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/071010e.jpg" width="353">
Last Friday, we wrote here about the current ECB survey of bank lending policies. A couple of weeks ago, the Bank of England published the first results of a similar, brand new survey of bank and nonbank lenders in the UK. These survey results for Q2 and Q3 were published together on September 26 and they were added to Haver&#39;s UK database this past Monday. Survey questions cover secured loans to households and small business, unsecured loans to households and small business and overall lending to corporations, each queried for the lenders&#39; experience over the past three months and their expectations for the coming three months. The Q2 survey was taken between May 21 and June 14 and Q3 between August 20 and September 13. Here is a brief summary of what the survey showed. Keep in mind that there are just two datapoints for each item so far; responses are shown as net balance figures compiled from a 5-point rating scheme: down or negative a lot, down a little, unchanged, up a little and up a lot.
Secured Lending to Households. Lenders reported in June that they had reduced the availability of secured credit to households just slightly during the spring, with a reading of -2.9 on this question. They expected then to increase availability distinctly over the summer, with a &quot;next 3 months&quot; reading of +13.4. However, by the September survey dates, it turns out that this credit supply was basically unchanged, at +0.1, but lenders still expect to be somewhat more liberal in the coming months, at +5.8. Changes in the economic outlook and in the lenders&#39; views on risk are the main factors making secured credit less available than expected in Q3. On the demand side, developments were mixed: demand for credit for house purchase, whether for owner-occupied or &quot;buy-to-let&quot;, was stronger (or less weak) than expected in Q3, but demand for &quot;remortgaging&quot; and other secured credit was less than expected. Other survey questions cover pricing, including both spreads and fees and other lending terms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010f.jpg" width="353"> 
Unsecured Lending to Households. In June, lenders said they had been restrictive on balance in granting unsecured credit to households during Q2, with a reading of -14.3, but they were planning to be more liberal, at +4.9, over the summer. However, as it turned out, they remained restrictive in Q3, again showing a double-digit negative, at -10.2. Further, they expected to remain a little tight in Q4 at -2.9. At the same time, the proportion of loan applications approved has gone up. Compared with the expectation of +5.2, the Q3 outcome was +15.0; both credit card and &quot;other&quot; unsecured loan categories had this general pattern. Demand for this type of borrowing was mildly weaker than expected, showing slightly negative readings in contrast to expectations of small positives. Small business credit demand was more clearly negative than expected. Pricing, i.e., spreads, was more favorable for lending in Q3 than in Q2 and also more favorable than had been expected. 
Lending to Corporations. Major business lending policies were significantly more restrictive in Q3 than they had been in Q2 and also than they were expected to be then. Credit availability was +1.8 in Q2 and anticipated to be flat in Q3. Instead, it was -20.2 in Q3 and it is expected to become much more restricted in Q4 at -49.3. All factors on credit supply which are queried on the survey were more negative in the later polling. These include sector-specific risks and pressure from capital markets, as well as more general factors also queried with household lending: economic outlook, appetite for risk, cost and availability of funding and market share objectives. Loan demand from both large and medium-size nonfinancial corporations (PNFCs) became weaker over the summer. That from &quot;other financial corporations&quot; (OFCs) generally went from flat or modestly positive to modestly negative. Balance sheet restructuring and a slowing commercial real estate market are seen as the factors impinging most on the demand shifts. 
In our third graph, we show one of the non-price features of lending policy, the lender&#39;s fees and commissions. The graph shows the impact of this on credit volume, so the positive bars indicate a reduction in fees and the negative bars show a increase. Thus, these survey results say that lenders had cut their fees in Q2 and expected to do so again in Q3. But instead they raised their fees -- discouraging borrowing -- and intend to do so even more in Q4.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010g.jpg" width="353">
As is evident from these overly terse comments, this survey is comprehensive, covering many of the determinants of credit supply and demand at lending institutions. The Bank of England points out that when data on flows and outstandings are examined, it is not possible to tell whether a change is due to supply or demand factors. This survey will help considerably to assess those developments, and as we see here, they are not uniform over credit sectors, so the three-part survey is a most helpful approach. The present results are too sketchy, though, to compare with actual lending patterns. It will take time to accumulate results that permit matching survey readings, such as a +10 or a -20, with specific loan volumes. We wish we could do that now!

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Last Friday, we wrote here about the current ECB survey of bank lending policies. A couple of weeks ago, the Bank of England published the first results of a similar, brand new survey of bank and nonbank lenders in the UK. These [...]

New Bank of England Credit Survey Shows Tightening Availability Amidst Mixed Demand from Borrowers

Robert Brusca

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<img align="left" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010d.jpg">
Survey backs off and points to weaker conditions ahead&#133; 
The German chamber of commerce survey (DIHK) is still strong, make no bones about that. But the survey is now off peak and clearly pointing to softer conditions ahead.Business expectations now sit at the lowest level among the respective percentiles of the components and that reading is still in the 83rdpercentile. The overall for economics conditions is in the 91stpercentile. The remaining indexes are all in their respective low 90s.
The chart on the left also looks at changes over one two and three years. (Survey reports three observations per year; plot on the chart is quarterly.) Economic conditions are up by 35 points over three years and 31 points over two years, so most of the rise has been in the last two years. In the current year the index is up by seven points compared to 31 points over two years. This is clear evidence that the rate of optimism is slowing down. The four point drop in the current quarter has not taken the year/year rise out of the series yet. The investment and hiring intention series show a similar slowing in the optimism in the past year after an outsized gain of the year before.
DIHK shows that while readings remain elevated, a slowing of some degree is in prospect.


<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=8 scope="col">DIHK-Balance of Economic Opinion</th>
</tr>
</thead>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Net Balance Readings</td>
<td colspan="3">Change</td>
<td>Range Q4&#39;91</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q4-07</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Yr Ago</td>
<td>2-Yr</td>
<td>3-Yr</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Economic Conditions</td>
<td>31</td>
<td>35</td>
<td>36</td>
<td>7</td>
<td>31</td>
<td>35</td>
<td>91.9</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Business Expectations</td>
<td>15</td>
<td>24</td>
<td>17</td>
<td>6</td>
<td>12</td>
<td>12</td>
<td>83.9</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Export Expectations</td>
<td>39</td>
<td>38</td>
<td>42</td>
<td>4</td>
<td>7</td>
<td>4</td>
<td>95.2</td>
</tr>

<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Investment Intentions</td>
<td>13</td>
<td>16</td>
<td>13</td>
<td>6</td>
<td>19</td>
<td>24</td>
<td>93.5</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Hiring Intentions</td>
<td>9</td>
<td>12</td>
<td>8</td>
<td>9</td>
<td>23</td>
<td>26</td>
<td>93.3</td>
</tr>




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Survey backs off and points to weaker conditions ahead The German chamber of commerce survey (DIHK) is still strong, make no bones about that. But the survey is now off peak and clearly pointing to softer conditions ahead.Business [...]

Germany's DIHK Survey Points to Slowdown

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010c.jpg" width="353">
EMU growth is cropping to be strong in Q3, at least for industrial output. In France manufacturing output excluding energy is up at a 9% annualized Q/Q rate. In Germany output is up at a 7.9% rate. In Spain it&#146;s up at an 8% rate. Even Italy shows a 4.4% rate of increase. The UK, an EU member, is showing slower IP growth in Q3 as output is up at just a 0.8% rate of increase. Sequential IP growth figures show us that growth has been accelerating in Germany, France and Italy. Spain shows sudden weakness in the most recent three months The UK shows some sporadic slowing as the recent rates of growth reveal a slow down over three months but over six months, a speed up.
On balance, despite weakening orders and slowdown assessment from Germany&#146;s Chamber of Commerce (DIHK) and weaker surveys from the Reuters NTC survey as well as from various national surveys, actual production has been on an accelerating run. What we see is that this acceleration is counter to what surveys say they now expect. Some of the divergence reflects inter-temporal discord and mismatch. Since the financial market situation only began to turn abruptly in August before mid month, it is the reports of the next several months that should be most revealing as far as output is concerned. Up to now what we see is that, despite some weaker (and more topical) survey findings, actual output has remained firm through August for the main economies of EMU. Separately what survey data tell us is this: don&#146;t get used to it.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th scope="col" colspan="8">Main Euro Area Countries and UK IP in MFG</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>

<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Month</td>
<td>6-month</td>
<td>12-month</td>
<td>Q2-Date</td>
</tr>
<tr>
<td class="firstcol">Germany: Mfg IP</td>

<td>1.8%</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>7.2%</td>
<td>5.6%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP ex Construction</td>

<td>0.3%</td>
<td>1.7%</td>
<td>-0.5%</td>
<td>6.3%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>9.0%</td>
</tr>
<tr>
<td class="firstcol">Italy: Mfg IP</td>

<td>1.5%</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>5.9%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain: Mfg IP</td>

<td>1.3%</td>
<td>1.7%</td>
<td>-4.2%</td>
<td>-5.3%</td>
<td>3.9%</td>
<td>0.5%</td>
<td>8.0%</td>
</tr>
<tr>
<td class="firstcol">UK: Mfg IP</td>

<td>0.4%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>1.2%</td>
<td>3.4%</td>
<td>0.6%</td>
<td>0.8%</td>
</tr>
</tbody>
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EMU growth is cropping to be strong in Q3, at least for industrial output. In France manufacturing output excluding energy is up at a 9% annualized Q/Q rate. In Germany output is up at a 7.9% rate. In Spain its up at an 8% rate. Even [...]

IP in Euro Area Still Growing Despite Slowing Signs

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010b.jpg" width="353">
The Department of Energy indicated yesterday that U.S. retail gasoline prices were $2.77 per gallon. That is down 47 cents, or 15%, from the recent high of $3.22 in the middle of May. But since the beginning of August, gasoline prices have moved sideways.
The lack of a further decline in gasoline prices continues to reflect the positive fundamentals including low inventories of gasoline, very low gasoline production and higher crude oil prices.
It might have been hoped that the recent downtick in crude oil prices would help gasoline prices decline further. That downtick likely reflects speculation of a warm Winter in the northern hemisphere and higher OPEC production.
But WTI crude oil prices of roughly $80 per barrel remain up 15% from the recent low of $70 per barrel in early August. The recent downtick in prices is from late September highs above $83 which were held for only a few days.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010a.jpg" width="353">
Spot market prices for home heating oil have moved slightly lower as well to $2.14 per gallon from the daily high of $2.22 reached last week. That price is, however, up from the low of $1.50 reached early this year.
Henry Hub prices for natural gas have moved higher ahead of the home heating season. The rise to 6.76 per million BTU is from the weekly low in early September. But those prices are down from last winter&#39;s high near 8.00
Energy statistics are available daily in Haver Analytics&#39; DAILY database, weekly in WEEKLY and OILWKLY, monthly/quarterly in USECON and OGJ, and annual in OGJANN. Data from Energy Intelligence are also available in OMI, NGW and WGI.
The minutes from the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071009a.htm">here</a>.
A Pattern of Regional Differences in the Effects of Monetary Policy from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q3/crone_pattern-regional-differences.pdf">here</a>.


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">Department of Energy</a></th>
<th scope="col">10/08/07</th>
<th scope="col">10/01/07 </th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Gasoline ($/gallon)</td>
<td>2.77</td>
<td>2.79</td>
<td>2.80</td>
<td>2.79</td>
<td>2.58</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Home Heating Oil ($/gallon)</td>
<td>--</td>
<td>2.14</td>
<td>2.15</td>
<td>1.96</td>
<td>1.59</td>
<td>1.63</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas $/mmbtu)</td>
<td>--</td>
<td>6.76</td>
<td>6.06</td>
<td>6.24</td>
<td>6.74</td>
<td>8.68</td>
</tr>
<tr>
<td class="firstcol">WTI Crude Oil ($/bbl.)</td>
<td>--</td>
<td>80.06</td>
<td>79.12</td>
<td>71.51</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>
</body>
</html>

The Department of Energy indicated yesterday that U.S. retail gasoline prices were $2.77 per gallon. That is down 47 cents, or 15%, from the recent high of $3.22 in the middle of May. But since the beginning of August, gasoline prices [...]

U.S. Gasoline Prices Move Further Sideways

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010b.jpg" width="353">
The Department of Energy indicated yesterday that U.S. retail gasoline prices were $2.77 per gallon. That is down 47 cents, or 15%, from the recent high of $3.22 in the middle of May. But since the beginning of August, gasoline prices have moved sideways.
The lack of a further decline in gasoline prices continues to reflect the positive fundamentals including low inventories of gasoline, very low gasoline production and higher crude oil prices.
It might have been hoped that the recent downtick in crude oil prices would help gasoline prices decline further. That downtick likely reflects speculation of a warm Winter in the northern hemisphere and higher OPEC production.
But WTI crude oil prices of roughly $80 per barrel remain up 15% from the recent low of $70 per barrel in early August. The recent downtick in prices is from late September highs above $83 which were held for only a few days.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010a.jpg" width="353">
Spot market prices for home heating oil have moved slightly lower as well to $2.14 per gallon from the daily high of $2.22 reached last week. That price is, however, up from the low of $1.50 reached early this year.
Henry Hub prices for natural gas have moved higher ahead of the home heating season. The rise to 6.76 per million BTU is from the weekly low in early September. But those prices are down from last winter&#39;s high near 8.00
Energy statistics are available daily in Haver Analytics&#39; DAILY database, weekly in WEEKLY and OILWKLY, monthly/quarterly in USECON and OGJ, and annual in OGJANN. Data from Energy Intelligence are also available in OMI, NGW and WGI.
The minutes from the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071009a.htm">here</a>.
A Pattern of Regional Differences in the Effects of Monetary Policy from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q3/crone_pattern-regional-differences.pdf">here</a>.


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">Department of Energy</a></th>
<th scope="col">10/08/07</th>
<th scope="col">10/01/07 </th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Gasoline ($/gallon)</td>
<td>2.77</td>
<td>2.79</td>
<td>2.80</td>
<td>2.79</td>
<td>2.58</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Home Heating Oil ($/gallon)</td>
<td>--</td>
<td>2.14</td>
<td>2.15</td>
<td>1.96</td>
<td>1.59</td>
<td>1.63</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas $/mmbtu)</td>
<td>--</td>
<td>6.76</td>
<td>6.06</td>
<td>6.24</td>
<td>6.74</td>
<td>8.68</td>
</tr>
<tr>
<td class="firstcol">WTI Crude Oil ($/bbl.)</td>
<td>--</td>
<td>80.06</td>
<td>79.12</td>
<td>71.51</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>
IP in Euro Area Still Growing Despite Slowing Signs 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 10, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010c.jpg" width="353">
EMU growth is cropping to be strong in Q3, at least for industrial output. In France manufacturing output excluding energy is up at a 9% annualized Q/Q rate. In Germany output is up at a 7.9% rate. In Spain it&#146;s up at an 8% rate. Even Italy shows a 4.4% rate of increase. The UK, an EU member, is showing slower IP growth in Q3 as output is up at just a 0.8% rate of increase. Sequential IP growth figures show us that growth has been accelerating in Germany, France and Italy. Spain shows sudden weakness in the most recent three months The UK shows some sporadic slowing as the recent rates of growth reveal a slow down over three months but over six months, a speed up.
On balance, despite weakening orders and slowdown assessment from Germany&#146;s Chamber of Commerce (DIHK) and weaker surveys from the Reuters NTC survey as well as from various national surveys, actual production has been on an accelerating run. What we see is that this acceleration is counter to what surveys say they now expect. Some of the divergence reflects inter-temporal discord and mismatch. Since the financial market situation only began to turn abruptly in August before mid month, it is the reports of the next several months that should be most revealing as far as output is concerned. Up to now what we see is that, despite some weaker (and more topical) survey findings, actual output has remained firm through August for the main economies of EMU. Separately what survey data tell us is this: don&#146;t get used to it.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th scope="col" colspan="8">Main Euro Area Countries and UK IP in MFG</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>

<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Month</td>
<td>6-month</td>
<td>12-month</td>
<td>Q2-Date</td>
</tr>
<tr>
<td class="firstcol">Germany: Mfg IP</td>

<td>1.8%</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>7.2%</td>
<td>5.6%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP ex Construction</td>

<td>0.3%</td>
<td>1.7%</td>
<td>-0.5%</td>
<td>6.3%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>9.0%</td>
</tr>
<tr>
<td class="firstcol">Italy: Mfg IP</td>

<td>1.5%</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>5.9%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain: Mfg IP</td>

<td>1.3%</td>
<td>1.7%</td>
<td>-4.2%</td>
<td>-5.3%</td>
<td>3.9%</td>
<td>0.5%</td>
<td>8.0%</td>
</tr>
<tr>
<td class="firstcol">UK: Mfg IP</td>

<td>0.4%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>1.2%</td>
<td>3.4%</td>
<td>0.6%</td>
<td>0.8%</td>
</tr>
</tbody>
</table>
Germany's DIHK Survey Points to Slowdown 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 10, 2007


<img align="left" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010d.jpg">
Survey backs off and points to weaker conditions ahead&#133; 
The German chamber of commerce survey (DIHK) is still strong, make no bones about that. But the survey is now off peak and clearly pointing to softer conditions ahead.Business expectations now sit at the lowest level among the respective percentiles of the components and that reading is still in the 83rdpercentile. The overall for economics conditions is in the 91stpercentile. The remaining indexes are all in their respective low 90s.
The chart on the left also looks at changes over one two and three years. (Survey reports three observations per year; plot on the chart is quarterly.) Economic conditions are up by 35 points over three years and 31 points over two years, so most of the rise has been in the last two years. In the current year the index is up by seven points compared to 31 points over two years. This is clear evidence that the rate of optimism is slowing down. The four point drop in the current quarter has not taken the year/year rise out of the series yet. The investment and hiring intention series show a similar slowing in the optimism in the past year after an outsized gain of the year before.
DIHK shows that while readings remain elevated, a slowing of some degree is in prospect.


<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=8 scope="col">DIHK-Balance of Economic Opinion</th>
</tr>
</thead>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Net Balance Readings</td>
<td colspan="3">Change</td>
<td>Range Q4&#39;91</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q4-07</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Yr Ago</td>
<td>2-Yr</td>
<td>3-Yr</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Economic Conditions</td>
<td>31</td>
<td>35</td>
<td>36</td>
<td>7</td>
<td>31</td>
<td>35</td>
<td>91.9</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Business Expectations</td>
<td>15</td>
<td>24</td>
<td>17</td>
<td>6</td>
<td>12</td>
<td>12</td>
<td>83.9</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Export Expectations</td>
<td>39</td>
<td>38</td>
<td>42</td>
<td>4</td>
<td>7</td>
<td>4</td>
<td>95.2</td>
</tr>

<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Investment Intentions</td>
<td>13</td>
<td>16</td>
<td>13</td>
<td>6</td>
<td>19</td>
<td>24</td>
<td>93.5</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Hiring Intentions</td>
<td>9</td>
<td>12</td>
<td>8</td>
<td>9</td>
<td>23</td>
<td>26</td>
<td>93.3</td>
</tr>


New Bank of England Credit Survey Shows Tightening Availability Amidst Mixed Demand from Borrowers 
by <a href="/comment/Stone.html">Carol Stone</a> October 10, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010e.jpg" width="353">
Last Friday, we wrote here about the current ECB survey of bank lending policies. A couple of weeks ago, the Bank of England published the first results of a similar, brand new survey of bank and nonbank lenders in the UK. These survey results for Q2 and Q3 were published together on September 26 and they were added to Haver&#39;s UK database this past Monday. Survey questions cover secured loans to households and small business, unsecured loans to households and small business and overall lending to corporations, each queried for the lenders&#39; experience over the past three months and their expectations for the coming three months. The Q2 survey was taken between May 21 and June 14 and Q3 between August 20 and September 13. Here is a brief summary of what the survey showed. Keep in mind that there are just two datapoints for each item so far; responses are shown as net balance figures compiled from a 5-point rating scheme: down or negative a lot, down a little, unchanged, up a little and up a lot.
Secured Lending to Households. Lenders reported in June that they had reduced the availability of secured credit to households just slightly during the spring, with a reading of -2.9 on this question. They expected then to increase availability distinctly over the summer, with a &quot;next 3 months&quot; reading of +13.4. However, by the September survey dates, it turns out that this credit supply was basically unchanged, at +0.1, but lenders still expect to be somewhat more liberal in the coming months, at +5.8. Changes in the economic outlook and in the lenders&#39; views on risk are the main factors making secured credit less available than expected in Q3. On the demand side, developments were mixed: demand for credit for house purchase, whether for owner-occupied or &quot;buy-to-let&quot;, was stronger (or less weak) than expected in Q3, but demand for &quot;remortgaging&quot; and other secured credit was less than expected. Other survey questions cover pricing, including both spreads and fees and other lending terms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010f.jpg" width="353"> 
Unsecured Lending to Households. In June, lenders said they had been restrictive on balance in granting unsecured credit to households during Q2, with a reading of -14.3, but they were planning to be more liberal, at +4.9, over the summer. However, as it turned out, they remained restrictive in Q3, again showing a double-digit negative, at -10.2. Further, they expected to remain a little tight in Q4 at -2.9. At the same time, the proportion of loan applications approved has gone up. Compared with the expectation of +5.2, the Q3 outcome was +15.0; both credit card and &quot;other&quot; unsecured loan categories had this general pattern. Demand for this type of borrowing was mildly weaker than expected, showing slightly negative readings in contrast to expectations of small positives. Small business credit demand was more clearly negative than expected. Pricing, i.e., spreads, was more favorable for lending in Q3 than in Q2 and also more favorable than had been expected. 
Lending to Corporations. Major business lending policies were significantly more restrictive in Q3 than they had been in Q2 and also than they were expected to be then. Credit availability was +1.8 in Q2 and anticipated to be flat in Q3. Instead, it was -20.2 in Q3 and it is expected to become much more restricted in Q4 at -49.3. All factors on credit supply which are queried on the survey were more negative in the later polling. These include sector-specific risks and pressure from capital markets, as well as more general factors also queried with household lending: economic outlook, appetite for risk, cost and availability of funding and market share objectives. Loan demand from both large and medium-size nonfinancial corporations (PNFCs) became weaker over the summer. That from &quot;other financial corporations&quot; (OFCs) generally went from flat or modestly positive to modestly negative. Balance sheet restructuring and a slowing commercial real estate market are seen as the factors impinging most on the demand shifts. 
In our third graph, we show one of the non-price features of lending policy, the lender&#39;s fees and commissions. The graph shows the impact of this on credit volume, so the positive bars indicate a reduction in fees and the negative bars show a increase. Thus, these survey results say that lenders had cut their fees in Q2 and expected to do so again in Q3. But instead they raised their fees -- discouraging borrowing -- and intend to do so even more in Q4.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010g.jpg" width="353">
As is evident from these overly terse comments, this survey is comprehensive, covering many of the determinants of credit supply and demand at lending institutions. The Bank of England points out that when data on flows and outstandings are examined, it is not possible to tell whether a change is due to supply or demand factors. This survey will help considerably to assess those developments, and as we see here, they are not uniform over credit sectors, so the three-part survey is a most helpful approach. The present results are too sketchy, though, to compare with actual lending patterns. It will take time to accumulate results that permit matching survey readings, such as a +10 or a -20, with specific loan volumes. We wish we could do that now!

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Louise Curley

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<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009e.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009h.jpg">
The balance of trade in goods in France improved from a deficit of 3.2 billion euros in July to 2.8 billion euros in August. In Germany, the surplus on trade in goods declined to 15.3 billion euros from 16.5 billion euros in July. Since month-to-month changes in the balance of trade in goods tend to be erratic, we calculated six-month averages (using the &quot;advance functions&quot; button) to get a better idea of the trends in the two balances. On this basis, the trend in France&#39;s balance of trade in goods appears to be still toward greater deficits, while the trend in Germany suggests that the recent rise in surpluses may be decelerating, as can be seen in the first chart.
The rise in the Euro that began in late 2005 has led to a reduction in the portion of exports to the United States as can be seen in the second and third charts. These charts show the dollar value of the euro (scale inverted) and the portion of French and German exports to the United States. The relationship between the exchange rate and portion of exports appears to be closer in Germany than in France, but both show that an increase in the euro tends to dampen the portion of exports to the U. S. However, since exports to the US are a relatively small part of total exports in both countries, the impact on total exports has been small. The U. S. accounted for about 7% of total French exports in 2006. For Germany, the corresponding figure was about 9%. By far the most important buyers of French and German exports are other members of the Euro Area who are unaffected by changes in the currency. Over the past three years, between 40 and 45% of France&#39;s exports of goods and between 50 and 53% of Germany&#39;s exports of goods went to other members of the Euro Area, as shown in the fourth chart.
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009g.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009f.jpg">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">TRADE IN GOODS--FRANCE AND GERMANY (Billions Euros)</th>
<th scope="col">Aug 07</th>
<th scope="col">Jul&nbsp; &nbsp; 07&nbsp;</th>
<th scope="col">Aug&nbsp; 06&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y Chg&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">FRANCE Balance</td>
<td>-2.8</td>
<td>-3.2</td>
<td>-3.0</td>
<td>0.4</td>
<td>0.2</td>
<td>-27.6</td>
<td>-22.7</td>
<td>-5.0</td>
</tr>
<tr>
<td class="firstcol">Total Exports</td>
<td>34.7</td>
<td>34.0</td>
<td>32.5</td>
<td>2.0</td>
<td>6.6</td>
<td>389.6</td>
<td>357.5</td>
<td>340.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports to Euro Area</td>
<td>17.2</td>
<td>16.9</td>
<td>16.9</td>
<td>1.7</td>
<td>1.6</td>
<td>194.4</td>
<td>180.7</td>
<td>173.9</td>
</tr>
<tr>
<td class="firstcol">Exports to US</td>
<td>2.1</td>
<td>2.2</td>
<td>2.1</td>
<td>-3.2</td>
<td>-1.8</td>
<td>26.4</td>
<td>25.1</td>
<td>23.0</td>
</tr>
<tr class="odd">
<td class="firstcol">GERMANY&nbsp; Balance</td>
<td>15.3</td>
<td>16.5</td>
<td>12.1</td>
<td>-1.2</td>
<td>3.2</td>
<td>162.2</td>
<td>157.8</td>
<td>154.0</td>
</tr>
<tr>
<td class="firstcol">Total Exports&nbsp;</td>
<td>82.7</td>
<td>80.3</td>
<td>73.7</td>
<td>2.0</td>
<td>12.4</td>
<td>893.8</td>
<td>783.7</td>
<td>726.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports to Euro Area</td>
<td>22.6</td>
<td>22.1</td>
<td>21.8</td>
<td>-3.2</td>
<td>-1.8</td>
<td>254.2</td>
<td>233.8</td>
<td>225.7</td>
</tr>
<tr>
<td class="firstcol">Exports to US</td>
<td>n.a.</td>
<td>6.1</td>
<td>6.3*</td>
<td>n.a..</td>
<td>-4.0*</td>
<td>78.0</td>
<td>68.8</td>
<td>94.1</td>
</tr>

<tr>
<td class="firstcol">EXCHANGE RATE&nbsp; US$/Euro</td>
<td>1.3626</td>
<td>1.3726</td>
<td>1.2810</td>
<td>-0.7</td>
<td>6.4</td>
<td>1.2560</td>
<td>1.2447</td>
<td>1.2439</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan=9>*July 2006&nbsp;&nbsp; n.a. not available</td>

</tr>
</tbody>
</table>
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The balance of trade in goods in France improved from a deficit of 3.2 billion euros in July to 2.8 billion euros in August. In Germany, the surplus on trade in goods declined to 15.3 billion euros from 16.5 billion euros in July. [...]

August Trade in Goods: a Dip in Germany's Surplus and a Small Improvement in France's Deficit

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009d.jpg" width="353">
Economy watchers index at five year low. 
Japan&#146;s economy watcher&#146;s index fell again for the six month running and extending a drop from a local peak reached back in March of 2006. The current future and employment indexes all are trending lower.The current economy watchers index and the employment components are at their five-year lows. The future index stands in the bottom 20% of its five-year range.
Japan&#146;s economy continues to emit irregular signals despite ongoing statements of optimism from the BOJ.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=8 scope="col">Key Japanese Surveys</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Yr range*</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
</tr>
<tr>
<td class="firstcol" colspan=8>Diffusion</td>

</tr>
<tr class="odd">
<td class="firstcol">Economy Watchers</td>
<td>44.1</td>
<td>44.7</td>
<td>46.0</td>
<td>46.8</td>
<td>0.0%</td>
<td>3.8%</td>
<td>25.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>48.3</td>
<td>51.2</td>
<td>51.2</td>
<td>50.7</td>
<td>0.0%</td>
<td>4.0%</td>
<td>27.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Future</td>
<td>46.5</td>
<td>46.7</td>
<td>48.4</td>
<td>50.0</td>
<td>19.8%</td>
<td>21.4%</td>
<td>34.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">NTC MFG</td>
<td>49.6</td>
<td>49.0</td>
<td>50.4</td>
<td>51.4</td>
<td>6.7%</td>
<td>0.0%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol" colspan=8>Econ Trends (Teikoku&#39;/50 neutral/weighted diffusion)</td>

</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>44.2</td>
<td>44.5</td>
<td>44.6</td>
<td>45.2</td>
<td>55.7%</td>
<td>63.2%</td>
<td>69.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail</td>
<td>38.3</td>
<td>37.9</td>
<td>39.2</td>
<td>39.6</td>
<td>39.6%</td>
<td>37.0%</td>
<td>52.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale</td>
<td>41.2</td>
<td>41.3</td>
<td>42.1</td>
<td>42.8</td>
<td>51.1%</td>
<td>56.6%</td>
<td>68.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>47.3</td>
<td>47.6</td>
<td>48.6</td>
<td>49.1</td>
<td>67.9%</td>
<td>74.0%</td>
<td>83.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>36.3</td>
<td>36.6</td>
<td>36.8</td>
<td>37.7</td>
<td>68.2%</td>
<td>71.9%</td>
<td>77.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan=8>100 is high; zero is low</td>

</tr>
</tbody>
</table>
</body>
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Japan's Economy Watcher’s Index Drops for Sixth Month in a Row

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

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New Bank of England Credit Survey Shows Tightening Availability Amidst Mixed Demand from Borrowers

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