Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040920c.jpg" width="353">
Data on the industrial composition of employment in Hong Kong were released today. Although these data refer only to the second quarter of the year, in contrast to the more up-to-date overall data that Carol Stone commented on last week, they shed light on the movement of employees within the labor market.
The data are from the Quarterly Surveys of Employment and Vacancies and of Construction Sites. Data for the mining, quarrying, electricity and gas sectors are not included.
The general weakness of the labor market in comparison with the pre 1997 era, noted by Carol Stone, is evident in these data. Except for the those employed in the community, social and personal sector, employment in all the other sectors declined in the last three years. However, the rates of decline differed significantly. The greatest weakness has been in the manufacturing and construction sectors. While the data show some improvement in the manufacturing and construction sectors in second quarter of this year, the year over year comparisons are still negative. The remaining sectors--largely service related sectors--have begun to show significant increases.
The attached chart comparing employment in the manufacturing sector with that in the community, social and personal sector, as a representative of the service sector, dramatizes the shift in employment from manufacturing to services.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Employment (Thousands of Persons)</th>
<th scope="col">Q2 04</th>
<th scope="col">Q1 04</th>
<th scope="col">Q2 03</th>
<th scope="col">Q/Q &nbsp;%</th>
<th scope="col">Y/Y &nbsp;%</th>
<th scope="col">2003&nbsp; %</th>
<th scope="col">&nbsp;2002 &nbsp;%</th>
<th scope="col">&nbsp; 2001&nbsp; &nbsp;%</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>169.6</td>
<td>168.9</td>
<td>172.9</td>
<td>0.41</td>
<td>-1.68</td>
<td>-10.31</td>
<td>-8.85</td>
<td>-8.63</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>66.6</td>
<td>66.1</td>
<td>67.3</td>
<td>0.76</td>
<td>-1.04</td>
<td>-10.04</td>
<td>-8.81</td>
<td>0.88</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale, retail, export/import trade, hotels and restaurants</td>
<td>989.2</td>
<td>975.8</td>
<td>958.4</td>
<td>1.37</td>
<td>3.21</td>
<td>-3.02</td>
<td>-2.33</td>
<td>-1.22</td>
</tr>
<tr>
<td class="firstcol">Transport, storage and communication</td>
<td>178.9</td>
<td>176.1</td>
<td>170.9</td>
<td>1.59</td>
<td>4.68</td>
<td>-4.39</td>
<td>-1.79</td>
<td>2.37</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance, Insurance and real estate</td>
<td>&nbsp;434.2</td>
<td>428.6</td>
<td>419.0</td>
<td>1.31</td>
<td>3.63</td>
<td>-1.68</td>
<td>-1.32</td>
<td>1.60</td>
</tr>
<tr>
<td class="firstcol">Community, social and personal services</td>
<td>418.2</td>
<td>412.0</td>
<td>400.6</td>
<td>1.48</td>
<td>4.37</td>
<td>2.89</td>
<td>6.76</td>
<td>5.41</td>
</tr>
</tbody>
</table>
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Data on the industrial composition of employment in Hong Kong were released today. Although these data refer only to the second quarter of the year, in contrast to the more up-to-date overall data that Carol Stone commented on last [...]

Employment in Hong Kong Continues to Shift from Manufacturing and Construction to Services

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040920a.jpg" width="353">
Since May, the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) has declined in all but a handful of weeks. Its smoothed six-month growth rate has now fallen into negative territory for the first time since early 2003.
The growth rate&#39;s initial move into negative territory in 2002 foreshadowed a slowdown in quarterly real GDP growth to 0.7% by yearend from 3.4% early in the year.
Recent declines in the leading index reflects broad weakness amongst the components. The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
During the last ten years there has been a 69% correlation between the six-month growth in the ECRI leading index of the US economy and two quarter growth in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040920b.jpg" width="353">
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. There has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</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/@W8/@W801/@W801.HTM">ECRI Leading Index</a></th>
<th scope="col">09/10/04</th>
<th scope="col">09/03/04</th>
<th scope="col">Growth Rate</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Weekly</td>
<td>131.7</td>
<td>132.5</td>
<td>-0.2%</td>
<td>6.5%</td>
<td>1.1%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Aug</td>
<td>July</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly</td>
<td>130.8</td>
<td>131.0</td>
<td>-0.2%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
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Since May, the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) has declined in all but a handful of weeks. Its smoothed six-month growth rate has now fallen into negative territory for [...]

ECRI U.S. Leading Index Down

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/040917d.jpg" width="353">
Inflation remains well contained in Canada, according to the Statistics Canada report on the August CPI released today. Indeed, there has been little movement in the consumer price index since May. The overall index fell 0.2% in August, seasonally adjusted and the ex-food-&amp;-energy &quot;core&quot; index was off 0.1%. Thus, for the month of August, there was outright de-flation; broad categories contributing to the price decline included transportation, health and personal care and recreation, education and reading.
The Bank of Canada uses an inflation target as its main guideline for monetary policy. The target is a 1%-3% range for the CPI, with 2%, the midpoint of the range, kept in sight over the one-and-a-half to two year period that it takes monetary policy to be effective. This operational horizon is long, so the Bank wants to avoid shifting policy due to some transitory movement in one or a few volatile price items. It has therefore devised an alternative measure of &quot;core&quot; inflation that excludes the eight most volatile items as well as indirect taxes (e.g., VAT and other excises. See footnote below for the list of exclusions). Most recently, in 2002, as the Bank&#39;s core inflation rate showed signs of persisting above 2% (year-on-year), the Bank raised its target money market rate several times. Core inflation peaked at 3.3% in January of 2003 and began to retreat; as it approached 2% in the summer of 2003, the Bank responded by cutting interest rates. These past few months, the total CPI has hovered between 2-1/4% and 2-1/2%. In the context of stronger-than-expected economic growth in Canada, the Bank raised its rate target on September 8 to 2.25%. However, the latest CPI data reported here show overall inflation at 1.9% and the special Bank of Canada core inflation at just 1.5%. If these price gauges persist at the levels, the Bank might have to reconsider its policy stance.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Canada CPI: % Changes </th>
<th scope="col">Aug 2004</th>
<th scope="col">July 2004</th>
<th scope="col">June 2004</th>
<th scope="col">Year/ Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">All Items</td>
<td>-0.2</td>
<td>0.0</td>
<td>0.1</td>
<td>1.9</td>
<td>2.0</td>
<td>3.9</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Ex Food &amp; Energy</td>
<td>-0.1</td>
<td>0.0</td>
<td>0.1</td>
<td>1.2</td>
<td>1.6</td>
<td>3.9</td>
<td>1.6</td>
</tr>
<tr>
<td class="firstcol">Ex 8 Items &amp; Indirect Taxes*</td>
<td>-0.2</td>
<td>0.2</td>
<td>0.2</td>
<td>1.5</td>
<td>2.2</td>
<td>2.7</td>
<td>1.6</td>
</tr>
</tbody>
</table>
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Inflation remains well contained in Canada, according to the Statistics Canada report on the August CPI released today. Indeed, there has been little movement in the consumer price index since May. The overall index fell 0.2% in [...]

Canadian Consumer Prices Fall in August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040917a.jpg" width="353">
The net worth of the US household sector rose 11.1% last quarter versus 2Q03.
On the asset side of the ledger, a 10.8% y/y rise in total assets was driven by a 24.9% jump in the value of mutual fund shares and an 11.8% rise in the value of owner occupied real estate. These gains offset a 12.7% decline in money market shares and a 10.6% decline in the value of Treasury security holdings.
Total liabilities of the household sector rose 9.3% y/y with a notable 11.7% rise in home mortgages. Consumer credit rose 4.0%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040917b.jpg" width="353">
Growth in credit market debt outstanding was steady at 8.0%. The federal government and US households continued to borrow at a double digit rate as nonfinancial corporations only grew their financial liabilities at a 3.2% rate.
Foreign sector holdings of US assets continued to surge, raising the foreign sector&#39;s ownership of total US financial assets to 12.4% versus 7.0% ten years ago.

<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/FFUNDS/@F2/@F201/@F201.HTM"> Flow of Funds</a> (Y/Y Chg.)</th>
<th scope="col"> % of Total</th>
<th scope="col"> 2Q04</th>
<th scope="col"> 1Q04</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>8.0%</td>
<td>8.6%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>10.6%</td>
<td>12.7%</td>
<td>10.9%</td>
<td>7.6%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>27%</td>
<td>10.0%</td>
<td>10.6%</td>
<td>10.5%</td>
<td>9.6%</td>
<td>9.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>3.7%</td>
<td>0.7%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>8.6%</td>
<td>8.8%</td>
<td>9.7%</td>
<td>9.0%</td>
<td>10.7%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total Credit Market Assets</td>
<td></td>
<td>8.0%</td>
<td>8.6%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Household Sector</td>
<td>6%</td>
<td>6.4%</td>
<td>3.1%</td>
<td>7.2%</td>
<td>-4.5%</td>
<td>-5.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Rest of World</td>
<td>12%</td>
<td>18.5%</td>
<td>19.3%</td>
<td>15.9%</td>
<td>16.4%</td>
<td>12.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; US Financial Sectors</td>
<td>77%</td>
<td>6.8%</td>
<td>7.7%</td>
<td>7.9%</td>
<td>7.6%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$45.9</td>
<td>$45.3</td>
<td>$44.5</td>
<td>$39.6</td>
<td>$41.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Tangible Assets: Households</td>
<td></td>
<td>$15.7</td>
<td>$15.3</td>
<td>$15.0</td>
<td>$13.6</td>
<td>$12.4</td>
</tr>
</tbody>
</table>
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The net worth of the US household sector rose 11.1% last quarter versus 2Q03. On the asset side of the ledger, a 10.8% y/y rise in total assets was driven by a 24.9% jump in the value of mutual fund shares and an 11.8% rise in the [...]

US Flow of Funds: Households' Net Worth Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040917c.jpg" width="353">
The University of Michigan&#146;s consumer sentiment index for mid-September was little changed from August at 95.8 but it was below Consensus expectations for 96.5.
During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.
The expectations sub-index improved slightly to 89.4 but the index of current economic conditions eased to 105.8.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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"> University of Michigan</a></th>
<th scope="col"> Mid-Sept</th>
<th scope="col"> Aug</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>95.8</td>
<td>95.9</td>
<td>9.2%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>105.8</td>
<td>107.9</td>
<td>7.5%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>89.4</td>
<td>88.2</td>
<td>10.6%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
</tr>
</tbody>
</table>
</body>
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The University of Michigans consumer sentiment index for mid-September was little changed from August at 95.8 but it was below Consensus expectations for 96.5. During the last ten years there has been a 75% correlation between the [...]

U.S. Consumer Sentiment Little Changed

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040917c.jpg" width="353">
The University of Michigan&#146;s consumer sentiment index for mid-September was little changed from August at 95.8 but it was below Consensus expectations for 96.5.
During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.
The expectations sub-index improved slightly to 89.4 but the index of current economic conditions eased to 105.8.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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"> University of Michigan</a></th>
<th scope="col"> Mid-Sept</th>
<th scope="col"> Aug</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>95.8</td>
<td>95.9</td>
<td>9.2%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>105.8</td>
<td>107.9</td>
<td>7.5%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>89.4</td>
<td>88.2</td>
<td>10.6%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
</tr>
</tbody>
</table>
US Flow of Funds: Households' Net Worth Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 17, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040917a.jpg" width="353">
The net worth of the US household sector rose 11.1% last quarter versus 2Q03.
On the asset side of the ledger, a 10.8% y/y rise in total assets was driven by a 24.9% jump in the value of mutual fund shares and an 11.8% rise in the value of owner occupied real estate. These gains offset a 12.7% decline in money market shares and a 10.6% decline in the value of Treasury security holdings.
Total liabilities of the household sector rose 9.3% y/y with a notable 11.7% rise in home mortgages. Consumer credit rose 4.0%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040917b.jpg" width="353">
Growth in credit market debt outstanding was steady at 8.0%. The federal government and US households continued to borrow at a double digit rate as nonfinancial corporations only grew their financial liabilities at a 3.2% rate.
Foreign sector holdings of US assets continued to surge, raising the foreign sector&#39;s ownership of total US financial assets to 12.4% versus 7.0% ten years ago.

<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/FFUNDS/@F2/@F201/@F201.HTM"> Flow of Funds (Y/Y Chg.)</a></th>
<th scope="col"> % of Total</th>
<th scope="col"> 2Q04</th>
<th scope="col"> 1Q04</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>8.0%</td>
<td>8.6%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>10.6%</td>
<td>12.7%</td>
<td>10.9%</td>
<td>7.6%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>27%</td>
<td>10.0%</td>
<td>10.6%</td>
<td>10.5%</td>
<td>9.6%</td>
<td>9.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>3.7%</td>
<td>0.7%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>8.6%</td>
<td>8.8%</td>
<td>9.7%</td>
<td>9.0%</td>
<td>10.7%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total Credit Market Assets</td>
<td></td>
<td>8.0%</td>
<td>8.6%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Household Sector</td>
<td>6%</td>
<td>6.4%</td>
<td>3.1%</td>
<td>7.2%</td>
<td>-4.5%</td>
<td>-5.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Rest of World</td>
<td>12%</td>
<td>18.5%</td>
<td>19.3%</td>
<td>15.9%</td>
<td>16.4%</td>
<td>12.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; US Financial Sectors</td>
<td>77%</td>
<td>6.8%</td>
<td>7.7%</td>
<td>7.9%</td>
<td>7.6%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$45.9</td>
<td>$45.3</td>
<td>$44.5</td>
<td>$39.6</td>
<td>$41.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Tangible Assets: Households</td>
<td></td>
<td>$15.7</td>
<td>$15.3</td>
<td>$15.0</td>
<td>$13.6</td>
<td>$12.4</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040916e.jpg" width="353">
The Philadelphia Fed&#146;s September index of general business conditions in the manufacturing sector fell much more than expected to 13.4, the lowest in nearly a year. The level, however, still suggested positive growth. The 15.1 point drop versus August followed a 7.6 point July decline and was versus Consensus expectations for a decline to 25.0.
During the last ten years there has been a 71% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.
Virtually all of the sub indexes improved m/m especially new orders, unfilled orders, delivery times, inventories, the number of employees and the average workweek. Shipments fell.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months fell sharply and lost about half of the 16.4 point improvement in August.
The prices paid index rose to the second highest level of the year. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the PPI for intermediate goods. The correlation with the finished goods PPI has been 41% and with the CPI it&#39;s been 45%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0904.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Sept &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>13.4</td>
<td>28.5</td>
<td>16.5</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>56.4</td>
<td>53.7</td>
<td>21.0</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
</tr>
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The Philadelphia Feds September index of general business conditions in the manufacturing sector fell much more than expected to 13.4, the lowest in nearly a year. The level, however, still suggested positive growth. The 15.1 point [...]

Philadelphia Fed Activity Index Down, Components Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040916c.jpg" width="353">
August labor market conditions were mixed in two Asian economies. Korea saw more erosion of employment, while jobs in Hong Kong continued to gain. Unemployment rates in both areas ticked down, however.
Korea lost 48,000 jobs in the month, extending a downtrend that began in March and now cumulates to 575,000 workers. Notably, though, manufacturing jobs have held largely steady and major service industry jobs have fallen moderately. The bulk of the contraction is part of a long-run downtrend in Korean agricultural activity and fishing. This sector has shrunk over the last 12 years from about 16% of Korean employment to just below 8%, a substantial structural shift. Thus, despite the 2.5% drop in employment since its peak in February, weakness in basic industry there seems fairly minimal.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040916d.jpg" width="353">
In Hong Kong, employment is continuing to rise and in August reached a new record high of 3.30 million workers. The unemployment rate there fell to 6.8% from 6.9% in July and a recent peak of 8.6% in June and July of last year. Hong Kong also highlights data on &quot;underemployment&quot;; these are people who would like to work full-time, but are able to find work for only a limited number of hours each week. In August, the underemployment rate was 3.4% of the labor force. This too indicates an improvement from year-earlier levels, which reached 4.3%.
Even with the recent improvement in Hong Kong&#39;s labor market, employment conditions remain quite weak compared with the pre-1997 era there. Labor market dislocation might be indicated by summing the unemployment and underemployment rates. This total was 10.2% in August, compared to a peak in mid-2003 of 12.9%. Clearly there has been considerable short-term recovery. However, during 1989, this combined measure dipped as low as 1.9% in several months and averaged 2.1% that year. In 1997, the year of the Asian currency crisis, this rate still averaged only 3.35%, just one-third of its current level.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Aug 2004</th>
<th scope="col">July 2004</th>
<th scope="col">June 2004</th>
<th scope="col">Aug 2003</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">South Korea:Employment (millions)</td>
<td>22.32</td>
<td>22.36</td>
<td>22.47</td>
<td>22.05</td>
<td>22.14</td>
<td>22.17</td>
<td>21.57</td>
</tr>
<tr>
<td class="firstcol">Change (thous)</td>
<td>-48</td>
<td>-108</td>
<td>55</td>
<td>1.2%</td>
<td>-0.1%</td>
<td>2.8%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>3.6</td>
<td>3.7</td>
<td>3.5</td>
<td>3.4</td>
<td>3.4</td>
<td>3.1</td>
<td>3.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong*:Employment (millions)</td>
<td>3.30</td>
<td>3.29</td>
<td>3.28</td>
<td>3.20</td>
<td>3.22</td>
<td>3.23</td>
<td>3.25</td>
</tr>
<tr>
<td class="firstcol">Change (thous)</td>
<td>4</td>
<td>8</td>
<td>14</td>
<td>3.0%</td>
<td>-0.4%</td>
<td>-0.6%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>6.8</td>
<td>6.9</td>
<td>6.9</td>
<td>8.5</td>
<td>8.0</td>
<td>7.3</td>
<td>5.1</td>
</tr>
<tr>
<td class="firstcol">Underemployment Rate (%)</td>
<td>3.4</td>
<td>3.6</td>
<td>3.5</td>
<td>4.1</td>
<td>3.5</td>
<td>3.0</td>
<td>2.5</td>
</tr>
</tbody>
</table>
</body>
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August labor market conditions were mixed in two Asian economies. Korea saw more erosion of employment, while jobs in Hong Kong continued to gain. Unemployment rates in both areas ticked down, however. Korea lost 48,000 jobs in the [...]

Cross-Currents in Asian Labor Markets

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

Expected tariff hikes have boosted inflation expectations

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Andrew Cates

**The US labour market**
The latest data highlight a growing sense of fragility in the US labour market. The unemployment rate, while still relatively low by historical standards, has been edging higher through the course of this year. More telling, however, is the signal from this week’s consumer confidence survey from Conference Board and specifically the labour market differential — the gap between the share of consumers saying jobs are plentiful versus those saying jobs are hard to get. That balance has narrowed sharply, moving back toward levels historically associated with softer labour demand and rising unemployment.

250828Z1.jpg

**Goods and services inflation** 
Haver’s breakdown of goods and services CPI inflation in the advanced economies highlights where fresh risks are emerging. Goods inflation, which had been receding sharply after the pandemic supply shocks, has recently shown signs of firming again. Some of this probably reflects the impact of US tariff policies, which are raising import costs and putting renewed upward pressure on traded goods prices. While services inflation remains the more stubborn component in most advanced economies, the risk is that tariffs could reintroduce stickiness into goods prices, slowing the overall disinflation process.

250828Z2.jpg

**China, Europe and US trade policy**
A consequence of US tariff policies has been a sharp contraction in Chinese exports to the US market, with much of the surplus redirected elsewhere. Europe in particular has recorded near double-digit import growth in recent months, raising concerns that Beijing is deflecting its industrial overcapacity problem rather than resolving it, effectively transferring the pressure onto trading partners. China’s authorities, however, have begun to push back, introducing measures to curb excess supply and rein in so-called “involution,” including clampdowns on price wars across several industries.

250828Z3.jpg

**China’s excess capacity and Europe**
A closer look at Europe–China trade shows that electric vehicles remain a key flashpoint. Import volumes from China have continued to rise even as per-unit prices fall sharply from a year ago —evidence suggesting that industrial overcapacity persists, with low-cost Chinese EVs increasingly challenging European automakers. The surge has carried on despite EU tariffs of up to 45% on battery EVs, as Chinese producers have adapted by pushing plug-in hybrids and expanding onshore production in Europe to bypass duties and defend market share.

250828Z4.jpg

**Wage growth in the US and Europe** 
Turning back to inflation dynamics, the UK stands out for its persistent wage pressures. While posted wage growth has cooled across the US and euro area, the UK measure has remained elevated at around 6% year-on-year, well above pre-pandemic norms. This stickiness reflects a still-tight labour market in key service sectors, even as broader activity has slowed and unemployment has edged higher. For the Bank of England, it underscores the dilemma: headline inflation is easing, but underlying pay growth risks keeping services inflation uncomfortably high, complicating the timing and scale of policy easing.

250828Z5.jpg

**The UK economy**
The UK’s net international investment position has deteriorated noticeably in recent years, with both direct investment and portfolio flows showing persistent weakness. The latest data underline how net FDI has turned increasingly negative, while the portfolio investment balance has also eroded, leaving the UK more reliant on volatile short-term funding sources. This deterioration comes against a backdrop of heightened investor unease about the riskiness of UK debt markets, where elevated gilt yields and rising debt-servicing costs have amplified concerns over fiscal sustainability. Taken together, these trends underscore the vulnerability of the UK’s external position at a time when global capital is arguably proving more selective and risk sensitive.

250828Z6.jpg

Global markets have continued to rally into late summer, buoyed by AI optimism, dovish signals from central bankers at Jackson Hole, and expectations of easier policy ahead. Yet beneath the surface, risks to the world economy are accumulating. In the US, labour market indicators point to softening conditions (chart 1), while tariff-driven pressures are beginning to push goods prices higher (chart 2). Global trade flows are being reshaped by US policy, with China’s excess capacity increasingly diverted toward Europe, most visibly through surging exports of electric vehicles (EVs) (charts 3 and 4). At the same time, wage growth remains stubbornly elevated in the UK, complicating disinflation (chart 5), while concerns are mounting over the country’s external vulnerabilities as net FDI and portfolio positions weaken against the backdrop of jittery debt markets (chart 6). Together, these dynamics highlight the tension between buoyant market performance and a global economy still grappling with structural fragilities.

Charts of the Week: Riskbusters

250828N8.jpg

250828C8.jpg

Real GDP grew 3.3% (SAAR) during the second quarter of 2025, revised from a 3.0% gain reported initially. The increase followed an unrevised 0.5% decline in Q1. A 3.1% rise had been expected in the Action Economics Forecast Survey. Growth during the last four quarters of 2.1% compared to 2.0% y/y in Q1, and remained below its most recent high of 3.2% in Q4 2023.

After-tax corporate profits without IVA & CCA adjustment increased 1.4% (7.0% y/y) last quarter after easing 0.8% in Q1. Before-tax earnings with IVA & CCA rose 1.7% (4.3% y/y) after falling 2.3% in Q1. Financial sector earnings rose 1.4% (15.3% y/y) after rising 2.3% in Q1. Nonfinancial corporate profits rose 2.2% (2.5% y/y) after falling 2.5% in Q1. Earnings from abroad eased 0.7% (-0.4% y/y) following a 7.3% Q1 decline.

Foreign trade balance improvement added 4.95 percentage points to growth last quarter after subtracting 4.61 percentage points in Q1. Imports fell 29.8% (+1.3% y/y) after surging 38.0% in Q1. Exports declined 1.3% (+2.0% y/y) after improving 0.4% in Q1. Inventories subtracted 3.29 percentage points from growth after adding 2.59 percentage point to Q1 growth.

Real final sales to domestic purchasers grew 1.6% (2.4% y/y), revised from 1.1%, in Q2 after rising 1.5% in Q1. Personal consumption expenditures rose 1.6% (2.4% y/y), revised from 1.4%, following a 0.5% gain. Durable goods spending rose 2.6% (4.6% y/y) after falling 3.7% in Q1. Motor vehicle purchases strengthened 11.7% (6.7% y/y) after declining 11.2% in Q1. Spending on home furnishings & appliances weakened 2.1% (+3.5% y/y) following a 1.5% rise. Recreational goods & vehicle outlays fell 3.5% (+4.3% y/y) last quarter after a 0.4% Q1 gain.

Nondurable goods outlays in constant dollars rose 2.3% (3.0% y/y) following 2.1% growth in Q1. Apparel spending increased 5.4% (4.8% y/y) following a 7.0% rise. Food & beverage buying gained 0.3% (1.5% y/y) after a 1.0% increase. Gasoline & fuel oil purchases weakened 1.4% (+0.9% y/y) after gaining 3.6% in Q1.

Real spending on services increased 1.2% (1.9% y/y) after a 0.6% gain. Outlays on housing & utilities eased 0.4% (+1.1% y/y) after rising 2.9% in Q1. Health care expenditures rose 4.2% (4.8% y/y) after a 3.1% increase. Transportation outlays declined 2.9% (-0.6% y/y) after a 1.4% rise, while recreation spending rose 3.6% (0.7% y/y) following a 5.1% decline. Restaurant & hotel expenditures increased 5.1% (1.9% y/y) after falling 1.8%. Financial services expenditures rose 1.9% (2.3% y/y) following a 0.1% Q1 increase.

Business fixed investment in constant dollars increased 5.7% last quarter (4.2% y/y), revised from 1.9%, following a 10.3% surge in Q1. Expenditures on structures declined 8.9% (-3.4% y/y), after falling 2.4% in Q1. Expenditures on producers’ durable equipment increased 7.4% (7.7% y/y), revised from 4.8%, after surging 23.7% in Q1. Outlays on information processing equipment rose 10.1% (20.1% y/y), revised from 5.5%, after soaring 72.8% during Q1. Industrial equipment investment rose 6.7% (4.0% y/y) after a 4.7% rise. Transportation equipment investment surged 20.4% (6.8% y/y) after a 6.9% gain. Intellectual property product spending rose 12.8% last quarter (5.2% y/y) following a 6.0% rise.

Residential structures investment in real terms declined a little-revised 4.7% (-1.3% y/y), the fourth decline in the last five quarters.

250828O8.jpg

250828P8.jpg

Government spending eased 0.2%, revised from up 0.5% in Q2 (+1.8% y/y) after a 0.6% decline. Federal government expenditures declined 4.7% (+0.7% y/y) after falling 4.6% in Q1. National defense expenditures increased 1.4% (3.0% y/y) after declining 7.1% in Q1. State & local government spending rose 2.6% (2.5% y/y) following a 2.0% rise.

The GDP chain price index rose an unrevised and expected 2.0% last quarter (2.5% y/y) after increasing 3.8% in Q1. The PCE chain price index increased 2.0% (2.4% y/y) following a 3.7% rise. The PCE price index excluding food and energy rose 2.5% (2.7% y/y) after increasing 3.5% in Q1. The business fixed investment price index edged 0.5% lower (+1.1% y/y) after a 0.4% rise. The residential price index rose 1.1% (2.6% y/y) after a 4.1% rise while the government price index increased 3.3% (3.1% y/y) following a 4.6% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

250828Q8.jpg

250828S8.jpg

- Business investment strengthens & consumer spending firms.
- U.S. business earnings reverse Q1 decline.
- Increase in price index is unrevised, remaining roughly half of Q1’s gain.

U.S. GDP Q2’25 Growth Revised Up; Profits Improve

Sandy Batten

250828J2.jpg

250828K2.jpg

The Kansas City Fed manufacturing composite index was unchanged at 1 in August from July. This was the second consecutive month that the index has been positive, indicating the manufacturing in the KC Fed district continue to inch up in August. Prior to the positive reading in July, the index had been negative for 22 consecutive months. The index’s most recent high was 31 reached in both April 2021 and October 2021. The durable manufacturing sector was mostly flat in August, while nondurable manufacturing activity declined slightly driven by printing activities and paper and chemical manufacturing. 

The August survey was open for a six-day period from August 20-25, 2025 and included 103 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The ISM-adjusted index calculated by Haver Analytics rose to 51.1 (NSA) in August from 50.2 in July. This was the fifth reading above the critical 50 level that separates expansion from contraction in the past six months, a further indication of expanding manufacturing activity.

For the major component indexes, the production index was 0 in August, but this was up from -3 in July. The new orders index rose to 5 in August, its highest reading since May 2022, from 2 in July. The shipments index increased to 6 in August from 3 in July. The employment index was 0 in August, but this was up from -11 in July. Also, the average workweek index rebounded to 3 in August after having been in negative territory for the previous four months. Supplier delivery times were unchanged at 7 in August. The elevation of this index since April may indicate some incipient supply-chain disruptions from higher tariffs. In contrast, raw materials inventories fell to -7 in August from 8 in July.

On the inflation front, the prices paid for raw materials index remained elevated but fell to 43 in August from 47 in July and a local high of 51 in June. Forty-four percent of respondents reported an increase in raw materials prices in August, down from 48% in July and 53% in June, while only 4% reported a decrease, down from 5% in July and 6% in June. The prices received for finished products index increased to 21 in August from 18 in July. This index has fluctuated in a range between 17 and 21 for the past four months.

Expectations for future activity remained positive, with the composite index rising to 11 from 8, as firms anticipate an improvement in production and new orders. While expectations have been trending up over the past several months, they remain depressed relative to the recent high reading of 17 last December. Capital expenditures expectations remained in negative territory in August for the second consecutive month but edged up to -3 from -4 in July.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Data for the Kansas City Fed Survey can be found in Haver’s **SURVEYS** database.

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- Index remained (though barely) in positive territory for the second consecutive month, indicating that manufacturing activity was inching up.
- Prior to last month, the index had been negative for 22 consecutive months.
- Positive readings across most key components.

FRB Kansas City Manufacturing Index Unchanged in August

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The Pending Home Sales Index weakened 0.4% in July (+0.7% y/y) to 71.7 after falling an unrevised 0.8% in June and rising an unrevised 1.8% in May, according to the National Association of Realtors (NAR). The Index remained 42.7% below its most recent peak of 125.1 in October 2021. The index is a forward-looking measure of home sales based on contract signings.

The fall in pending home sales occurred as the average rate on a 30-year mortgage rose to 6.72% in July after holding steady m/m at 6.82% in June. These rates remained well above a low of 5.22% in August 2022 and more than double a record-low 2.68% in December 2020.

Pending home sales were mixed last month in the four major regions of the country. Sales in the Midwest declined 4.0% (+1.3% y/y) in July after easing 0.8% in June. Sales in the Northeast fell 0.6% both m/m and y/y, after holding steady in June. In the South, sales eased 0.1% (+1.8% y/y) following a 0.6% June decline, but sales in the West increased 3.7% (-1.9% y/y), reversing a 3.9% June drop.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Decline adds to June weakness.
- Regional changes are mixed.


U.S. Pending Home Sales Decline in July

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined to 229,000 during the week of August 23, after rising to 234,000 in the week of August 16, revised from 235,000. The Action Economics Forecast Survey expected 230,000 initial claims for last week. The four-week moving average of initial claims increased to 228,500 from 226,000, revised from 226,250. It was the highest level since the second week of July.

In the week ended August 16, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – decreased by 7,000 to 1.954 million from 1.961 million in the prior week, revised down by 11,000 from 1.972 million. The four-week moving average rose to 1.956 million in the week ending August 16, the highest level in six weeks, and up from 1.952 million in the prior week, revised from 1.955 million.

In the week ending August 16, the insured rate of unemployment (the number of beneficiaries as a percent of covered employment) was 1.3% for the twelfth consecutive week.

The insured unemployment rate varied greatly across individual states and territories. In the week ended August 9, the highest unemployment rates were in New Jersey (2.75%), Rhode Island (2.58%), Massachusetts (2.18%), Minnesota (2.17%), California (2.11%), Washington (2.08%), District of Columbia (2.04%), and Puerto Rico (2.02%). The lowest were in South Dakota (0.28%), Florida (0.42%), and Alabama and North Carolina (both 0.47%). Rates in other notable states include Pennsylvania (1.92%), New York (1.73%), Illinois (1.72%), and Texas (1.24%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims declined in latest week after a surge in the prior week.
- Continuing claims declined.
- Insured unemployment rate holds steady.

Economy in Brief: 2004

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