>3.9%</td>
<td>3.6%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>0.6%</td>
<td>1.3%</td>
<td>-0.4%</td>
<td>6.0%</td>
<td>0.0%</td>
<td>5.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Retail Ex Auto</td>
<td>0.6%</td>
<td>0.7%</td>
<td>0.7%</td>
<td>7.9%</td>
<td>5.6%</td>
<td>6.2%</td>
<td>2.4%</td>
</tr>
</tbody>
</table>


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In September, the composite index of leading economic indicators gained back 0.3% of the prior month's 0.8% decline. It was revised from the initial report of a 0.6% decline, according to the Conference Board. During the last ten [...]

U.S. Leading Economic Indicators Rose

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/071017g.jpg" width="353">
News stories have already highlighted the substantial liquidation of US securities by foreign investors that is portrayed in the monthly Treasury International Capital System (TIC) data for August. As reported yesterday, investors from outside the US were net sellers of $34.9 billion worth of US long-term securities during the financial market chaos that plagued much of that month. By type, they sold equities most, $40.6 billion, and also Treasuries, $2.6 billion, and corporates, $1.2 billion; they bought $9.6 billion in Agency notes and bonds. Several aspects of this and other segments of the Treasury&#39;s TIC release are worthy of note.
First, we, as others, must comment on the dramatic change these figures show from the record net purchases in May. Then, foreign investors scooped up $170.1 billion in US securities, including sizable purchases of all four categories, especially equities at $42.0 billion and corporate bonds at $78.3 billion. Obviously the environment was different then.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017h.jpg" width="353">
Second, the behavior of private and official foreign investors differed considerably from each other in August. While each group has its own investment objectives, we are impressed with how this led them to act then. The net sales of Treasury securities were concentrated at foreign official institutions, at $29.7 billion. In almost a mirror image, private investors abroad were net purchasers of $27.3 billion. We&#39;d attribute the private purchases to the risk-aversion that became so important during the month, favoring the least risky assets, but that can&#39;t quite explain the net sales by central banks and governmental accounts elsewhere. A puzzle, like much of financial market activity in that period.
Third, there were also dramatic differences among countries. Investors in the UK remained net purchasers of total US securities, to the tune of $31.7 billion; as ever, this reflects the &quot;clearinghouse&quot; nature of the London markets, crisscrossing trades from around the world. Among other countries, the Chinese were net sellers, as might be expected, but &quot;just&quot; $10.1 billion. International parties in the offshore market centers of Bermuda and the Cayman Islands were also sizable sellers, as were the Japanese.
Fourth, through it all, Americans continued to buy foreign securities. See in the table, there was even a mild pickup in August relative to the previous couple of months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017i.jpg" width="353">
Fifth, besides long-term securities, of course, foreigners can certainly also invest in short-term securities. The TIC data system doesn&#39;t emphasize this, perhaps because those investments are, by definition, short-term. The recently revised format of the TIC press release does give this information. Sure enough, August &ndash; and even more in July &ndash; saw net purchases of short-term instruments, $33.9 billion in August and $56.2 billion in July. These compare with an average of $11.3 billion monthly during 2006 and net disinvestment of $4.0 billion in 2005. Private investors moved into Treasury bills in August while selling other short-term items.
Finally, the Treasury also reports monthly data on banks&#39; net dollar-denominated liabilities. These had a net reduction of $111.4 billion in August, a swing from an increase of $40.9 billion in July. We point this out to grab still another opportunity to repeat our own mantra about capital flows and the nation&#39;s current account. The differential pattern of all these assets movements compared to each other and to prior months should indicate that a variety of motives influence funds flows in world markets and among world institutions. During August, foreign investors were net sellers of US long-term securities, but so were US investors. Private foreign investors and US investors ran to Treasuries, both long-term and Treasury bills. There is no specific aspect of any of these flows that relates to financing of US trade activity. There is lots of it that relates to the financing of US housing markets and corporate activities. Those had been attractive investment sectors for everyone; they are less so now, regardless of where investors are domiciled.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases from US Residents, Bil $</th>
<th scope="col">August 2007</th>
<th scope="col">July &nbsp; 2007</th>
<th scope="col">June &nbsp; 2007</th>
<th scope="col">May &nbsp; 2007</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Last 12 Months</td>
<td>2006</td>
<td>2005</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Headline&quot;: Net Foreign Purchases = 1 + 2 + Other*</td>
<td>-85.5</td>
<td>-2.7</td>
<td>84.4</td>
<td>117.2</td>
<td>49.5</td>
<td>62.0</td>
<td>58.0</td>
</tr>
<tr>
<td class="firstcol">1. Domestic Securities</td>
<td>-34.9</td>
<td>25.0</td>
<td>121.7</td>
<td>170.1</td>
<td>92.1</td>
<td>97.2</td>
<td>84.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>-2.6</td>
<td>-9.4</td>
<td>24.7</td>
<td>22.7</td>
<td>15.3</td>
<td>17.3</td>
<td>28.2</td>
</tr>
<tr>
<td class="firstcol"> Agencies</td>
<td>9.6</td>
<td>8.7</td>
<td>35.6</td>
<td>27.0</td>
<td>22.3</td>
<td>24.5</td>
<td>18.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>-1.2</td>
<td>4.5</td>
<td>28.5</td>
<td>78.3</td>
<td>41.0</td>
<td>42.8</td>
<td>31.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>-40.6</td>
<td>21.2</td>
<td>28.8</td>
<td>42.0</td>
<td>13.4</td>
<td>12.6</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">2. Foreign Securities&nbsp;</td>
<td>-34.5</td>
<td>-5.5</td>
<td>-21.8</td>
<td>-37.6</td>
<td>-26.6</td>
<td>-21.0</td>
<td>-14.4</td>
</tr>
<tr>
<td class="firstcol">3. Short-Term Sec&#39;s &amp; Custody Holdings</td>
<td>33.9</td>
<td>56.2</td>
<td>-16.0</td>
<td>2.5</td>
<td>11.1</td>
<td>11.3</td>
<td>-4.0</td>
</tr>
<tr>
<td class="firstcol">4. Banks&#39; Liabilities</td>
<td>-111.4</td>
<td>40.9</td>
<td>-15.4</td>
<td>-3.6</td>
<td>-4.7</td>
<td>15.4</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Total TIC Flows**&nbsp; </td>
<td>-163.0</td>
<td>94.3</td>
<td>53.1</td>
<td>116.0</td>
<td>55.9</td>
<td>88.6</td>
<td>55.4</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>-10.1</td>
<td>4.5</td>
<td>21.2</td>
<td>11.1</td>
<td>10.0</td>
<td>9.7</td>
<td>7.4</td>
</tr>
<tr>
<td class="firstcol">United Kingdom</td>
<td>31.7</td>
<td>25.1</td>
<td>55.4</td>
<td>65.5</td>
<td>35.7</td>
<td>26.5</td>
<td>26.4</td>
</tr>
<tr>
<td class="firstcol">Cayman Islands</td>
<td>-14.7</td>
<td>-16.4</td>
<td>9.6</td>
<td>1.0</td>
<td>7.3</td>
<td>12.1</td>
<td>4.1</td>
</tr>
</tbody>
</table>
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News stories have already highlighted the substantial liquidation of US securities by foreign investors that is portrayed in the monthly Treasury International Capital System (TIC) data for August. As reported yesterday, investors [...]

TIC Data Show Foreign Investors Made the Same Kinds of Decisions in August that Domestic Investors Did

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017f.jpg" width="353">
Japan&#146;s economic signals took a turn for the better in August as the sector indexes for manufacturing and mining as well as for the services sector (the tertiary index) advanced strongly in August. Each of these sectors show the highest readings in their respective ranges since February 1993. The manufacturing and mining index is on a strong surge. The tertiary index is slower but steadily gaining trend.These readings come as the IMF in its twice-yearly World Economic Outlook (WEO) warned the BOJ not to hike rates too soon. Japan&#146;s recent economic readings have been erratic. Its price trends have not completely set the event of deflation behind it. So while these sector readings are good news they do not yet make the needed clear case for solid growth in Japan. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Japan Industry Surveys
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Aug-2007</td>
<td>Jul-2007</td>
<td>Jun-2007</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>111.9</td>
<td>108.1</td>
<td>108.5</td>
<td>109.5</td>
<td>108.4</td>
<td>108.2</td>
<td>111.9</td>
<td>87.7</td>
<td>100.0%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>111.3</td>
<td>109.9</td>
<td>110.3</td>
<td>110.5</td>
<td>110.1</td>
<td>109.7</td>
<td>111.3</td>
<td>91.0</td>
<td>100.0%</td>
</tr>
<tr>
<td colspan="10">Ranges, Max, Min since 1993</td>
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Japans economic signals took a turn for the better in August as the sector indexes for manufacturing and mining as well as for the services sector (the tertiary index) advanced strongly in August. Each of these sectors show the [...]

Japan’s MFG and Services Sectors Show Some Strength

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017d.jpg" width="353">
With a 10.2% m/m decline last month, housing starts at 1.191M units fell to the lowest level since 1992. Consensus expectations had been for a lesser drop to 1.29M starts. The August figure was little revised.
Single-family starts fell hard for the sixth straight month. At 963M units single family also fell to their lowest since 1992 with a 1.7% fall.
In September, the decline in single family starts was led by an 11.5% (-28.0 y/y) drop in the Midwest. In the West single family starts fell 1.4% (-32.2% y/y) and in the South the m/m decline was limited to 0.2% (-32.4% y/y). Single family starts in the Northeast actually posted a rise of 9.6% (-20.0% y/y) but that is no sign of stabilization as the level was still one third below the the 3Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017e.jpg" width="353">
Starts of multi-family structures fell by one third, month to month to the lowest level since 1994.
Building permits also were weak and fell 7.3% (-25.9% y/y) with single-family permits off a similar 7.1% (-28.6% y/y).
A Tale of Two Crisis from the Federal Reserve Board of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20071101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,191</td>
<td>1,327</td>
<td>1,371</td>
<td>-30.8%</td>
<td>1,812</td>
<td>2,073</td>
<td>1,950</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family</td>
<td>963</td>
<td>980</td>
<td>1,058</td>
<td>-30.8%</td>
<td>1,474</td>
<td>1,719</td>
<td>1,604</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-Family</td>
<td>228</td>
<td>347</td>
<td>313</td>
<td>-30.9%</td>
<td>338</td>
<td>354</td>
<td>345</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,226</td>
<td>1,322</td>
<td>1,389</td>
<td>-25.9%</td>
<td>1,842</td>
<td>2,159</td>
<td>2,058</td>
</tr>
</tbody>
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With a 10.2% m/m decline last month, housing starts at 1.191M units fell to the lowest level since 1992. Consensus expectations had been for a lesser drop to 1.29M starts. The August figure was little revised. Single-family starts [...]

U.S. Housing Starts Lowest Since 1992

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017a.jpg" width="353">
The consumer price index (CPI-U) rose 0.3% last month and that was the quickest since May. At 2.8%, the y/y rise also picked up and was the fastest since March. The September increase was slightly ahead of expectations for a 0.2% gain.
Food &amp; beverage prices continued with a pattern of steadily increasing rates of change with a 0.5% (4.4% y/y) rise. That y/y increase is double the rate of last December. Prices for meats, poultry &amp; fish firmed by 0.5% (5.5% y/y) and prices of dairy product prices jumped another 1.0% with the y/y gain a whopping 13.2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017b.jpg" width="353">
Energy prices were somewhat tame last month, rising just 0.3%, but gasoline prices (+8.7% y/y y/y) rose slightly for the first month in the last four. Fuel oil prices jumped 1.0% (6.5% y/y) but natural gas &amp; electricity prices rose 0.1% (1.4% y/y) after five consecutive months of decline.
Core consumer price inflation held stable at 0.2% for the fifth month in the last six and the y/y increase held stable with August at 2.1%.
Core goods prices fell just slightly as they did in August. Apparel prices again reversed direction and rose 0.3% (-1.7% y/y) after a 0.5% August decline and a 0.4% July increase. New &amp; Used motor vehicle prices were under pressure and fell 0.2% (-1.3% y/y) while prices of household furnishings &amp; operation fell for the third straight month by 0.2% (-0.7% y/y).Tobacco prices again provided much of the lift to goods price inflation with an accelerated 0.8% (7.5% y/y) rise.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017c.jpg" width="353">
Core services prices rose slightly faster than in August by 0.3% (3.3% y/y) following four consecutive months at 0.3%. Shelter prices rose 0.3% (3.5% y/y) reflecting a 0.3% (2.9% y/y) rise in owners equivalent rent of primary residence, a measure not at all equivalent to straight house price measures. Inflation of public transportation prices has picked up recently and showed a second straight 0.5% (0.5% y/y) increase while medical care services prices rose a somewhat diminished 0.4% (5.6% y/y). Education service prices rose just 0.2% (5.3% y/y) but communication prices were unchanged (-0.6% y/y).
The chained CPI, which adjusts for shifts in the mix of consumer purchases rose 0.3% (2.3% y/y) the core measure also rose 0.3%, 1.7% y/y.
Minutes of the Federal Reserve Board Discount Rate Meetings, August 16 through September 18, 2007 are available <a href="http://www.federalreserve.gov/newsevents/press/monetary/monetary20071016a1.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods less Food &amp; Energy</td>
<td>-0.0%</td>
<td>-0.0%</td>
<td>0.1%</td>
<td>-0.8%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.3%</td>
<td>3.4%</td>
<td>2.8%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>0.3%</td>
<td>-3.2%</td>
<td>-1.0%</td>
<td>5.4%</td>
<td>11.1%</td>
<td>16.9%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food &amp; Beverages</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.4%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.3%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>2.3%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>1.7%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>


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The consumer price index (CPI-U) rose 0.3% last month and that was the quickest since May. At 2.8%, the y/y rise also picked up and was the fastest since March. The September increase was slightly ahead of expectations for a 0.2% [...]

U.S. CPI Gain Quickest Since May, Core Rate 0f 0.2% Stable

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017a.jpg" width="353">
The consumer price index (CPI-U) rose 0.3% last month and that was the quickest since May. At 2.8%, the y/y rise also picked up and was the fastest since March. The September increase was slightly ahead of expectations for a 0.2% gain.
Food &amp; beverage prices continued with a pattern of steadily increasing rates of change with a 0.5% (4.4% y/y) rise. That y/y increase is double the rate of last December. Prices for meats, poultry &amp; fish firmed by 0.5% (5.5% y/y) and prices of dairy product prices jumped another 1.0% with the y/y gain a whopping 13.2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017b.jpg" width="353">
Energy prices were somewhat tame last month, rising just 0.3%, but gasoline prices (+8.7% y/y y/y) rose slightly for the first month in the last four. Fuel oil prices jumped 1.0% (6.5% y/y) but natural gas &amp; electricity prices rose 0.1% (1.4% y/y) after five consecutive months of decline.
Core consumer price inflation held stable at 0.2% for the fifth month in the last six and the y/y increase held stable with August at 2.1%.
Core goods prices fell just slightly as they did in August. Apparel prices again reversed direction and rose 0.3% (-1.7% y/y) after a 0.5% August decline and a 0.4% July increase. New &amp; Used motor vehicle prices were under pressure and fell 0.2% (-1.3% y/y) while prices of household furnishings &amp; operation fell for the third straight month by 0.2% (-0.7% y/y).Tobacco prices again provided much of the lift to goods price inflation with an accelerated 0.8% (7.5% y/y) rise.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017c.jpg" width="353">
Core services prices rose slightly faster than in August by 0.3% (3.3% y/y) following four consecutive months at 0.3%. Shelter prices rose 0.3% (3.5% y/y) reflecting a 0.3% (2.9% y/y) rise in owners equivalent rent of primary residence, a measure not at all equivalent to straight house price measures. Inflation of public transportation prices has picked up recently and showed a second straight 0.5% (0.5% y/y) increase while medical care services prices rose a somewhat diminished 0.4% (5.6% y/y). Education service prices rose just 0.2% (5.3% y/y) but communication prices were unchanged (-0.6% y/y).
The chained CPI, which adjusts for shifts in the mix of consumer purchases rose 0.3% (2.3% y/y) the core measure also rose 0.3%, 1.7% y/y.
Minutes of the Federal Reserve Board Discount Rate Meetings, August 16 through September 18, 2007 are available <a href="http://www.federalreserve.gov/newsevents/press/monetary/monetary20071016a1.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods less Food &amp; Energy</td>
<td>-0.0%</td>
<td>-0.0%</td>
<td>0.1%</td>
<td>-0.8%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.3%</td>
<td>3.4%</td>
<td>2.8%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>0.3%</td>
<td>-3.2%</td>
<td>-1.0%</td>
<td>5.4%</td>
<td>11.1%</td>
<td>16.9%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food &amp; Beverages</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.4%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.3%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>2.3%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>1.7%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
U.S. Housing Starts Lowest Since 1992 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017d.jpg" width="353">
With a 10.2% m/m decline last month, housing starts at 1.191M units fell to the lowest level since 1992. Consensus expectations had been for a lesser drop to 1.29M starts. The August figure was little revised.
Single-family starts fell hard for the sixth straight month. At 963M units single family also fell to their lowest since 1992 with a 1.7% fall.
In September, the decline in single family starts was led by an 11.5% (-28.0 y/y) drop in the Midwest. In the West single family starts fell 1.4% (-32.2% y/y) and in the South the m/m decline was limited to 0.2% (-32.4% y/y). Single family starts in the Northeast actually posted a rise of 9.6% (-20.0% y/y) but that is no sign of stabilization as the level was still one third below the the 3Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017e.jpg" width="353">
Starts of multi-family structures fell by one third, month to month to the lowest level since 1994.
Building permits also were weak and fell 7.3% (-25.9% y/y) with single-family permits off a similar 7.1% (-28.6% y/y).
A Tale of Two Crisis from the Federal Reserve Board of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20071101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,191</td>
<td>1,327</td>
<td>1,371</td>
<td>-30.8%</td>
<td>1,812</td>
<td>2,073</td>
<td>1,950</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family</td>
<td>963</td>
<td>980</td>
<td>1,058</td>
<td>-30.8%</td>
<td>1,474</td>
<td>1,719</td>
<td>1,604</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-Family</td>
<td>228</td>
<td>347</td>
<td>313</td>
<td>-30.9%</td>
<td>338</td>
<td>354</td>
<td>345</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,226</td>
<td>1,322</td>
<td>1,389</td>
<td>-25.9%</td>
<td>1,842</td>
<td>2,159</td>
<td>2,058</td>
</tr>
</tbody>
</table>
Japan’s MFG and Services Sectors Show Some Strength 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017f.jpg" width="353">
Japan&#146;s economic signals took a turn for the better in August as the sector indexes for manufacturing and mining as well as for the services sector (the tertiary index) advanced strongly in August. Each of these sectors show the highest readings in their respective ranges since February 1993. The manufacturing and mining index is on a strong surge. The tertiary index is slower but steadily gaining trend.These readings come as the IMF in its twice-yearly World Economic Outlook (WEO) warned the BOJ not to hike rates too soon. Japan&#146;s recent economic readings have been erratic. Its price trends have not completely set the event of deflation behind it. So while these sector readings are good news they do not yet make the needed clear case for solid growth in Japan. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Japan Industry Surveys
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Aug-2007</td>
<td>Jul-2007</td>
<td>Jun-2007</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>111.9</td>
<td>108.1</td>
<td>108.5</td>
<td>109.5</td>
<td>108.4</td>
<td>108.2</td>
<td>111.9</td>
<td>87.7</td>
<td>100.0%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>111.3</td>
<td>109.9</td>
<td>110.3</td>
<td>110.5</td>
<td>110.1</td>
<td>109.7</td>
<td>111.3</td>
<td>91.0</td>
<td>100.0%</td>
</tr>
<tr>
<td colspan="10">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
TIC Data Show Foreign Investors Made the Same Kinds of Decisions in August that Domestic Investors Did 
by <a href="/comment/Stone.html">Carol Stone</a> October 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017g.jpg" width="353">
News stories have already highlighted the substantial liquidation of US securities by foreign investors that is portrayed in the monthly Treasury International Capital System (TIC) data for August. As reported yesterday, investors from outside the US were net sellers of $34.9 billion worth of US long-term securities during the financial market chaos that plagued much of that month. By type, they sold equities most, $40.6 billion, and also Treasuries, $2.6 billion, and corporates, $1.2 billion; they bought $9.6 billion in Agency notes and bonds. Several aspects of this and other segments of the Treasury&#39;s TIC release are worthy of note.
First, we, as others, must comment on the dramatic change these figures show from the record net purchases in May. Then, foreign investors scooped up $170.1 billion in US securities, including sizable purchases of all four categories, especially equities at $42.0 billion and corporate bonds at $78.3 billion. Obviously the environment was different then.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017h.jpg" width="353">
Second, the behavior of private and official foreign investors differed considerably from each other in August. While each group has its own investment objectives, we are impressed with how this led them to act then. The net sales of Treasury securities were concentrated at foreign official institutions, at $29.7 billion. In almost a mirror image, private investors abroad were net purchasers of $27.3 billion. We&#39;d attribute the private purchases to the risk-aversion that became so important during the month, favoring the least risky assets, but that can&#39;t quite explain the net sales by central banks and governmental accounts elsewhere. A puzzle, like much of financial market activity in that period.
Third, there were also dramatic differences among countries. Investors in the UK remained net purchasers of total US securities, to the tune of $31.7 billion; as ever, this reflects the &quot;clearinghouse&quot; nature of the London markets, crisscrossing trades from around the world. Among other countries, the Chinese were net sellers, as might be expected, but &quot;just&quot; $10.1 billion. International parties in the offshore market centers of Bermuda and the Cayman Islands were also sizable sellers, as were the Japanese.
Fourth, through it all, Americans continued to buy foreign securities. See in the table, there was even a mild pickup in August relative to the previous couple of months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071017i.jpg" width="353">
Fifth, besides long-term securities, of course, foreigners can certainly also invest in short-term securities. The TIC data system doesn&#39;t emphasize this, perhaps because those investments are, by definition, short-term. The recently revised format of the TIC press release does give this information. Sure enough, August &ndash; and even more in July &ndash; saw net purchases of short-term instruments, $33.9 billion in August and $56.2 billion in July. These compare with an average of $11.3 billion monthly during 2006 and net disinvestment of $4.0 billion in 2005. Private investors moved into Treasury bills in August while selling other short-term items.
Finally, the Treasury also reports monthly data on banks&#39; net dollar-denominated liabilities. These had a net reduction of $111.4 billion in August, a swing from an increase of $40.9 billion in July. We point this out to grab still another opportunity to repeat our own mantra about capital flows and the nation&#39;s current account. The differential pattern of all these assets movements compared to each other and to prior months should indicate that a variety of motives influence funds flows in world markets and among world institutions. During August, foreign investors were net sellers of US long-term securities, but so were US investors. Private foreign investors and US investors ran to Treasuries, both long-term and Treasury bills. There is no specific aspect of any of these flows that relates to financing of US trade activity. There is lots of it that relates to the financing of US housing markets and corporate activities. Those had been attractive investment sectors for everyone; they are less so now, regardless of where investors are domiciled.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases from US Residents, Bil $</th>
<th scope="col">August 2007</th>
<th scope="col">July &nbsp; 2007</th>
<th scope="col">June &nbsp; 2007</th>
<th scope="col">May &nbsp; 2007</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Last 12 Months</td>
<td>2006</td>
<td>2005</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Headline&quot;: Net Foreign Purchases = 1 + 2 + Other*</td>
<td>-85.5</td>
<td>-2.7</td>
<td>84.4</td>
<td>117.2</td>
<td>49.5</td>
<td>62.0</td>
<td>58.0</td>
</tr>
<tr>
<td class="firstcol">1. Domestic Securities</td>
<td>-34.9</td>
<td>25.0</td>
<td>121.7</td>
<td>170.1</td>
<td>92.1</td>
<td>97.2</td>
<td>84.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>-2.6</td>
<td>-9.4</td>
<td>24.7</td>
<td>22.7</td>
<td>15.3</td>
<td>17.3</td>
<td>28.2</td>
</tr>
<tr>
<td class="firstcol"> Agencies</td>
<td>9.6</td>
<td>8.7</td>
<td>35.6</td>
<td>27.0</td>
<td>22.3</td>
<td>24.5</td>
<td>18.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>-1.2</td>
<td>4.5</td>
<td>28.5</td>
<td>78.3</td>
<td>41.0</td>
<td>42.8</td>
<td>31.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>-40.6</td>
<td>21.2</td>
<td>28.8</td>
<td>42.0</td>
<td>13.4</td>
<td>12.6</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">2. Foreign Securities&nbsp;</td>
<td>-34.5</td>
<td>-5.5</td>
<td>-21.8</td>
<td>-37.6</td>
<td>-26.6</td>
<td>-21.0</td>
<td>-14.4</td>
</tr>
<tr>
<td class="firstcol">3. Short-Term Sec&#39;s &amp; Custody Holdings</td>
<td>33.9</td>
<td>56.2</td>
<td>-16.0</td>
<td>2.5</td>
<td>11.1</td>
<td>11.3</td>
<td>-4.0</td>
</tr>
<tr>
<td class="firstcol">4. Banks&#39; Liabilities</td>
<td>-111.4</td>
<td>40.9</td>
<td>-15.4</td>
<td>-3.6</td>
<td>-4.7</td>
<td>15.4</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Total TIC Flows**&nbsp; </td>
<td>-163.0</td>
<td>94.3</td>
<td>53.1</td>
<td>116.0</td>
<td>55.9</td>
<td>88.6</td>
<td>55.4</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>-10.1</td>
<td>4.5</td>
<td>21.2</td>
<td>11.1</td>
<td>10.0</td>
<td>9.7</td>
<td>7.4</td>
</tr>
<tr>
<td class="firstcol">United Kingdom</td>
<td>31.7</td>
<td>25.1</td>
<td>55.4</td>
<td>65.5</td>
<td>35.7</td>
<td>26.5</td>
<td>26.4</td>
</tr>
<tr>
<td class="firstcol">Cayman Islands</td>
<td>-14.7</td>
<td>-16.4</td>
<td>9.6</td>
<td>1.0</td>
<td>7.3</td>
<td>12.1</td>
<td>4.1</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071016e.jpg" width="353">
Contrary to expectations, the excess of pessimists over optimists among German institutional investors and analysts who participate in the ZEW survey did not increase in October but remained at 18.1%. The German financial types are still less pessimistic than they were a year ago in October 2006 when the excess of pessimists over optimists was 27.4%. Although less optimistic in October than in the peak of 88.7% in June, these financial types were still very optimistic concerning current macroeconomic conditions with optimists exceeding pessimists by 70.2%. The percent balances for expectations and for the appraisals of current conditions are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071016f.jpg" width="353">
In the survey, participants are asked to appraise the outlook for profits in some 13 industries. Profit expectations for the banking, insurance and construction industries were especially hard hit as a result of the US sub prime mortgage problem and its ramifications. Profit expectation in the banking industry went from an excess of optimists over pessimists of 21.0% in July to excesses of pessimists over optimists of 37.3% in August and 65.9% in September. Corresponding figures for the insurance industry were +23.7%, -13.2% and -30.8% and for the construction industry, 32.3%, 6.2%, -12.1%. Profit expectations in the banking and insurance industries improved slightly in October but were still in negative territory. Profit expectations in the construction industry deteriorated further in October. Profit expectations for the banking, insurance and construction industries are shown in the second chart together with profits in the telecommunication industry, the other industry for which profit expectations are negative territory. The deterioration in expectations for profits in the telecommunications industry has been going on since early 2004.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071016g.jpg" width="353">
Even among those industries whose profits expectations are brightest, there have been declines in the excess of optimists over pessimists as can be seen in the third chart that shows the profit expectations of the machinery, services, information technology and chemical industries.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ZEW SURVEY&nbsp;</th>
<th scope="col">Oct 07</th>
<th scope="col">Sep 07&nbsp;</th>
<th scope="col">Oct 06&nbsp;</th>
<th scope="col">M/M Dif&nbsp;</th>
<th scope="col">Y/Y Dif&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Expectations&nbsp; Next 6 Months&nbsp; &nbsp;(% balance)</td>
<td>-18.1</td>
<td>-18.1</td>
<td>-27.4</td>
<td>0.0</td>
<td>-9.3</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions&nbsp; (% balance)</td>
<td>70.2</td>
<td>74.4</td>
<td>42.9</td>
<td>-4.2</td>
<td>27.3</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.7</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol"> Profit Expectations Next 6 Months </td>
<td>Oct 07</td>
<td>Sep 07&nbsp;</td>
<td>Aug 07&nbsp;</td>
<td>Jul 07&nbsp;</td>
<td>Jun 07</td>
<td> May 07 </td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Banking (% balance)</td>
<td>-60.6</td>
<td>-65.9</td>
<td>-37.3</td>
<td>21.0</td>
<td>35.0</td>
<td>39.2</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Insurance (% balance)</td>
<td>-24.4</td>
<td>-30.8</td>
<td>-13.2</td>
<td>23.7</td>
<td>33.8</td>
<td>39.7</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Construction (% balance)</td>
<td>-13.5</td>
<td>-12.1</td>
<td>6.2</td>
<td>32.3</td>
<td>46.5</td>
<td>49.8</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Telecommunications (% balance)</td>
<td>-7.8</td>
<td>-11.7</td>
<td>-12.7</td>
<td>-16.2</td>
<td>-17.5</td>
<td>-21.2</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Machinery (% balance)</td>
<td>46.5</td>
<td>44.3</td>
<td>54.6</td>
<td>63.5</td>
<td>71.6</td>
<td>73.4</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Information Technology (% balance)</td>
<td>30.9</td>
<td>30.4</td>
<td>31.3</td>
<td>34.0</td>
<td>37.5</td>
<td>36.4</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Chemicals (% balance)</td>
<td>30.8</td>
<td>29.7</td>
<td>41.2</td>
<td>46.9</td>
<td>48.9</td>
<td>43.2</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Services (% balance)</td>
<td>30.3</td>
<td>29.4</td>
<td>33.4</td>
<td>37.9</td>
<td>45.5</td>
<td>45.4</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
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Contrary to expectations, the excess of pessimists over optimists among German institutional investors and analysts who participate in the ZEW survey did not increase in October but remained at 18.1%. The German financial types are [...]

Confidence Among German Investors Holds Steady: Slight Improvement in Profit Expectations

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071016i.jpg" width="353">
The chart on the left shows why there is talk of a BOE rate cut on the horizon. Not only are UK house prices losing their upward momentum, but inflation in the core HICP (excluding unprocessed food and energy) is showing sequentially lower rates of inflation. 
Over the most recent three months, the headline HICP rate is actually negative. Over six months the rate of change in the HICP is only 0.6%. The BOE does not have an inflation range targeted but its main or headline gauge at 1.8% Yr/Yr is below its 2% mark. The core inflation rates are even lower and pointing to deceleration, sending a clear signal of inflation under control and possibly falling too rapidly. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK HICP and RPI Inflation
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% MO/MO</td>
<td colspan="4">% saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">HICP</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>-0.4%</td>
<td>0.6%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">All Item RPI</td>
<td>0.2%</td>
<td>0.6%</td>
<td>-0.3%</td>
<td>1.8%</td>
<td>3.0%</td>
<td>4.0%</td>
<td>3.6%</td>
</tr>
<tr>
<td class="firstcol">RPIx</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>1.9%</td>
<td>2.8%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">RPI excl Seasonally Adjusted Food</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>1.9%</td>
<td>2.9%</td>
<td>3.9%</td>
<td>3.6%</td>
</tr>
<tr>
<td class="firstcol">Food &amp; Beverages</td>
<td>1.2%</td>
<td>0.6%</td>
<td>-0.9%</td>
<td>4.0%</td>
<td>5.0%</td>
<td>4.2%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Housing and HH expenditures</td>
<td>0.4%</td>
<td>1.1%</td>
<td>-0.5%</td>
<td>4.1%</td>
<td>3.7%</td>
<td>6.5%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">Clothing &amp; Footwear</td>
<td>-0.3%</td>
<td>-0.8%</td>
<td>0.1%</td>
<td>-4.2%</td>
<td>-0.2%</td>
<td>-1.0%</td>
<td>-0.7%</td>
</tr>
<tr>
<td class="firstcol">Leisure Services</td>
<td>0.4%</td>
<td>0.6%</td>
<td>-0.1%</td>
<td>3.8%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Leisure Goods</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>-3.9%</td>
<td>-3.2%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">Motoring expenditures</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>-3.1%</td>
<td>3.1%</td>
<td>1.1%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">Fares and travel costs</td>
<td>-3.6%</td>
<td>1.6%</td>
<td>0.0%</td>
<td>-8.0%</td>
<td>2.9%</td>
<td>6.0%</td>
<td>0.2%</td>
</tr>
</tbody>
</table>
</body>
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The chart on the left shows why there is talk of a BOE rate cut on the horizon. Not only are UK house prices losing their upward momentum, but inflation in the core HICP (excluding unprocessed food and energy) is showing sequentially [...]

UK Core Inflation Trends Turn Sharply Lower

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

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

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Nonfarm payrolls increased 22,000 during August after rising 79,000 in July, revised from 73,000 and falling 13,000 during June, revised from a 14,000 increase. Expectations had been for an 83,000 rise in the Action Economics Forecast Survey. The three-month average change in payrolls of 29,300 compared to 28,300 in July, but stood far below its high of 231,700 in January.

Average hourly earnings rose an expected 0.3% in August after unrevised gains of 0.3% in July and 0.2% in June. Earnings growth of 3.7% y/y equals that in June which is the lowest since July 2024, but has been trending lower from its 5.9% high in March 2022.

The unemployment rate, measured in the household survey, edged up m/m to an expected 4.3% from 4.2% in July and 4.1% in June. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, rose to 8.1% last month from 7.9% In July. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in August rose 38,000 after rising 77,000 in July.  Factory sector jobs declined 12,000, off for the fourth straight month. Durable goods employment fell 19,000 after rising 5,000, as motor vehicle & parts hiring declined 7,300 after a 2,000 July gain. Nondurables employment rose 7,000, reversing a 7,000 July decline. Construction sector employment weakened 7,000, down for the third straight month. The number of mining & logging industry jobs declined 6,000, also registering the fourth consecutive month of decline.

Private service-sector employment increased 63,000 during August after improving 85,000 in July. Increases varied greatly amongst service-sector categories. Private education & health sector employment rose 46,000 last month, following a 77,000 increase in July. The number of leisure & hospitality jobs rose 28,000 after a 6,000 gain. Trade, transportation & utilities employment gained 2,000, following a 5,000 increase, but financial activities employment weakened 3,000 after increasing 9,000 in July. The number of professional & business services jobs fell 17,000, down for the fourth straight month as temporary help employment declined 9,800, also off for the fourth month in a row. Information sector employment declined 5,000, after falling 7,000 in July and 3,000 in June. Transportation & warehousing hiring weakened 3,600 last month following a 6,300 drop.

Government sector payrolls declined 16,000 last month following a 2,000 rise. Federal government employment weakened 15,000 and has fallen for seven straight months. State government payrolls declined 13,000 after falling in each of the prior three months. To the upside, local government hiring rose 12,000 following a 17,000 July increase.

Private-sector average hourly earnings rose 0.3% (3.7% y/y) in August, the same as in July. Earnings in the goods-producing sector increased 0.4% (4.0% y/y) in August, double the July rise. In construction, earnings rose 0.6% (4.2% y/y) following a 0.3% rise, while factory sector earnings improved 0.3% (3.9% y/y) after a 0.2% gain. In the service sector, earnings rose 0.3% (3.6% y/y) in August, the same as in July. Professional & business services pay increased 0.4% (5.0% y/y) for the second consecutive month while leisure & hospitality earnings also increased 0.4% (3.7% y/y) after two straight months of 0.3% increase. Information earnings rose 0.2% (4.6% y/y) for the second straight month.

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The length of the average workweek was 34.2 hours in August for the third straight month. The workweek in the goods-producing sector eased to 39.8 hours from 39.9 hours in July. The construction sector average workweek held at 39.0 hours while the factory sector workweek eased to 40.0 hours from 40.2 hours. The average workweek in the private service sector held at 33.2 hours. Information sector hours edged up to 37.0 from 36.9. Financial activities hours held at 37.6. Private education & health services hours eased to 32.7 from 32.8 in July.

In the **household survey**, the unemployment rate increased to 4.3% in August after rising to 4.2% in July from 4.1% in June as employment rose 288,000 after falling 260,000 in July and the size of the labor force increased 436,000 after three straight months of decline. The labor force participation rate rose to 62.3% last month from 62.2%, remaining well below the high of 63.3% early in 2020. The rate for teenagers eased to 34.8%, a five-year low. For workers aged 20-24, the rate plunged to 70.2%, a four year-low. For workers aged 25-54, the participation rate increased to 83.7%, an eleven-month high. For individuals 55 and over, the rate held steady at 38.1% but remained near a 20-year low of 38.0% in June.

The employment/population ratio for all workers steadied at 59.6% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic. For men, the rate rose to 65.0% from 64.7% in July and for women, the rate eased to 54.5 % on the heels of a slip to 54.7% in July.

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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- Hiring weakens broadly; factory, construction & government jobs decline.
- Earnings gain slows y/y.
- Unemployment rate increases as job growth lags rise in labor force.

U.S. Payroll Employment Report Reveals Unexpected Weakness in August; Earnings Rise Steadily, but Jobless Rate Increases

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Germany's factory orders declined for the third straight month in July. Real new orders fell 2.9% month-on-month in July, against expectations for a small increase. The drop was sharper than a 0.2% decrease in June; foreign orders declined 3.1% in July, as orders from the euro area contracted 3.8%, and orders from outside the euro area fell by 2.8%. These metrics suggest that demand both inside and outside the euro area remains weak. Domestic orders dropped 2.5% in July, an exact offset to their gain in June. When ranked on growth rates over the last 30 years, all three sector growth rates are below their medians (below a ranking of 50%). However, when ranked on the real index number level, total orders rank at their 55.6 percentile, foreign orders rank at their 79.5 percentile and domestic orders rank at their 15.2 percentile. All-in-all it’s an unimpressive report.

**Orders sequentially and QTD:** Sequential trends are ambivalent but still clearly weak. Sequential growth rates do not show a clear acceleration/deceleration pattern. But for total, foreign and domestic real orders, both 3-month and 12-month growth rates are negative (one exception: foreign orders over 12 months). Domestic orders show negative growth over 6 months as well. Quarter-to-date growth rates are negative for all sectors.

**Sales trends:** Real sales are mixed in July, rising 0.9% overall on declines in two sectors: consumer durables and intermediate goods. Sector sales mostly maintain growth as manufacturing sales are positive based on growth rates over 12 months, 6 months, and 3 months. Consumer goods and intermediate goods sales show deceleration and ongoing contraction. Consumer durable goods and intermediate goods show QTD declines. On the manufacturing & mining to total, manufacturing and capital goods show index standings above their respective 50% on 30 years of data. That also shows above-median growth rates on annual data along with consumer goods and consumer nondurable goods.

**Industrial confidence:** Industrial confidence measures for Germany, France, Italy, and Spain, the four largest EMU members, show improved (but still net negative readings) in July compared to June. Over three months and six months, Germany and Italy show some improvement; France still shows steady deterioration. Spain shows improvement over 3 months and it is only slight improvement. The queue standings for the industrial reading over 30 years of data show Spain with an above-median reading in July. Germany and France are exceptionally weak and Italy has been weaker only 26% of the time based on the queue standing measure. Not only are German orders and demand weak and faltering but the broad EU Commission measures of industrial confidence show broadly weak readings for the largest economies in the EMU.

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Germany

German Factory Orders Plunge on Domestic Weakness

Andrew Cates

**Gold prices and trade policy uncertainty**
This week’s record-breaking surge in gold prices has coincided with renewed volatility in trade policy uncertainty, reflecting the market’s heightened sensitivity to political and legal developments in Washington. A series of legislative challenges to the administration’s latest tariff measures has raised the prospect that parts of the policy framework could be overturned or significantly diluted. That possibility has injected another layer of uncertainty into an already fragile trade environment, amplifying demand for gold as a hedge. Investors appear to be weighing not only the inflationary risks of tariffs that remain in place but also the destabilizing effects of unpredictable policy reversals, leaving gold prices at historic highs and the trade policy uncertainty index elevated.

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**US Tariffs**
Although the data in this chart extend only through June 2025, they clearly illustrate which trading partners would gain the most if US tariff policies were to be reversed. China stands out as the most heavily penalised, with effective tariff rates rising by more than 25 percentage points in just six months. Japan and South Korea have also faced significant tariff hikes, suggesting that their exporters would benefit substantially from any policy rollback. Taiwan, India, and the EU also feature prominently, though at more moderate levels. By contrast, ASEAN economies, Australia, and the UK have seen relatively smaller increases, leaving them less exposed. In aggregate, a broad reversal of tariffs would most immediately alleviate the pressure on East Asian exporters—particularly China—while also reducing costs for US importers and consumers who have been disproportionately affected by higher prices on goods from the region.

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**The Indian economy and US trade policy** 
India faces a particularly sharp squeeze from the latest wave of US tariff hikes, given that the US now absorbs nearly one-fifth of its exports. The imposition of higher barriers has dealt a direct blow to key sectors, such as textiles and jewellery, while also undermining investor confidence. That pressure is clearly visible in the sharp depreciation of India’s trade-weighted currency, which has accelerated in 2025. Rather than offering a competitiveness boost, the weaker rupee has compounded difficulties by lifting import costs and stoking inflation at home. The result is that tariffs have both curtailed India’s export earnings and strained its domestic economy, leaving policymakers with limited options beyond seeking trade diversification and targeted support measures.

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**Global monetary policy** 
The latest Blue Chip Financial Forecasts survey helps explain why equity markets have remained upbeat despite escalating geopolitical and trade tensions. The survey points to an expected sizeable policy easing over the coming year, particularly in the US and UK where forecasters anticipate close to a full percentage point of rate cuts. Australia and Canada are also projected to deliver meaningful reductions, while the euro area is expected to ease more modestly. Japan stands out as the exception, with expectations tilted toward further tightening. For equities, these projections of broad-based rate cuts provide a crucial cushion—supporting valuations, lowering discount rates, and reinforcing the sense that policymakers are prepared to offset the drag from tariffs and slowing global growth.

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**Euro area inflation** 
By contrast with the US and UK, where forecasters in the latest Blue Chip Financial Forecasts survey anticipate close to a full percentage point of rate cuts, expectations for the ECB are more restrained. This reflects the fact that the ECB has already delivered a relatively large degree of policy easing, while headline inflation has now fallen back to levels close to its target. Even so, further rate reductions remain likely if underlying price pressures continue to moderate. As the chart shows, services inflation has begun to move lower in line with a clear decline in wage growth, suggesting that disinflationary momentum is building. Should this trend persist, the ECB will have scope to add to its easing cycle, though at a slower and more cautious pace than peers such as the Fed or the Bank of England.

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**Prices and cost pressures in the US corporate sector** 
Corporate profitability has long been one of the best leading signals for US equity cycles, and the measure here (Non-financial corporate profits per unit of output – i.e. profit margins) has slipped from its late-2023 peak and moved sideways for much of the past year. That’s not a collapse, but it does raise questions about how long equities can keep rising without stronger profit momentum. The recent Q2 uptick—a 1.8% annualised gain—came despite a hefty rise in non-labour costs, with margins protected by modest pricing power and a notable 2.2% drop in unit labour costs. Whether that labour relief reflects softer wage pressures or a structural productivity boost—potentially tied to AI—will be crucial in determining if profits can remain resilient, or if this plateau is the prelude to a downturn.

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Equity markets have lost a little ground in recent days and bond markets have been more jittery, as legal challenges to US tariff policies add to a tense backdrop of geopolitical meetings between China, Russia, and India. Gold’s surge to record highs arguably captures the search for safe havens amid this uncertainty (chart 1), while the possibility of tariff reversals keeps alive the prospect of relief for the most affected exporters, notably China, Japan, and South Korea (chart 2). India’s position looks more precarious, with its reliance on the US market colliding with a weakening trade-weighted currency as tariffs bite into growth and investor confidence (chart 3). Monetary policy expectations, however, continue to offer some support, with the latest Blue Chip Financial Forecasts survey pointing to sizeable easing in the US and UK (chart 4). The ECB is expected to tread more cautiously after earlier cuts and with headline inflation now near target. Still, if inflation continues to ease, further action remains possible (chart 5). In the US, corporate resilience is also helping offset some of the gloom: despite tariff-driven spikes in non-labour costs, falling unit labour costs—possibly aided by AI productivity gains—and firmer prices allowed profits per unit of output to rise in Q2 (chart 6).

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Charts of the Week: A Few Cuts More

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The U.S. ISM Services PMI increased to 52.0 in August after falling to 50.1 in July from 50.8 in June, according to the Institute for Supply Management. The index had been declining since it reached 53.5 in February. The index hit a recent high of 55.8 in October of last year and remains below the all-time high of 67.5 in November 2021. The Action Economics Forecast Survey expected a reading of 51.0 for August.

The ISM Composite Index combines the services index and the manufacturing index released on Tuesday. This index rose to 51.6 in August from 49.8 in July. This also was the highest level in six months.

Amongst the services component series, the business activity index rose to 55.0 last month after falling to 52.6 in July. Twenty-three percent (NSA) of respondents reported improved activity while 14.2% reported decline. The new orders index increased to 56.0 from 50.3 in July. Twenty-seven percent (NSA) of respondents reported improved orders while a lessened 16.2% reported decline. The employment series was little-changed in August at 46.5, after falling from 47.2 in June. A lessened 10.3% (NSA) of respondents reported increased employment while a lower 16.8% reported decline. Working lower, the supplier delivery series fell to 50.3 in August after rising to 51.0 in July. Four percent of respondents (NSA) reported faster delivery speeds while 4.5% reported slower speeds.

On the inflation front, the prices index eased to 69.2 after surging to 69.9 in July. A lessened 36.7% (NSA) of respondents reported higher prices while 2.6% reported lower prices. The index has increased from its December 2023 53.1.

Additionally, the new export orders index eased to 47.3 (NSA) in July following a decline to 47.9 in July. Twelve percent of survey respondents reported higher exports while 16.9% reported decline. The imports index surged to 54.6 last month after falling to 45.9 in July. A higher 18.9%% of respondents reported higher imports while a lessened 9.8% reported decline. The inventory change index rose to 53.2 from 51.8 and the order backlog index fell to 40.4 in August after rising to 44.3 in July. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries.

The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Total index rebounds to six-month high.	
- Business activity and new orders improve.
- Prices index eases.

U.S. ISM Services PMI Increases in August

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 54,000 (1.1% y/y) during August after increasing 106,000 in July, revised from 104,000 and declining an unrevised 23,000 in June. The Action Economic Forecast Survey expected a 75,000 increase in August.

Small business hiring (less than 50 employees) increased 12,000 (0.4% y/y) in August after an 8,000 July rise, revised from 12,000. Employment at medium-sized firms (50-499 employees) rose 25,000 (1.1% y/y) in August after increasing 53,000 in July, revised from 46,000. Large business hiring (500+ employees) gained 18,000 (2.4% y/y) following a 47,000 July increase, revised from 46,000.

Goods-producing employment rose 13,000 (1.3% y/y) after increasing 32,000 in July. Construction jobs increased 16,000 (2.4% y/y) following a 13,000 gain in July. Manufacturing jobs declined 7,000 (+0.1% y/y), after two months of moderate increase. Natural resources and mining jobs increased 4,000 (4.1% y/y) in August after rising 11,000 in July.

Service-producing jobs increased 42,000 (1.0% y/y) after a 74,000 July gain. Changes amongst industry sectors were mixed. Leisure & hospitality employment rose 50,000 (3.5% y/y) after increasing 45,000 in July. Professional & business jobs improved 15,000 (0.5% y/y) following a 9,000 increase. Information sector employment rose 7,000 (1.1% y/y) after increasing 9,000.  Working lower, trade, transportation & utilities employment fell 17,000 (+0.3% y/y) after rising 20,000 in July. Education & health services posted a 12,000 decline (+0.2% y/y) after falling 40,000 in July. This was the sixth decline in seven months. Financial activities employment slid 2,000 (+1.9% y/y) after a 28,000 strengthening.

By region, in the Northeast the number of jobs rose 15,000 (1.2% y/y) in August following four consecutive monthly declines. Jobs rose 14,000 (1.3% y/y) in the Midwest after increasing 12,000 in July. In the West, jobs rose 8,000 (0.8% y/y) following a 67,000 increase, and in the South, employment rose 4,000 (0.8% y/y) following a 40,000 July strengthening.

Wage growth for job-stayers continued to moderate in August as year/year growth of median annual pay weakened to 4.4% from 4.5% in July, the slowest pace since June 2021. The slowdown in wage growth for job-stayers was widespread across major industries. Wage growth for job-changers was steady at 7.1% y/y, but down from a high of 16.1% in April 2022.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Private payroll job increase is half July’s gain.
- Goods-producing employment slows as factory hiring falls; service-sector jobs also moderate.
- Job-stayer wage growth eases.

Economy in Brief: 2007

Jump to:

U.S. Leading Economic Indicators Rose

TIC Data Show Foreign Investors Made the Same Kinds of Decisions in August that Domestic Investors Did

Japan’s MFG and Services Sectors Show Some Strength

U.S. Housing Starts Lowest Since 1992

U.S. CPI Gain Quickest Since May, Core Rate 0f 0.2% Stable

U.S. CPI Gain Quickest Since May, Core Rate 0f 0.2% Stable

Confidence Among German Investors Holds Steady: Slight Improvement in Profit Expectations

UK Core Inflation Trends Turn Sharply Lower