Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005h.jpg" width="353">
THE OECD leading economic indicators trend adjusted are showing a sharp moderation in the regional key indexes. The US is reversing sharply after embarking on a strong upturn earlier in the year. The Euro area is continuing to show waning momentum as that index works its way lower from its peak in mid-2006. Japan is sliding lower at a sharp pace that belies the optimism policy officials there embrace.
The OECD prefers to look over six-month horizons on its indicators so the table below arrays them two different ways. The six-month panel at the table bottom shows why the OECD talks of the indicators as pointing to moderation in growth. Only Europe and Japan are declining on the six-month horizon among these three main areas, yet all but the US are decelerating. The OECD area as a whole has its trend restored LEI rising with the index up by 09%.
But the three-month rate of change at the top of the table tells the story that the circumspect OECD does not want to center on. Yes, these are more volatile calculations and they could be reversed. But the shorter three-month trend tells us that all of these regions are pointing to a decline. Unless some stability sets in soon the six-month indexes will soon be reflecting this same sort of weakness and will point to DECLINES as well. On both approaches Japan looks like it is in trouble. These signals are not compatible with central banks hiking rates anytime soon.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=5 scope="col">OECD Trend-Restored Leading Indicators</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="5" class="firstcol">Growth Progression-SAAR</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp;</td>
<td>3Mos</td>
<td>6Mos</td>
<td>12mos</td>
<td>Yr-Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td style="color:red;">-1.8%</td>
<td style="color:red;">0.9%</td>
<td style="color:red;">1.3%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD 7</td>
<td style="color:red;">-2.7%</td>
<td style="color:red;">0.6%</td>
<td style="color:red;">0.7%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td style="color:red;">-3.0%</td>
<td style="color:red;">-0.7%</td>
<td style="color:red;">0.3%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td style="color:red;">-7.6%</td>
<td style="color:red;">-4.3%</td>
<td style="color:red;">-1.9%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td style="color:red;">-0.3%</td>
<td>3.1%</td>
<td style="color:red;">2.1%</td>
<td>2.2%</td>
</tr>
<tr class="grey4">
<td colspan="5" class="firstcol">Six-Month Readings at 6-Mo Intervals:</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6Mo Ago</td>
<td>12Mo Ago</td>
<td>18MO Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td style="color:red;">0.9%</td>
<td>1.7%</td>
<td style="color:red;">0.8%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD 7</td>
<td style="color:red;">0.6%</td>
<td>0.8%</td>
<td style="color:red;">-0.1%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td style="color:red;">-0.7%</td>
<td style="color:red;">1.2%</td>
<td>2.4%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td style="color:red;">-4.3%</td>
<td>0.7%</td>
<td style="color:red;">0.2%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td>3.1%</td>
<td>1.1%</td>
<td style="color:red;">-0.9%</td>
<td>5.4%</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">Slowdowns indicated by BOLD RED</td>
</tr>
</tbody>
</table>
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THE OECD leading economic indicators trend adjusted are showing a sharp moderation in the regional key indexes. The US is reversing sharply after embarking on a strong upturn earlier in the year. The Euro area is continuing to show [...]

OECD Indicators Show Moderation in Growth Ahead

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/071005e.jpg" width="353">
For the last 5 years, the European Central Bank (ECB) has conducted a quarterly survey of senior bank lending officers at a representative sample of European banking institutions. Ordinarily, the survey takes place during the first month of each quarter with reference to the prior quarter (&quot;past 3 months&quot;) and the outlook for the current quarter (&quot;next 3 months&quot;). This time, however, the survey was advanced by a month to gain an earlier reading on the impact of the recent turmoil in world credit markets. The results do suggest that this situation has indeed had an impact.
Banks reported a sharp turn in lending policy toward businesses. They had been in a trend of gentle easing of credit standards since the middle of 2004, with readings in most quarters ranging from 0 to -10, where negative numbers indicate that more banks are easing than tightening up on lending practices and credit availability. In July, this measure was -3 but in this survey, just two months later (late September), it was +31 as many more banks shifted toward lending restraints on business customers. Details show this move was more potent for large companies (-1 to +33) as against small and medium-size firms (-7 to +15). It also hit long-term loans (-4 to +30) over short-term (-2 to +16). The survey also inquires about banks&#39; expectations for their strategy in the coming three months; they look for about the same degree of tightening during Q4, at +28.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005g.jpg" width="353">
Businesses&#39; demand for loans continued to expand in the latest survey, but at fewer banks than before. The demand reading was +17 in the July survey and averaged +19 in 2006. This latest figure is just +5, although bankers look for +11 in coming months.
Trends on loans to households differ. Banks report that they have tightened somewhat on home purchase lending, from a -1 rating in July to +12 in September; they expect slight further firming on credit conditions in the next few months, to +15. In contrast, they continued easing up on consumer credit and other loans, from -1 before to -3 most recently. They do, though, expect to tighten noticeably during Q4, to +11.
The bankers say that household loan demand is fairly weak, but this is also not a recent development. Demand for home purchase loans has been shrinking since Q4 2006, and in the latest two quarters has actually become somewhat less negative. The worst reading was April&#39;s -28, with a relative improvement to -22 in July and -15 in this latest survey. More weakening is anticipated, though, to -29 in the next 3 months. Other household lending has shown marginal gains in these last two quarters, although much less than earlier, as highlighted in the graph. A tiny net reduction is expected for the remainder of the year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005f.jpg" width="353">
This survey shows significant alterations in credit policies, then, in the very most recent months, along with slowing credit demands. These new trends are mostly expected to continue. The main intended use for this survey is a source of information for the ECB policymakers, and these results would seem to describe that lending institutions themselves are tightening credit, even without any further rate change by the ECB since June.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ECB Lending Survey, Net %-ages</th>
<th scope="col">Next 3 Months, Oct 2007</th>
<th scope="col" colspan="6">Past 3 Months</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>Oct 2007</td>
<td>July 2007</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr class="even">
<td colspan="8" class="firstcol">Credit Standards:&nbsp;&nbsp; + = Tighten, - = Ease</td>

</tr>
<tr>
<td class="firstcol">Business Loans</td>
<td>28</td>
<td>31</td>
<td>-3</td>
<td>-3</td>
<td>-7</td>
<td>7</td>
<td>40</td>
</tr>
<tr>
<td class="firstcol">Housing Loans</td>
<td>15</td>
<td>12</td>
<td>-1</td>
<td>-3</td>
<td>-3</td>
<td>4</td>
<td>12</td>
</tr>
<tr>
<td class="firstcol">Consumer Credit</td>
<td>11</td>
<td>-3</td>
<td>-1</td>
<td>-4</td>
<td>-3</td>
<td>1</td>
<td>15</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="8">Loan Demand</td>

</tr>
<tr>
<td class="firstcol">Business Loans</td>
<td>11</td>
<td>5</td>
<td>17</td>
<td>19</td>
<td>1</td>
<td>-8</td>
<td>-26</td>
</tr>
<tr>
<td class="firstcol">Housing Loans</td>
<td>-29</td>
<td>-15</td>
<td>-22</td>
<td>15</td>
<td>18</td>
<td>13</td>
<td>27</td>
</tr>
<tr>
<td class="firstcol">Consumer Credit</td>
<td>-1</td>
<td>2</td>
<td>5</td>
<td>22</td>
<td>6</td>
<td>4</td>
<td>-3</td>
</tr>
</tbody>
</table>
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For the last 5 years, the European Central Bank (ECB) has conducted a quarterly survey of senior bank lending officers at a representative sample of European banking institutions. Ordinarily, the survey takes place during the first [...]

Euro-Area Banks Tighten Lending Policies, According to Latest ECB Survey

Tom Moeller

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<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005a.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005d.jpg">
September nonfarm payrolls increased 110,000, slightly ahead of expectations for a 100,000 rise. And like a bad dream gone with the light of the next day, the previously reporteddecline in August payrolls was revised away and now shows an 89,000 increase. Adding to the good news was an upward revision to the July job gain as well.
Aggregate hours worked rose 1.2% (AR) last quarter versus a 2.1% increase during 2Q. This slowdown very much suggests slower growth in GDP versus the 3.8% 2Q rise.
From the establishment survey, the big upward revision to August jobs was to government payrolls, now estimated up 57,000 (1.0% y/y) versus the previously reported 28,000 decline. In September, government payrolls rose 37,000.
The increase in September private service sector jobs is now pegged at 106,000 and the previously reported 88,000 August gain now stands at 96,000. This year, these industries added an average of 123,000 per month versus last year&#146;s average of 159,000 per month.
The detail shows that retail employment fell 5,200 (+0.7% y/y) in September, the first decline since June. Financial sector jobs fell 14,000 (+0.5% y/y), the same as during a downwardly revised August. Professional &amp; business services employment rose 21,000 (1.8% y/y) after an upwardly revised 18,000 August increase.
Factory sector payrolls fell 18,000 (-1.6 y/y) after a little revised 45,000 worker decline during August. The accompanying chart indicates that these declines are at odds with the recent ISM reports of job growth in manufacturing.
Construction employment fell yet again, by 14,000 last month after an unrevised 22,000 worker decline during August. Construction employment has fallen an average 8,000 per month this year versus an average 11,000 increase per month during 2006.
The unemployment rate ticked up to 4.7% last month as household employment surged 463,000 (0.9% y/y), more than making up a 316,000 August decline. The number of job losers fell 40,000 (+12.0 % y/y) after an 11,000 August decline. The average duration of unemployment fell sharply to 16.5 weeks and that&#39;s down from the recent peak of 17.3 weeks during March. The labor force also more than made for the prior month&#39;s decline with a 573,000 (1.1% y/y) jump. The labor force participation rate recovered to 66.0% after its August dip to 65.8% which was the lowest since March 2005. The BLS commentary for the August drop was that much of it occurred amongst teenagers, who were apparently returning to school.
Average hourly earnings increased 0.4% after two monthly increases of 0.3%. As the chart shows these gains have decelerated lately. Factory sector earnings rose 0.2% (3.1% y/y) for the second month and private service producing earnings rose 0.4% for the fourth month in the last five.
Today&#39;s speech by Federal Reserve Vice ChairmanDonald L. Kohn on the Economic Outlook can be found <a href="http://www.federalreserve.gov/newsevents/speech/kohn20071004a.htm"> here</a>.
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005c.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005b.jpg">
<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/@EB/@EB01/@EB01.HTM">Employment</a> : 000s</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>110</td>
<td>89</td>
<td>93</td>
<td>1.2%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Previous</td>
<td>--</td>
<td>-4</td>
<td>68</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-18</td>
<td>-45</td>
<td>-4</td>
<td>-1.6%</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-14</td>
<td>-22</td>
<td>-16</td>
<td>-1.4</td>
<td>4.8%</td>
<td>5.2%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8 (Sept &#39;06)</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.7%</td>
<td>4.6%</td>
<td>4.6%</td>
<td>4.6% (Sept &#39;06)</td>
<td>4.6%</td>
<td>5.1%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
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September nonfarm payrolls increased 110,000, slightly ahead of expectations for a 100,000 rise. And like a bad dream gone with the light of the next day, the previously reporteddecline in August payrolls was revised away and now [...]

Like a Bad Dream Ended, September U.S. Payrolls and Revisions Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004d.jpg" width="353">
It&#39;s widely known that the housing market has been in a deep slump. And it&#39;s also said that the impact is not uniform across the country, but is concentrated in a number of select states. Some evidence for that arrived this morning in the form of housing starts data by state.
Ah, but the Census Bureau doesn&#39;t produce starts data for states, you argue. Indeed. But the researchers at Bank of Tokyo-Mitsubishi UFJ compile surrogates from the Census Bureau&#39;s building permits data and from the starts data for regions and their seasonal factors. The BOT-Mitsubishi series are available in Haver&#39;s REGIONAL database. The underlying building permits are in Haver&#39;s collection of state, county and metro area PERMITS databases.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004e.jpg" width="353">
In August, then, total national housing starts fell 36,000 units (SAAR) or 2.6% from July. They are 41.9% below their peak in January 2006. The regions are all quite distinct from the national total and from each other. In the Northeast, the Census data show that starts had moderate erosion until this last month; a 37.8% drop in that one month put them 60.2% below their peak, which was also in January 2006. This is now the biggest decline from peak of any region. In the West, starts fell 18.4% in August; they are now 53.5% below their peak, which occurred back in August 2005. In the other two regions, the South and the Midwest, starts rose in August. In the South, they were up 11.4%, and 4.2% in the Midwest. The South&#39;s activity level is 38.1% below its peak in January 2006 and the Midwest&#39;s, 44.5% below its peak in February 2005.
It is actually the Midwest that is perhaps most interesting.Recent mortgage delinquency data show a concentration of difficulties in this area, with Michigan and Ohio both experiencing significantly worse performances than most other states. But in both cases, construction of new houses has started to move higher. According to the Bank of Tokyo-Mitsubishi calculations, starts in Michigan, seen in the second graph, have risen from a mere 12,600 (seasonally adjusted annual rate) six months ago to 30,110 in August. This is still quite low by historical comparison, but the climb has been steady and progressive through the spring and summer. In Ohio, starts are up just moderately, but they have remained higher all year long since an apparent trough in January. The bottom in Illinois is more recent, April, but the pattern since then gives signs of stability.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004f.jpg" width="353">
The performances in other states indicate wide divergence. An easy comparison is between the two big Southern states, Florida and North Carolina. Both are well down in the last 18 months or so, but the plunge in Florida housing activity has been far steeper, 62% from a peak in February 2006. North Carolina&#39;s starts have held up relatively better, with a 25% decline since January 2006. Both states saw modest increases in August, but their monthly changes are erratic enough to keep us from concluding that there&#39;s an outright upturn in the works. The sudden drop in the Northeast occurred in New York, where starts plunged from 62,000 in July to just 29,000 in August; one state in the region saw an increase, New Jersey, but only modestly.
August starts were down in nearly every state in the West. California is perhaps most notable, but others, even those that had been hovering in a narrow range, saw their activity decline in the month. Ironically, one state we&#39;ve heard a lot about from a mortgage quality standpoint, Nevada, actually saw its housing starts increase, reaching their best level since April. Even so, the pace there, at 23,000 annual rate in August, is still only about half what it was two years before.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts, 000, SAAR</th>
<th scope="col">Aug 2007</th>
<th scope="col">July 2007</th>
<th scope="col">June 2007</th>
<th scope="col">Peak</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 US</td>
<td>1,331</td>
<td>1,367</td>
<td>1,468</td>
<td>2,292 (Jan 2006</td>
<td>1,801</td>
<td>2,068</td>
<td>1,956</td>
</tr>
<tr>
<td class="firstcol">Northeast</td>
<td>96</td>
<td>154</td>
<td>156</td>
<td>241 (Jan 2006)</td>
<td>167</td>
<td>190</td>
<td>175</td>
</tr>
<tr class="odd">
<td class="firstcol">Midwest</td>
<td>248</td>
<td>238</td>
<td>232</td>
<td>446 (Feb 2005)</td>
<td>28</td>
<td>357</td>
<td>356</td>
</tr>
<tr>
<td class="firstcol">South</td>
<td>716</td>
<td>643</td>
<td>726</td>
<td>1,156</td>
<td>910</td>
<td>996</td>
<td>908</td>
</tr>
<tr class="odd">
<td class="firstcol">West</td>
<td>271</td>
<td>332</td>
<td>354</td>
<td>583</td>
<td>444</td>
<td>525</td>
<td>516</td>
</tr>
</tbody>
</table>
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It's widely known that the housing market has been in a deep slump. And it's also said that the impact is not uniform across the country, but is concentrated in a number of select states. Some evidence for that arrived this morning in [...]

Housing Starts by State: Weak, Yes, But Gains in August Where You Wouldn't Expect

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004c.jpg" width="353">
In yet another sign of weakness in the U.S. housing market, the National Association of Realtors indicated that the August level of pending home sales fell 6.5% from July and 21.5% from one year earlier.
The latest monthly figure is 31.2% below the peak average level during 2005. The data date back only to 2001. These are home sales under contract but not yet closed.
In further confirmation of the slow rate of home sales, the Realtors indicated in an earlier report that the number of homes on the market and available for sale rose slightly in August to a level 19.2% above the year earlier level.
In the Western part of the nation, the down trend in pending home sales is most severe with a 27.1% drop.
Despite that relative severity out West, the drop in pending home sales is large and pervasive. In the Northeast, pending home sales are down 19.3%. That decline compares to an 18.0% decline in the Midwest and a 21.3% drop in the South.
The pending home sales data are available in Haver&#39;s PREALTOR database and the number of homes on the market are in the REALTOR database.
Whose part is it? Measuring domestic content of vehicles from the Federal Reserve bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cfloctober2007_243.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/WEEKLY/@W5/@W507/@W507.HTM">Pending Home Sales (2001=100) </a></th>
<th scope="col">August</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>
<td class="firstcol">Total</td>
<td>85.5</td>
<td>91.4</td>
<td>-21.5%</td>
<td>112.1</td>
<td>124.2</td>
<td>120.5</td>
</tr>
</tbody>
</table>
</body>
</html>

In yet another sign of weakness in the U.S. housing market, the National Association of Realtors indicated that the August level of pending home sales fell 6.5% from July and 21.5% from one year earlier. The latest monthly figure is [...]

U.S. Pending Home Sales Collapse

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004a.jpg" width="353">
During the last week of September, initial claims for unemployment insurance rose 16,000 to 317,000. The latest was the highest level since the first week of last month. The Labor Department indicated that there were no special factors that distorted these readings.
The gain exceeded expectations for a lesser rise to 310,000 but left the average level of claims last month at 313,000. That was down 10,000 from August.
The trend in initial jobless insurance claims still is down from the August peak level of 325,000. That is suggestive that fewer individuals are losing their jobs, although the accompanying chart from the Labor Department&#39;s Household Employment survey indicates a rising layoff rate.
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.
The four-week moving average of initial claims fell to 312,750 (-0.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004b.jpg" width="353">
Continuing claims for unemployment insurance fell 10,000 to 2,541 and reversed all of the increase during the prior week. Continuing claims have stabilized at a level off the August peak of 2,597, suggesting that the pace of rehiring may have picked up. That also is suggested by the accompanying chart which shows that the recent rise in the duration of unemployment has stabilized.
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.
Will Monetary Policy Become More of a Science? from Federal Reserve Board Governor Frederic S. Mishkin can be found <a href="http://www.federalreserve.gov/pubs/feds/2007/200744/200744pap.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">09/29/07 </th>
<th scope="col">09/22/07 </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;317</td>
<td>301</td>
<td>2.3%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,541</td>
<td>4.1%</td>
<td>2,545</td>
<td>3.3%</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body>
</html>

During the last week of September, initial claims for unemployment insurance rose 16,000 to 317,000. The latest was the highest level since the first week of last month. The Labor Department indicated that there were no special [...]

U.S. Initial Jobless Insurance Claims Up, Perhaps Rehiring as Well

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004a.jpg" width="353">
During the last week of September, initial claims for unemployment insurance rose 16,000 to 317,000. The latest was the highest level since the first week of last month. The Labor Department indicated that there were no special factors that distorted these readings.
The gain exceeded expectations for a lesser rise to 310,000 but left the average level of claims last month at 313,000. That was down 10,000 from August.
The trend in initial jobless insurance claims still is down from the August peak level of 325,000. That is suggestive that fewer individuals are losing their jobs, although the accompanying chart from the Labor Department&#39;s Household Employment survey indicates a rising layoff rate.
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.
The four-week moving average of initial claims fell to 312,750 (-0.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004b.jpg" width="353">
Continuing claims for unemployment insurance fell 10,000 to 2,541 and reversed all of the increase during the prior week. Continuing claims have stabilized at a level off the August peak of 2,597, suggesting that the pace of rehiring may have picked up. That also is suggested by the accompanying chart which shows that the recent rise in the duration of unemployment has stabilized.
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.
Will Monetary Policy Become More of a Science? from Federal Reserve Board Governor Frederic S. Mishkin can be found <a href="http://www.federalreserve.gov/pubs/feds/2007/200744/200744pap.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">09/29/07 </th>
<th scope="col">09/22/07 </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;317</td>
<td>301</td>
<td>2.3%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,541</td>
<td>4.1%</td>
<td>2,545</td>
<td>3.3%</td>
<td>2,459</td>
</tr>
</tbody>
</table>
U.S. Pending Home Sales Collapse 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004c.jpg" width="353">
In yet another sign of weakness in the U.S. housing market, the National Association of Realtors indicated that the August level of pending home sales fell 6.5% from July and 21.5% from one year earlier.
The latest monthly figure is 31.2% below the peak average level during 2005. The data date back only to 2001. These are home sales under contract but not yet closed.
In further confirmation of the slow rate of home sales, the Realtors indicated in an earlier report that the number of homes on the market and available for sale rose slightly in August to a level 19.2% above the year earlier level.
In the Western part of the nation, the down trend in pending home sales is most severe with a 27.1% drop.
Despite that relative severity out West, the drop in pending home sales is large and pervasive. In the Northeast, pending home sales are down 19.3%. That decline compares to an 18.0% decline in the Midwest and a 21.3% drop in the South.
The pending home sales data are available in Haver&#39;s PREALTOR database and the number of homes on the market are in the REALTOR database.
Whose part is it? Measuring domestic content of vehicles from the Federal Reserve bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cfloctober2007_243.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/WEEKLY/@W5/@W507/@W507.HTM">Pending Home Sales (2001=100) </a></th>
<th scope="col">August</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>
<td class="firstcol">Total</td>
<td>85.5</td>
<td>91.4</td>
<td>-21.5%</td>
<td>112.1</td>
<td>124.2</td>
<td>120.5</td>
</tr>
</tbody>
</table>
Housing Starts by State: Weak, Yes, But Gains in August Where You Wouldn't Expect 
by <a href="/comment/Stone.html">Carol Stone</a> October 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004d.jpg" width="353">
It&#39;s widely known that the housing market has been in a deep slump. And it&#39;s also said that the impact is not uniform across the country, but is concentrated in a number of select states. Some evidence for that arrived this morning in the form of housing starts data by state.
Ah, but the Census Bureau doesn&#39;t produce starts data for states, you argue. Indeed. But the researchers at Bank of Tokyo-Mitsubishi UFJ compile surrogates from the Census Bureau&#39;s building permits data and from the starts data for regions and their seasonal factors. The BOT-Mitsubishi series are available in Haver&#39;s REGIONAL database. The underlying building permits are in Haver&#39;s collection of state, county and metro area PERMITS databases.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004e.jpg" width="353">
In August, then, total national housing starts fell 36,000 units (SAAR) or 2.6% from July. They are 41.9% below their peak in January 2006. The regions are all quite distinct from the national total and from each other. In the Northeast, the Census data show that starts had moderate erosion until this last month; a 37.8% drop in that one month put them 60.2% below their peak, which was also in January 2006. This is now the biggest decline from peak of any region. In the West, starts fell 18.4% in August; they are now 53.5% below their peak, which occurred back in August 2005. In the other two regions, the South and the Midwest, starts rose in August. In the South, they were up 11.4%, and 4.2% in the Midwest. The South&#39;s activity level is 38.1% below its peak in January 2006 and the Midwest&#39;s, 44.5% below its peak in February 2005.
It is actually the Midwest that is perhaps most interesting.Recent mortgage delinquency data show a concentration of difficulties in this area, with Michigan and Ohio both experiencing significantly worse performances than most other states. But in both cases, construction of new houses has started to move higher. According to the Bank of Tokyo-Mitsubishi calculations, starts in Michigan, seen in the second graph, have risen from a mere 12,600 (seasonally adjusted annual rate) six months ago to 30,110 in August. This is still quite low by historical comparison, but the climb has been steady and progressive through the spring and summer. In Ohio, starts are up just moderately, but they have remained higher all year long since an apparent trough in January. The bottom in Illinois is more recent, April, but the pattern since then gives signs of stability.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004f.jpg" width="353">
The performances in other states indicate wide divergence. An easy comparison is between the two big Southern states, Florida and North Carolina. Both are well down in the last 18 months or so, but the plunge in Florida housing activity has been far steeper, 62% from a peak in February 2006. North Carolina&#39;s starts have held up relatively better, with a 25% decline since January 2006. Both states saw modest increases in August, but their monthly changes are erratic enough to keep us from concluding that there&#39;s an outright upturn in the works. The sudden drop in the Northeast occurred in New York, where starts plunged from 62,000 in July to just 29,000 in August; one state in the region saw an increase, New Jersey, but only modestly.
August starts were down in nearly every state in the West. California is perhaps most notable, but others, even those that had been hovering in a narrow range, saw their activity decline in the month. Ironically, one state we&#39;ve heard a lot about from a mortgage quality standpoint, Nevada, actually saw its housing starts increase, reaching their best level since April. Even so, the pace there, at 23,000 annual rate in August, is still only about half what it was two years before.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts, 000, SAAR</th>
<th scope="col">Aug 2007</th>
<th scope="col">July 2007</th>
<th scope="col">June 2007</th>
<th scope="col">Peak</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 US</td>
<td>1,331</td>
<td>1,367</td>
<td>1,468</td>
<td>2,292 (Jan 2006</td>
<td>1,801</td>
<td>2,068</td>
<td>1,956</td>
</tr>
<tr>
<td class="firstcol">Northeast</td>
<td>96</td>
<td>154</td>
<td>156</td>
<td>241 (Jan 2006)</td>
<td>167</td>
<td>190</td>
<td>175</td>
</tr>
<tr class="odd">
<td class="firstcol">Midwest</td>
<td>248</td>
<td>238</td>
<td>232</td>
<td>446 (Feb 2005)</td>
<td>28</td>
<td>357</td>
<td>356</td>
</tr>
<tr>
<td class="firstcol">South</td>
<td>716</td>
<td>643</td>
<td>726</td>
<td>1,156</td>
<td>910</td>
<td>996</td>
<td>908</td>
</tr>
<tr class="odd">
<td class="firstcol">West</td>
<td>271</td>
<td>332</td>
<td>354</td>
<td>583</td>
<td>444</td>
<td>525</td>
<td>516</td>
</tr>
</tbody>
</table>
</body>
</html>

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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250905A2.jpg

250905B2.jpg

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.

250905C2.jpg

250905D2.jpg

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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250905F2.jpg

- 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

250905E.jpg

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.

250905.jpg

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:

OECD Indicators Show Moderation in Growth Ahead

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