Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051222c.jpg" width="353">
The Composite Index of Leading Economic Indicators from the Conference Board increased 0.5% following an upwardly revised 1.0% gain in October. It was the third increase in the last five months and beat Consensus expectations for a 0.4% rise.
The breadth of one month gain amongst the 10 components of the leading index remained firm at 70% as higher stock prices, a higher money supply, higher consumer confidence and fewer claims for unemployment insurance offset negative influences from lower capital goods orders and easier vendor performance.
The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% following an upwardly revised 0.2% October gain. During the last ten years there has been a 64% correlation between the change in the coincident indicators and real GDP.
The lagging indicators rose 0.6% for the second month of strong gain led by higher C&amp;I loans, a higher services CPI growth rate, a longer unemployment duration and higher interest rates. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell for the eighth month this year to its lowest level since August 2003.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world. 

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">6 Month Chg., AR</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.5%</td>
<td>1.0%</td>
<td>2.4%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.2%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.6%</td>
<td>0.7%</td>
<td>3.4%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
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The Composite Index of Leading Economic Indicators from the Conference Board increased 0.5% following an upwardly revised 1.0% gain in October. It was the third increase in the last five months and beat Consensus expectations for a [...]

Leading Economic Indicators Up Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051222b.jpg" width="353">
Personal income rose an expected 0.3% last month following an upwardly revised 0.5% increase in October.
Growth in wage &amp; salary income eased to 0.2% (4.2% y/y) from the unrevised 0.6% pop in October as factory sector wages fell 0.1% (+3.3% y/y). Service sector wages rose 0.2% (4.2% y/y) following 0.5% increases in October and September while government wages increased 0.2% (3.3% y/y).
Disposable personal income rose 0.3% (4.3% y/y) following an upwardly revised 0.4% October gain. Adjusted for the 0.4% decline in prices, take home pay jumped 0.7% (1.5% y/y).
The PCE chain price index dropped 0.4% as gasoline prices fell. Less food &amp; energy, prices rose the same 0.1% as in October. Durables prices fell 0.2% (-0.9% y/y) as new auto prices were flat. Appliance prices fell 0.7% (+3.7% y/y) and audio, video &amp; computer prices dropped 1.2% (-9.9% y/y). Clothing &amp; shoes prices rose 0.2% (-1.5% y/y) while services price rose 0.3% (3.2% y/y) following two months of 0.4% increase.
The 0.3% rise in personal consumption expenditures was a bit light of expectations. Nondurables outlays fell 1.0% (8.0% y/y) though less gasoline &amp; oil, spending on nondurables jumped 1.1% (6.9% y/y) led by a 1.5% (5.8% y/y) jump in spending on clothing &amp; shoes. Spending on motor vehicles &amp; parts rose 5.4% m/m and that helped lift durables spending overall 2.7% (-0.8% y/y), helped by a 1.3% (5.9% y/y) increase in spending on furniture. Services spending increased 0.5% (6.0% y/y) for the second month and the gain was led by a 0.6% (17.5% y/y) rise in spending on electricity &amp; gas services.
Great Expectations and the End of the Depression from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr234.pdf"> 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/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.3%</td>
<td>0.5%</td>
<td>5.3%</td>
<td>5.9%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.3%</td>
<td>0.2%</td>
<td>5.8%</td>
<td>6.5%</td>
<td>4.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>1.3% (Nov &#39;04)</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
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Personal income rose an expected 0.3% last month following an upwardly revised 0.5% increase in October. Growth in wage & salary income eased to 0.2% (4.2% y/y) from the unrevised 0.6% pop in October as factory sector wages fell 0.1% [...]

U.S. Personal Income rose As Expected

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/051221e.jpg" width="353">
The UK Office of National Statistics today released data on institutional investors&#39; activity in financial markets during Q3 2005. The table below gives an overview of this widely monitored information, generally known as the &quot;MQ5&quot; data. Today&#39;s report is the &quot;First Release&quot;; all the MQ5 figures are available, but the full, official release will come January 6, 2006. These data were added several months ago to Haver&#39;s &quot;UK&quot; database, in the Financial Data menu under &quot;MQ5&quot;, listed at the bottom.These investors include insurance companies, pension funds, investment trusts and unit trusts, four key capital market participants.As evident just in the summary table below, the amount of detail offered is considerable, and also includes some balance sheet information and figures on asset acquisitions and liquidations as well.
One aspect of the data for the first three quarters of 2005 is that these investments so far this year look to be running below the pace of the last several years. However, we also see considerable movement among various asset categories and the accompanying graph illustrates that there is considerable volatility from quarter to quarter. So it may be that Q4 would see a more sizable flow, as happened last year. In the graph, it is seen that a four-quarter moving average of this total has been fairly steady since late 2003. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221f.jpg" width="353">
Another facet of these data is the perhaps unexpected trend of net liquidation of UK company shares. This has occurred every single quarter beginning with Q2 of 2003, more than two years ago. UK equity prices continue to rise, though, indicating that other investors are taking up the slack. Further, these institutions continue as net purchasers of other UK company securities and of foreign company securities. These developments, rather than showing some disaffection with British business, may instead serve as more evidence of the fluidity of world capital markets and the ease and ability of investors to shift their holdings.
Finally, over the last two quarters, the largest entry in our table is &quot;Other&quot;. This includes, as noted in the footnote, loans, mortgages, land (plus property and ground rents) and several other security types, some denominated in foreign currency. More concretely, these include overseas loans and mortgages, direct investment interests and balances of overseas branches. All of these items, as in the prior interpretation of flows among various corporate securities, point to the increasing globalization of capital markets. These firms&#39; portfolio and direct investments abroad are increasing, and moreover, they are putting incremental funds in new and different categories, both domestic and foreign, not simply government bonds, in which their flows remain quite modest. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U1/@U1.HTM">UK: Net Investment by Institutional Investors </a>(Millions of Pounds Sterling)</th>
<th scope="col">Q3 2005 </th>
<th scope="col">Q2 2005 </th>
<th scope="col">Q1 2005 </th>
Quarterly Average 
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004 </td>
<td>2003 </td>
<td>2002 </td>
</tr>
<tr>
<td class="firstcol">Total Identified Assets </td>
<td>10.7</td>
<td>10.1</td>
<td>11.8</td>
<td>15.2</td>
<td>14.0</td>
<td>12.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Short-Term Assets </td>
<td>1.0</td>
<td>7.3</td>
<td>1.2</td>
<td>3.1</td>
<td>0.2</td>
<td>-1.8</td>
</tr>
<tr>
<td class="firstcol">British Govt Sterling Securities </td>
<td>3.7</td>
<td>-5.1</td>
<td>4.4</td>
<td>4.2</td>
<td>5.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">UK Company Shares </td>
<td>-3.7</td>
<td>-5.1</td>
<td>-2.9</td>
<td>-5.2</td>
<td>-1.3</td>
<td>-3.1</td>
</tr>
<tr>
<td class="firstcol">Other UK Company Securities </td>
<td>0.2</td>
<td>0.7</td>
<td>3.7</td>
<td>5.1</td>
<td>6.4</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Company Shares </td>
<td>3.9</td>
<td>5.0</td>
<td>-0.7</td>
<td>3.6</td>
<td>0.9</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">Other Overseas Company Securities </td>
<td>-1.4</td>
<td>1.3</td>
<td>1.7</td>
<td>2.4</td>
<td>1.7</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Govt Securities </td>
<td>-0.4</td>
<td>0.4</td>
<td>0.6</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">All Other Assets* </td>
<td>7.4</td>
<td>5.6</td>
<td>3.7</td>
<td>3.1</td>
<td>2.0</td>
<td>1.2</td>
</tr>
</tbody>
</table>
</body>
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The UK Office of National Statistics today released data on institutional investors' activity in financial markets during Q3 2005. The table below gives an overview of this widely monitored information, generally known as the "MQ5" [...]

UK Institutional Investors Diversify Holdings Through Q3; More Interest Abroad Is Evident

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221b.jpg" width="353">
The Mortgage Bankers Association reported that the total number of mortgage applications dropped again last week by 4.0% following a 5.7% decline the week prior. The decline was to the lowest level in nearly a year and dropped December 3.3% below November.
Purchase applications were notably weak. A 5.2% decline followed the prior week&#39;s 3.5% drop and was to the lowest level since late October. The December average of purchase applications fell to just a 0.5% gain versus November.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221c.jpg" width="353">
Applications to refinance fell 1.6% on top of the prior week&#39;s 9.7% slide and lowered the December average 9.6% below November.
The effective interest rate on a conventional 30-year mortgage fell again to 6.45% from 6.53% the prior week. Rates averaged 6.52% in November and averaged 5.81% in June. The effective rate on a 15-year mortgage also fell to 6.07%. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/16/05</th>
<th scope="col">12/09/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>594.6</td>
<td>619.3</td>
<td>-13.7%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>453.1</td>
<td>477.9</td>
<td>-3.8%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,418.1</td>
<td>1,441.8</td>
<td>-27.6%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
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The Mortgage Bankers Association reported that the total number of mortgage applications dropped again last week by 4.0% following a 5.7% decline the week prior. The decline was to the lowest level in nearly a year and dropped [...]

Mortgage Applications Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221d.jpg" width="353">
US real GDP growth for 3Q was revised down slightly to 4.1% (AR) and fell short of Consensus expectations for no change to earlier estimate of 4.3% growth.
A weakened estimate of domestic demand growth caused the downward revision. Real PCE was lessened to 4.1% (3.8% y/y) from 4.3% growth and the strength in business fixed investment was lessened to 8.4% (8.3% y/y) from 8.7%. Lastly, growth in residential investment growth was dropped to 7.3% (7.2% y/y) from 8.4%.
The estimate of inventories contribution to GDP growth was unrevised at -0.4 percentage points but the drag from the foreign trade deficit was lessened as exports grew 2.5% (6.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221a.jpg" width="353">
The chain price index was revised up to 3.3% from 3.0% and the price index for domestic final sales rose 4.3% (3.4% y/y).
Operating corporate profits are estimated to have declined 4.0% (+15.7% y/y) versus an initial estimate of a 3.4% decline. Financial sector earnings were reduced further and fell 20.5% (+5.4% y/y), crushed by three hurricanes. Profits of domestic nonfinancial corporations also were reduced and fell 1.1% (+18.6% y/y) versus the initial estimate of a slight 0.2% gain.
Shifting Data: A Challenge for Monetary Policy Makers from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-35.pdf"> here</a>.
Greenspan&#39;s Unconventional View of the Long-Run Inflation/Output Trade-off from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;05 (Final)</th>
<th scope="col">3Q &#39;05 (Prelim.)</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>4.1%</td>
<td>4.3%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.2%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>-2.1%</td>
<td>-0.7%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>4.6%</td>
<td>4.7%</td>
<td>5.6%</td>
<td>4.3%</td>
<td>3.9%</td>
<td>2.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.5%</td>
<td>4.7%</td>
<td>4.2%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.3%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>


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US real GDP growth for 3Q was revised down slightly to 4.1% (AR) and fell short of Consensus expectations for no change to earlier estimate of 4.3% growth. A weakened estimate of domestic demand growth caused the downward revision. [...]

US 3Q GDP Revised Slightly Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221d.jpg" width="353">
US real GDP growth for 3Q was revised down slightly to 4.1% (AR) and fell short of Consensus expectations for no change to earlier estimate of 4.3% growth.
A weakened estimate of domestic demand growth caused the downward revision. Real PCE was lessened to 4.1% (3.8% y/y) from 4.3% growth and the strength in business fixed investment was lessened to 8.4% (8.3% y/y) from 8.7%. Lastly, growth in residential investment growth was dropped to 7.3% (7.2% y/y) from 8.4%.
The estimate of inventories contribution to GDP growth was unrevised at -0.4 percentage points but the drag from the foreign trade deficit was lessened as exports grew 2.5% (6.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221a.jpg" width="353">
The chain price index was revised up to 3.3% from 3.0% and the price index for domestic final sales rose 4.3% (3.4% y/y).
Operating corporate profits are estimated to have declined 4.0% (+15.7% y/y) versus an initial estimate of a 3.4% decline. Financial sector earnings were reduced further and fell 20.5% (+5.4% y/y), crushed by three hurricanes. Profits of domestic nonfinancial corporations also were reduced and fell 1.1% (+18.6% y/y) versus the initial estimate of a slight 0.2% gain.
Shifting Data: A Challenge for Monetary Policy Makers from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-35.pdf"> here</a>.
Greenspan&#39;s Unconventional View of the Long-Run Inflation/Output Trade-off from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;05 (Final)</th>
<th scope="col">3Q &#39;05 (Prelim.)</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>4.1%</td>
<td>4.3%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.2%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>-2.1%</td>
<td>-0.7%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>4.6%</td>
<td>4.7%</td>
<td>5.6%</td>
<td>4.3%</td>
<td>3.9%</td>
<td>2.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.5%</td>
<td>4.7%</td>
<td>4.2%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.3%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
Mortgage Applications Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221b.jpg" width="353">
The Mortgage Bankers Association reported that the total number of mortgage applications dropped again last week by 4.0% following a 5.7% decline the week prior. The decline was to the lowest level in nearly a year and dropped December 3.3% below November.
Purchase applications were notably weak. A 5.2% decline followed the prior week&#39;s 3.5% drop and was to the lowest level since late October. The December average of purchase applications fell to just a 0.5% gain versus November.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221c.jpg" width="353">
Applications to refinance fell 1.6% on top of the prior week&#39;s 9.7% slide and lowered the December average 9.6% below November.
The effective interest rate on a conventional 30-year mortgage fell again to 6.45% from 6.53% the prior week. Rates averaged 6.52% in November and averaged 5.81% in June. The effective rate on a 15-year mortgage also fell to 6.07%. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/16/05</th>
<th scope="col">12/09/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>594.6</td>
<td>619.3</td>
<td>-13.7%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>453.1</td>
<td>477.9</td>
<td>-3.8%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,418.1</td>
<td>1,441.8</td>
<td>-27.6%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
UK Institutional Investors Diversify Holdings Through Q3; More Interest Abroad Is Evident 
by <a href="/comment/Stone.html">Carol Stone</a> December 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221e.jpg" width="353">
The UK Office of National Statistics today released data on institutional investors&#39; activity in financial markets during Q3 2005.The table below gives an overview of this widely monitored information, generally known as the &quot;MQ5&quot; data. Today&#39;s report is the &quot;First Release&quot;; all the MQ5 figures are available, but the full, official release will come January 6, 2006. These data were added several months ago to Haver&#39;s &quot;UK&quot; database, in the Financial Data menu under &quot;MQ5&quot;, listed at the bottom.These investors include insurance companies, pension funds, investment trusts and unit trusts, four key capital market participants.As evident just in the summary table below, the amount of detail offered is considerable, and also includes some balance sheet information and figures on asset acquisitions and liquidations as well.
One aspect of the data for the first three quarters of 2005 is that these investments so far this year look to be running below the pace of the last several years. However, we also see considerable movement among various asset categories and the accompanying graph illustrates that there is considerable volatility from quarter to quarter. So it may be that Q4 would see a more sizable flow, as happened last year. In the graph, it is seen that a four-quarter moving average of this total has been fairly steady since late 2003. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051221f.jpg" width="353">
Another facet of these data is the perhaps unexpected trend of net liquidation of UK company shares. This has occurred every single quarter beginning with Q2 of 2003, more than two years ago. UK equity prices continue to rise, though, indicating that other investors are taking up the slack. Further, these institutions continue as net purchasers of other UK company securities and of foreign company securities. These developments, rather than showing some disaffection with British business, may instead serve as more evidence of the fluidity of world capital markets and the ease and ability of investors to shift their holdings.
Finally, over the last two quarters, the largest entry in our table is &quot;Other&quot;. This includes, as noted in the footnote, loans, mortgages, land (plus property and ground rents) and several other security types, some denominated in foreign currency. More concretely, these include overseas loans and mortgages, direct investment interests and balances of overseas branches. All of these items, as in the prior interpretation of flows among various corporate securities, point to the increasing globalization of capital markets. These firms&#39; portfolio and direct investments abroad are increasing, and moreover, they are putting incremental funds in new and different categories, both domestic and foreign, not simply government bonds, in which their flows remain quite modest. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U1/@U1.HTM">UK: Net Investment by Institutional Investors </a>(Millions of Pounds Sterling)</th>
<th scope="col">Q3 2005 </th>
<th scope="col">Q2 2005 </th>
<th scope="col">Q1 2005 </th>
Quarterly Average 
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004 </td>
<td>2003 </td>
<td>2002 </td>
</tr>
<tr>
<td class="firstcol">Total Identified Assets </td>
<td>10.7</td>
<td>10.1</td>
<td>11.8</td>
<td>15.2</td>
<td>14.0</td>
<td>12.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Short-Term Assets </td>
<td>1.0</td>
<td>7.3</td>
<td>1.2</td>
<td>3.1</td>
<td>0.2</td>
<td>-1.8</td>
</tr>
<tr>
<td class="firstcol">British Govt Sterling Securities </td>
<td>3.7</td>
<td>-5.1</td>
<td>4.4</td>
<td>4.2</td>
<td>5.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">UK Company Shares </td>
<td>-3.7</td>
<td>-5.1</td>
<td>-2.9</td>
<td>-5.2</td>
<td>-1.3</td>
<td>-3.1</td>
</tr>
<tr>
<td class="firstcol">Other UK Company Securities </td>
<td>0.2</td>
<td>0.7</td>
<td>3.7</td>
<td>5.1</td>
<td>6.4</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Company Shares </td>
<td>3.9</td>
<td>5.0</td>
<td>-0.7</td>
<td>3.6</td>
<td>0.9</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">Other Overseas Company Securities </td>
<td>-1.4</td>
<td>1.3</td>
<td>1.7</td>
<td>2.4</td>
<td>1.7</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Govt Securities </td>
<td>-0.4</td>
<td>0.4</td>
<td>0.6</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">All Other Assets* </td>
<td>7.4</td>
<td>5.6</td>
<td>3.7</td>
<td>3.1</td>
<td>2.0</td>
<td>1.2</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220i.jpg" width="353">
Industrial production in France, Germany and Italy, the three largest countries in the Euro Zone, shows distinctly different trends. While German industrial production has recently shown strength, Italian production has trended downward and French production has shown little trend. In Germany, industrial production increased 1.1% in October from September and was 4.2% above October, 2004. The comparable figures for France were -2.5% and 1.4%; and, for Italy, -0.9% and -1.6%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220h.jpg" width="353"> The sharp drop in French production in October may have been affected by the racial unrest that took place during that time, nevertheless, the trend of production in France has been relatively flat since early 2004. Industrial production in Italy, on the other hand, has been in a declining trend over most of the last five years. Industrial production in France and Italy are shown in the first chart. (The data on industrial production are from Eurostat which insures comparability of data among countries by harmonizing the concepts used by individual countries of the Euro Zone.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220g.jpg" width="353">
 Eurostat data on new orders will not be published until Thursday of this week, but Germany, France and Italy have released their national data on new orders today. In contrast to the trends in industrial production, the trends in new orders in all three countries have generally been rising since mid 2003. German new orders increased by 2.4% in October from September and were almost 10% above October 2004. While the October figures for France and Italy showed declines from September of respectively -2.1% and -1.1%, they were 2.6% and 2.2% respectively above October 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220j.jpg" width="353">
It is not possible to generalize on the relationship between new orders and industrial production on the basis of the experience of these three countries. In the three charts showing new orders and industrial production for each country, the correlations between the two series vary from -0.17 for Italy, 0.47 for France and 0.92 for Germany.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Oct 05</th>
<th scope="col">Sep 05</th>
<th scope="col">Oct 04</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production ex Construction ( 2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>99.8</td>
<td>102.4</td>
<td>101.2</td>
<td>-2.54</td>
<td>-1.38</td>
<td>101.3</td>
<td>99.5</td>
<td>99.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Italy</td>
<td>95.0</td>
<td>95.9</td>
<td>96.5</td>
<td>-0.94</td>
<td>-1.55</td>
<td>96.7</td>
<td>97.3</td>
<td>97.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>108.3</td>
<td>107.1</td>
<td>103.9</td>
<td>1.12</td>
<td>4.23</td>
<td>102.5</td>
<td>99.5</td>
<td>99.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Total Euro Zone</td>
<td>102.8</td>
<td>103.6</td>
<td>102.6</td>
<td>-0.81</td>
<td>0.20</td>
<td>102.1</td>
<td>100.2</td>
<td>99.9</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>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>107.4</td>
<td>109.7</td>
<td>104.7</td>
<td>-2.10</td>
<td>2.58</td>
<td>111.6</td>
<td>100.7</td>
<td>99.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Italy</td>
<td>102.0</td>
<td>103.1</td>
<td>99.8</td>
<td>-1.07</td>
<td>2.20</td>
<td>99.0</td>
<td>95.5</td>
<td>99.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>&nbsp;116.6</td>
<td>113.9&nbsp;</td>
<td>106.1&nbsp;</td>
<td>&nbsp;2.37</td>
<td>9.90&nbsp;</td>
<td>104.8&nbsp;.</td>
<td>99.0&nbsp;</td>
<td>&nbsp;98.3</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production in France, Germany and Italy, the three largest countries in the Euro Zone, shows distinctly different trends. While German industrial production has recently shown strength, Italian production has trended [...]

Production and New Orders in the Euro Zone's Big Three: Germany, France and Italy

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

Announcement of snap French election is causing concern across Europe

The UK economy’s post-pandemic under-performance relative to its pre-pandemic trend

US Beveridge Curve back to near pre-pandemic levels

Negative economic surprises in the US but positive in Europe, especially the UK

Latest PMIs show US losing momentum while RoW is gaining momentum

Sticky services prices behind sticky overall PCE inflation

Flash April PMIs point to slower growth in the US but a pickup in Europe and Japan

Outlook strengthens for US while it weakens for other major economies

Crude petroleum prices are having a big impact on inflation expectations

Inflation surprising to upside in the US; by contrast to the downside in the euro area

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Nonfarm payrolls increased 254,000 (1.5% y/y) in September after rising 159,000 in August, revised from 142,000, and 144,000 in July, revised from 89,000. Expectations had been for a 150,000 rise in the Action Economics Forecast Survey. The three-month average change of 186,000 is the strongest since May.

Average hourly earnings increased 0.4% last month following a gain of 0.5% in August, revised from 0.4%. The y/y earnings gain edged up to 4.0% from 3.9% in August and 3.6% in July, but remained below the 5.9% high in March 2022. A 0.3% September increase had been expected.

The unemployment rate, measured in the household survey, edged down to 4.1% in September from 4.2% in August. It reached a low of 3.4% in April of last year. An unchanged 4.2% had been expected. Household employment rose 430,000 after increasing 168,000 in July. The labor force increased 150,000 after a 120,000 July gain. The overall unemployment rate, including workers who were marginally attached & working part-time for economic reasons declined to 7.7% from 7.9%.

In the **payroll survey**, private-sector employment increased 223,000 (1.4% y/y) in September after rising 114,000 in August. Construction sector employment increased 25,000 (2.8% y/y) last month after rising 31,000 in August. Factory sector payrolls eased 7,000 (-0.2% y/y) after falling 27,000. Mining & logging sector jobs rose 3,000 (-0.6% y/y) during September after rising 1,000 in each of the prior two months.

Private service-producing employment strengthened 202,000 in September (1.5% y/y) after a 109,000 August rise. Increases varied greatly amongst service sector categories. Private education & health service jobs rose 81,000 (3.8% y/y) after rising 60,000 in August while leisure & hospitality employment rose 78,000 (2.0% y/y) after a 53,000 gain. Professional & business service jobs rose 17,000 (0.4% y/y) after easing 4,000 in both August and July. Within that category, the number of temporary jobs fell 13,800 (-6.0% y/y) and have fallen consistently since a March 2022 high. Trade, transportation & utilities employment gained 13,000 (0.6% y/y) after falling 5,000 while financial activities jobs rose 5,000 in September (0.4% y/y) after improving 10,000 in August. Information sector employment increased 4,000 in last month (-0.2% y/y) after falling 7,000 in August.

Government sector payrolls improved 31,000 in September (2.1% y/y) after increasing 45,000 in August. Local government jobs improved 16,000 (2.0% y/y) after rising 33,000 in August while state government employment rose 13,000 (2.5% y/y) after an 11,000 gain. The number of federal government jobs increased 2,000 (1.7% y/y) following a 1,000 rise.

The 0.4% September rise in private-sector average hourly earnings reflected a 0.5% gain (4.9% y/y) in the goods-producing sector which followed a 0.4% improvement in August. Earnings in construction improved 0.4% (4.6% y/y) while factory sector earnings rose 0.5% (5.1% y/y), following a 0.4% gain. In the private services-sector, earnings rose 0.3% last month (3.7% y/y) after a 0.5% gain. Professional & business service sector earnings strengthened 0.8% (5.0% y/y) after a 0.6% rise. Leisure & hospitality earnings improved 0.2% (4.3% y/y) after rising 0.3%. Financial sector earnings increased 0.2% (4.2% y/y) after a 0.5% gain. Private education & health services earnings improved 0.3% (3.1% y/y) for the fourth straight month. Trade, transportation and utilities pay edged 0.1% higher (2.8% y/y) in September after a 0.4% rise. Information sector earnings declined 0.4% (+3.6% y/y) after strengthening 1.1% in July.

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The length of the average workweek in the private sector eased to 34.2 hours in September after rising in August to 34.3 hours. The workweek in the goods-producing sector of 39.9 hours compared to 39.8 hours in August. The construction sector average workweek lengthened to 39.2 hours from 39.0. The factory sector workweek held steady at 40.0 hours while the average workweek in the private service sector slipped to 33.1 hours. The aggregate weekly hours index in the private sector, a key indicator of production and income, slipped 0.1% in September (+0.9% y/y) after rising 0.3%. The Q3 average increased 0.2% (AR) from Q2’24.

In the **household survey**, the jobless rate fell to 4.1% as employment rose 0.3% and the size of the labor force edged 0.1% higher. The labor force participation rate was 62.7% for the third straight month. The rate for teenagers rebounded to 37.2%, while for individuals aged 20-24, it was little-change at 70.6%. For rate for workers aged 25-54, the rate fell to 83.8% but for workers 55 and over, it held steady at 38.6 hours.

The employment/population ratio for all workers rose to 60.2% in September and has been moving sideways since early last year. It remained below its high of 61.1% in February 2020, just prior to the pandemic.

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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- Surprising job strength is narrowly based.
- Earnings increase is better-than-expected; August pay growth lifted.
- Jobless rate slips to three-month low.

U.S. Payroll Employment Accelerates in September and Wage Growth Firms; Jobless Rate Edges Lower

Robert Brusca

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French industrial output rose sharply in August, a gain of 1.6% after declining by 0.2% in July. Output in August was led by consumer goods; nondurable goods output increased 4.2% month-to-month in August while consumer durable goods output increased by 3% month-to-month. Output of capital goods was also strong during the month, with a 1.6% gain, although intermediate goods output continued to be weak, falling by 0.4% in August and dropping for the second month in a row.

Sequentially French output explodes over three months although it's relatively mild mannered over 12 months and over six months. The strength in French output is relatively recent. Manufacturing output gains 0.3% over 12 months; over six months it is falling at a 0.5% annual rate but that transforms into a 31.1% annual rate over three months as output sharply recovered in June and in August.

**Sequential growth for MFG components**
Components find consumer durable goods output falling by 6.3% over 12 months, gaining at a 4% annual rate over six months then rising at a strong 14.9% annual rate over three months showing steady acceleration. Consumer nondurable goods output rises by 5.9% over 12 months; output slows to gain at a 4.3% annual rate over six months then it expands sharply to grow at a 19% annual rate over three months. French capital goods output is up only 0.3% over 12 months, but it then expands at a 1.5% annual rate over six months and gains at a 14.2% annual rate over three months showing steadily accelerating growth on this time sequence. Intermediate goods output falls by 3.4% over 12 months, falls more sharply, at a 6.6% annual rate over six months, then cuts that weakness to only a 0.2% annual rate drop over three months.

**Quarter-to-date**
With two months into the third quarter, manufacturing output is rising at 1.6% annual rate, with consumer nondurable output up at a 7% annual rate and consumer durable goods output up at a 3.8% annual rate. Capital goods output is up at a 4.3% annual rate; intermediate goods output is falling at a 5% annual rate in the quarter-to-date.

During this period when output has been experiencing some mild increases, they have transformed into strong increases over three months. Yet, motor vehicle registrations have been consistently weak. That important big ticket consumer item has not taken off.

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**Manufacturing: IP vs. PMI**
The chart shows that manufacturing output as measured by the IP index has been relatively flat. But output as signaled by the S&P PMI survey has showed building weakness in French manufacturing. The PMI trend to weakness was being arrested early in 2024 but then the incipient rebound turned into more weakness. Just this month there has been some small rebound and stabilization in the MFG PMI.

It's here from the PMI, that data give much more of a sense of French output being weak than we get from looking at the industrial output report itself. French industrial output has been fairly flat, but with a small uptrend in place.

Smoothed year-on-year gains show that French output generally saw year-on-year expansion from early-2022 to May 2024. Since then, output has been more erratic with a deep decline logged in May IP. The sector has subsequently been digging itself back out. This month’s surge in output is continuing evidence of that recovery in progress. We do not get the same sense of weakness from looking at French IP data that we form looking at French PMI data.

France

French IP Ignites for a Month

Andrew Cates

**Policy rate expectations**
Blue Chip panellists continue to forecast that policy rates in most major economies will decline sharply in coming months. The ECB, for example, is expected to lower its key policy rates by around 105 basis points over the next 12 months while the BoE is expected to lower its Bank rate by 125 bps over the same time frame. These forecasts contrast with the US where policy rates are expected to be lowered by 125 basis point between now and this time next year. The BoJ in the meantime continues to remain an outlier in this generic global trend with Japan’s policy rate specifically expected to climb by 45bps over the next 12 months.

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**The US labour market**
Ahead of the payrolls data for September that are due later this week there have been some mixed messages on the state of the US labour market in recent days. September’s ADP report concerning private sector employment, for example, was a little stronger than expected. On the weaker side, the latest Job Openings and Labour Turnover (JOLTS) survey revealed a steep decline in the number of people in the US workforce that have been quitting their jobs, a strong signal that the labour market is loosening. As chart 2 below suggests, that ought to additionally imply weaker wages pressures in the period ahead as well.

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**Geopolitical risks and oil prices**
Soft landing narratives have been aided by evidence suggesting that labour markets are cooling, that wage pressures are ebbing and that broader inflationary pressures are fading. But, as noted above, the escalation of geopolitical turbulence in the Middle East is now challenging these views. A widely watched gauge of geopolitical risks has bolted sharply higher in recent days off the heels of this turbulence, as evidenced in chart 3 below. And energy markets – oil prices in particular – appear to now be responding to this instability as well.

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**The real consumer price of energy versus US productivity growth**
It goes without saying that energy prices exert a powerful influence over the world economy. Aside from headline inflation linkages, high real energy prices have arguably been a key factor that’s kept productivity growth in many major economies muted over the past few years. As chart 4 below indicates, longer-term upswings in US productivity growth have tended to be preceded by weaker real energy prices. Equally, longer-term downswings in productivity have typically followed periods when real energy prices have been rising.

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**Globalisation versus de-globalisation** 
A further disruption of supply chains is also a looming threat to the world economy if the instability in the Middle East were to intensify. In the background to this, and thanks to several additional factors that have undermined world trade in recent years, a de-globalisation of the world economy has been unfolding. That said, latest data from the World Bank suggest we should not get too carried with that de-globalisation narrative. The level of world trade in services, for example, reached a record high in 2023.

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**Indebtedness and interest rates**
There is no doubt that ongoing geopolitical instability, combined with other factors such as heightened protectionism, could accelerate a broader trend toward de-globalization in the coming period. This, along with other structural challenges such as high energy prices and ageing demographics, may be hindering long-term productivity growth. Offsetting factors do exist, most notably the productivity potential of Artificial Intelligence. However, until those offsets fully materialize, many policymakers are likely to again rely on monetary policy tools and other re-leveraging initiatives to boost economic growth to politically acceptable levels. The strong negative correlation between long-term US real interest rates and global indebtedness in chart 6 below highlights how these policy efforts have become central to maintaining economic stability, often at the expense of increasing financial vulnerabilities.

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In recent weeks, financial markets have generally aligned with expectations of a soft landing for the global economy, facilitated by more accommodative policies from central banks (see chart 1). This week’s dataflow have largely reinforced these views (see chart 2) as have the communications from many policymakers. However, the escalation of geopolitical turbulence in the Middle East in recent days is now challenging this narrative. By potentially choking supply chains and raising risk premiums in energy markets, there could be growth and inflation-related consequences for the world economy in the coming weeks (see charts 3). This also serves as a reminder that there are longer-term headwinds that are placing a brake on global growth at present, including high real energy prices (chart 4), de-globalization pressures (chart 5) and lingering debt-related imbalances (see chart 6). And many of these issues could be exacerbated if the turmoil in the Middle East were to intensify.

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Charts of the Week: Geopolitical Scarring

Winnie Tapasanun

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The U.S. ISM Services PMI rose to 54.9 in September, the highest level since February 2023, after a 0.1-point uptick to 51.5 in August, according to today’s report by the Institute for Supply Management, indicating expansion in the services sector for the third straight month, in seven of nine months in 2024, and for the 49th time in 52 months. The September index was up from a four-year-low 48.8 in June, 53.4 in September 2023, and a low of 49.0 in December 2022; however, having remained down from a record-high 67.1 in November 2021. The 12-month average was 51.8, reflecting strong growth in the U.S. services sector. The Action Economics Forecast Survey had expected 51.7 for September.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index rose to 53.9 in September after a 0.2-point increase to 51.0 in August, showing expansion for fourth time in five months. The latest figure was higher than a four-year-low 48.8 in June, 52.8 in September 2023, and a low of 48.9 in December 2022; nevertheless, having remained well below a record-high 66.3 in November 2021. These series date back to July 1997.

In the latest services survey, the business activity index rebounded to 59.9 in September from 53.3 in August, indicating business activity expanded for the 51st time in 52 months and at the highest level since May. The index was up from its recent low of 49.6 in June and a low of 52.7 in December 2022 but below a record-high 69.5 in November 2021. An increased 30.1% of respondents (NSA) reported higher activity in September while a lessened 8.2% reported an activity decline. The new orders index advanced to 59.4 in September from 53.0 in August, indicating expansion in new orders for the 50th time in 52 months and at the fastest pace since February 2023. The index was up from its recent low of 47.3 in June and a low of 45.0 in December 2022 but down from a record-high 69.5 in October 2021. An increased 30.9% of respondents (NSA) reported higher orders in September while a lessened 10.4% reported a decline. Meanwhile, the supplier deliveries index (NSA) rose to 52.1 in September from 49.6 in August, indicating slower supplier delivery performance after two months in faster territory.

On the labor front, the employment index decreased to 48.1 in September on top of a 0.9-point decline to 50.2 in August, showing employment activity in the services sector contracted after two months of expansion. The latest reading, while above a low of 43.8 in December 2023, was below a high of 54.1 in August 2023 and a high of 58.3 in April 2021. A lessened 13.0% of respondents (NSA) indicated higher employment in September while 14.4% reported a decline.

On the inflation front, the prices index rose to 59.4 in September after a 0.3-point increase to 57.3 in August, indicating prices paid by services organizations for materials and services had risen (i.e., above 50) since June 2017 and at the fastest rate since January’s high of 64.0. The index was up versus its recent low of 53.4 in March and a low of 54.8 in June 2023; however, having remained significantly below a record-high 83.8 in March 2022. An increased 22.7% of respondents (NSA) reported price rises in September while a lessened 6.0% reported price declines.

Additionally, the new export orders index increased to 56.7 in September following a 7.6-point drop to 50.9 in August, indicating new export orders expanded for the 10th time in 11 months at a faster rate. The imports index rebounded to 52.7 in September from 50.3 in August, registering the third consecutive month of expansion after contracting in June and May. The inventories index advanced to 58.1 in September from 52.9 in August, indicating inventories expanded for the second successive month and at the fastest pace since May 2023. The inventory sentiment index fell to 54.0 in September after declining to 54.9 in August, showing continued expansion since May 2023 but at the slowest rising rate since June 2023. The backlog of orders index increased to 48.3 in September after dropping to 43.7 in August, posting the third contraction in four months. 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 (25% each): Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; 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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- 54.9 in September vs. 51.5 in August, higher than expected; 3.1 pts. above the 12-month avg. of 51.8.
- Business Activity (59.9, a four-month high), New Orders (59.4, the highest since Feb. ’23), Employment (48.1, the first contraction since June), and Supplier Deliveries (52.1 vs. 49.6).
- Prices Index rises 2.1 pts. to 59.4, the highest since January.

U.S. ISM Services PMI Jumps in September; Highest Level Since February ’23

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New orders for manufactured goods eased 0.2% (+0.9% y/y) during August, after strengthening 4.9% in July, revised from 5.0%, according to the Census Bureau. Orders declined 3.3% in June. The Action Economics Forecast Survey expected a 0.2% increase in total factory orders. Excluding the transportation sector, orders eased 0.1% (+0.5% y/y) after rising 0.3% in July.

New orders for durable goods were unchanged during August (+1.5% y/y), unrevised from the advance release, and followed a 9.8% July gain. The weakness in durable goods orders reflected a 0.8% easing (+2.5% y/y) in transportation sector orders. This followed a 34.6% jump in July, which was buoyed by higher civilian aircraft orders. Motor vehicle & parts orders eased 0.7% (-1.8% y/y) after a 1.0% decline. Orders for all factory products outside the transportation sector slipped 0.1% (+0.5% y/y) in August following a 0.3% July increase. Elsewhere, primary metals orders rose 0.2%, up 0.1% y/y. Machinery orders gained 0.4% (0.1% y/y), while computer & electronics rose 0.4% (2.8% y/y). Electrical equipment orders rose 2.4% (2.8% y/y), following a 0.8% decline.

Shipments by all manufacturing industries eased 0.5% in August (+1.0% y/y) after rising 0.8% in July. Durable goods shipments fell 0.6% (+1.7% y/y) after two months of roughly 1.1% gain. Transportation product shipments fell 2.0% (+5.0% y/y) after a 3.4% rise. Shipments excluding the transportation sector eased 0.2% (+0.2% y/y) after rising 0.3% in July. Machinery shipments rose 0.3% in August (-0.9% y/y) while computer & equipment shipments eased 0.2% (-0.1% y/y). Electrical equipment & appliance shipments rose 0.4% (+0.7% y/y). Nondurable goods shipments, which equal orders, fell 0.5% (+0.3% y/y) after increasing 0.6% in July. Food product shipments eased 0.1% (+1.3% y/y) while apparel shipments rose 0.4% (-2.4% y/y) after two months of decline. Textile product shipments weakened 1.7% both m/m and y/y after falling 0.3% in July. Paper product shipments rose 0.3% (2.1% y/y), following a 0.8% increase. Petroleum & coal product shipments declined 2.3% (-10.9% y/y) in August, after rising 0.5%. Basic chemical shipments rose 0.3% (5.8% y/y) after a 0.8% July increase.

There are no unfilled orders figures for nondurable goods industries. Unfilled orders for durable goods rose 0.4% (4.1% y/y) in August after a 0.2% rise. Transportation unfilled orders rose 0.5% (6.8% y/y) after increasing 0.3% in July. Excluding transportation, unfilled orders rose 0.2% (-0.4% y/y) after holding steady in July. Unfilled orders for durable goods less transportation have been trending sideways since 2022. Unfilled orders for machinery eased 0.1% (-3.7% y/y) while electrical equipment & appliance backlogs rose 0.4% (-0.0%) after a 0.2% decline.

Inventories of all manufactured products rose 0.1% in August (0.6% y/y) after holding steady in July. Durable goods inventories edged 0.1% higher (1.3% y/y) after holding steady in July. Transportation equipment inventories edged 0.1% higher (4.7% y/y) and inventories less transportation rose 0.2% (-0.4% y/y) after holding steady for five straight months. Nondurable goods inventories rose 0.2% (-0.5% y/y) after remaining unchanged for two months, though petroleum inventories rose 0.8% (-1.9% y/y) in August after easing 0.1% in July.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- Improved y/y in orders momentum remains in place.
- Shipments weighed down by a decline in nondefense aircraft sales.
- Unfilled orders and inventories rise modestly.

Economy in Brief: December 2005

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Leading Economic Indicators Up Again

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U.S. Personal Income rose As Expected

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US 3Q GDP Revised Slightly Lower

Production and New Orders in the Euro Zone's Big Three: Germany, France and Italy