Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902b.jpg" align="left" border="0" height="265" width="353">
The July PPI in the e-zone jumped by 1.1% in July continuing
to spread inflation pressure in the e-zone. Ex energy the PPI rose by
0.5% after a 0.4% spurt in June. As a result even ex-energy inflation
is looking troublesome. Ex energy e-Zone inflation is running at 4.3%
Yr/Yr, at a 5.1% pace over six months and at a barely reduced 4.7% pace
over three months. While this is the PPI not the ECB&#8217;s favored HICP
measure, the strength in prices will not go down well at the ECB. Germany, Italy and the UK generally
show accelerating patterns of headline PPI inflation as well as
ex-energy inflation. Among those three only Italy does not show
inflation accelerating over the recent three months compared to six
months and 12-months for ex-energy inflation.
The e-zone headline inflation rate for the PPI is now up by 9%
Yr/Yr compared with ex-energy inflation at 4.7%. Capital goods
inflation remains subdued at 2% Yr/Yr. But consumer goods inflation is
up by 4.3%. Energy prices are up 24% Yr/Yr. Inflation trends in the
e-zone are like nothing the ECB would ever want to tolerate, but here
they are.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">E-zone and
UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area 15</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">TotalxConstruct</td>
<td>1.1%</td>
<td>1.0%</td>
<td>14.2%</td>
<td>11.8%</td>
<td>9.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>5.1%</td>
<td>4.3%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>4.3%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate&amp;Cap Gds</td>
<td>0.6%</td>
<td>0.5%</td>
<td>5.9%</td>
<td>6.3%</td>
<td>4.2%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>2.8%</td>
<td>2.8%</td>
<td>46.3%</td>
<td>33.5%</td>
<td>24.5%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>0.7%</td>
<td>10.9%</td>
<td>9.6%</td>
<td>7.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.0%</td>
<td>0.9%</td>
<td>16.7%</td>
<td>13.4%</td>
<td>8.9%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.7%</td>
<td>0.3%</td>
<td>5.4%</td>
<td>5.1%</td>
<td>3.6%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.4%</td>
<td>10.4%</td>
<td>8.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>5.1%</td>
<td>4.1%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>0.2%</td>
<td>2.9%</td>
<td>25.3%</td>
<td>20.9%</td>
<td>20.0%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.6%</td>
<td>10.3%</td>
<td>7.6%</td>
<td>3.0%</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">Euro Area 15
Harmonized PPI
excluding Construction.</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">The EA 15
countries are Austria,
Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
</body></html>

The July PPI in the e-zone jumped by 1.1% in July continuing to spread inflation pressure in the e-zone. Ex energy the PPI rose by 0.5% after a 0.4% spurt in June. As a result even ex-energy inflation is looking troublesome. Ex energy [...]

Euro Area Overall PPI Jumps: Sector Trends Diverge

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902f.jpg" align="left" border="0" height="265" width="353">
The value of construction put in place fell 0.6% during July
and that reversed the 0.3% increases during the prior two months. The
decline was as-expected.
Year-to-year, construction was down 4.8% but the level of
activity so far this year continued roughly stable.
As in prior months, however, residential building activity
continued to decline sharply, by 2.1% in July. Since it's peak it has
fallen by just over one half. Single-family construction dropped an
even larger 3.7% (-0.9% y/y) in July and that level is off by nearly
two-thirds from its peak in early 2006. Building activity on
multi-family units ticked up 0.2% (-1.7% y/y) while spending on
improvements gave back the June gain and fell 1.0% (-5.5% y/y).
During the last twenty years there has been an 84% correlation
between the q/q change in the value of residential building and its
contribution to growth in real GDP.
The value of nonresidential building activity fell 0.7% after
increasing in each month of this year. Despite the latest dip, office
construction continued firm and increased 1.7% (13.7% y/y). Lodging
spending dipped, however, by 0.1% but it was up by more than one-third
from last year's level. Spending on multi-retail building rose 3.1%
(4.7% y/y) while spending on health care facilities dipped 0.2% (+6.7%
y/y).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902g.jpg" align="right" border="0" height="265" width="353">
Public construction continued firm and rose by 1.4% (8.1%
y/y). The value of construction spending on highways &amp; streets
fell modestly for the third consecutive month but remained up 6.9% from
last year. (The value of construction on highways &amp; streets is
roughly one third of the value of total public construction spending.)
Building activity of educational facilities surged 2.5% (7.4% y/y)
during July.
The more detailed categories of construction represent the
Census Bureau&#8217;s reclassification of construction activity into end-use
groups. Finer detail is available for many of the categories; for
instance, commercial construction is shown for automotive sales and
parking facilities, drugstores, building supply stores, and both
commercial warehouses and mini-storage facilities. Note that start
dates vary for some seasonally adjusted line items in 2000 and 2002 and
that constant-dollar data are no longer computed.
The United States in the International Financial
System: A Separate Reality? Resolving Two Puzzles in the International
Accounts is yesterday's speech by Fed Governor Randall S.
Kroszner and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/kroszner20080901a.htm">here</a>.
Regional Variation in the Potential Economic
Effects of Climate Change from the Federal Reserve Bank
of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-26.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E907.HTM">Construction</a>
(%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.6</td>
<td>0.3</td>
<td>-4.8</td>
<td>-2.7</td>
<td>6.3</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.4</td>
<td>0.2</td>
<td>-9.2</td>
<td>-6.9</td>
<td>5.5</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.3</td>
<td>-1.4</td>
<td>-27.5</td>
<td>-19.8</td>
<td>1.0</td>
<td>14.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.7</td>
<td>1.7</td>
<td>16.0</td>
<td>19.6</td>
<td>16.2</td>
<td>7.8</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>1.4</td>
<td>0.4</td>
<td>8.1</td>
<td>12.3</td>
<td>9.3</td>
<td>6.2</td>
</tr>
</tbody>
</table>
ISM Index About Unchanged 
by <a href="/comment/Moeller.html">Tom
Moeller</a> September 2, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902c.jpg" align="left" border="0" height="265" width="353">
The Institute for Supply Management reported that it's
Composite Index of Manufacturing Sector Activity was about unchanged
from its July level at 49.9. It thus remained up slightly from the
monthly lows near 48 this past winter. Consensus expectations had been
for more of a decline to 49.1 in July.
Despite the very recent improvement, the index's average level
so far this year of 49.5 was near its lowest since early-2003. The
index level is consistent with a roughly unchanged level in industrial
sector activity.
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three-month growth in
factory sector industrial production.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902d.jpg" align="right" border="0" height="265" width="353">
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by using all of the positive
changes in activity added to one half of the zero change in activity
measures.
The new orders index recovered most of its sharp drop in July.
However, the two month average of the index at 46.6 was near this
cycle's low. The new export orders sub-series recovered most of its
July drop with a 3.0 point rise to 57.0. During the last ten years
there has been a 53% correlation between the index and the q/q change
in real exports of goods in the GDP accounts.
The employment index fell 2.2 points to 49.7 but that retraced
just a piece of the July rise. During the last twenty years there has
been a 67% correlation between the level of the ISM employment index
and the three-month growth in factory sector employment.
The production index dipped to 52.1 and still indicated a
rising level of output. The inventories series rose sharply to 49.3 and
that recovered most of its July decline.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902e.jpg" align="left" border="0" height="265" width="353">
Order backlogs remained near the lowest level (43.5) this year
as the index rose just slightly in August. It averaged 48.9 during all
of 2007.
Prices paid fell sharply. The index fell 11.5 points to 77.0,
its lowest level since February. That followed the recent decline in
oil prices. During the last twenty years there has been a 79%
correlation between the price index and the three-month change in the
PPI for intermediate goods.
Oil and the U.S. macroeconomy: an update and a simple
forecasting exercise from the Federal Reserve Bank of St.
Louis can be found <a href="http://research.stlouisfed.org/wp/2008/2008-009.pdf">here</a>.
The Menace of Inflation from the Center
for Economic and Policy Research is available <a href="http://www.cepr.net/index.php/op-eds-&amp;-columns/op-eds-&amp;-columns/the-menace-of-inflation">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August '07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>49.9</td>
<td>50.0</td>
<td>51.2</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>48.3</td>
<td>45.0</td>
<td>54.5</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>49.7</td>
<td>51.9</td>
<td>50.9</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>77.0</td>
<td>88.5</td>
<td>63.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
Euro Area Overall PPI Jumps:
Sector Trends Diverge 
by <a href="/comment/Brusca.html">Robert
Brusca</a> September 2, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902b.jpg" align="left" border="0" height="265" width="353">
The July PPI in the e-zone jumped by 1.1% in July continuing
to spread inflation pressure in the e-zone. Ex energy the PPI rose by
0.5% after a 0.4% spurt in June. As a result even ex-energy inflation
is looking troublesome. Ex energy e-Zone inflation is running at 4.3%
Yr/Yr, at a 5.1% pace over six months and at a barely reduced 4.7% pace
over three months. While this is the PPI not the ECB&#8217;s favored HICP
measure, the strength in prices will not go down well at the ECB. Germany, Italy and the UK generally
show accelerating patterns of headline PPI inflation as well as
ex-energy inflation. Among those three only Italy does not show
inflation accelerating over the recent three months compared to six
months and 12-months for ex-energy inflation.
The e-zone headline inflation rate for the PPI is now up by 9%
Yr/Yr compared with ex-energy inflation at 4.7%. Capital goods
inflation remains subdued at 2% Yr/Yr. But consumer goods inflation is
up by 4.3%. Energy prices are up 24% Yr/Yr. Inflation trends in the
e-zone are like nothing the ECB would ever want to tolerate, but here
they are.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup><thead><tr>
<th colspan="7" scope="col">E-zone and
UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area 15</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">TotalxConstruct</td>
<td>1.1%</td>
<td>1.0%</td>
<td>14.2%</td>
<td>11.8%</td>
<td>9.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>5.1%</td>
<td>4.3%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>4.3%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate&amp;Cap Gds</td>
<td>0.6%</td>
<td>0.5%</td>
<td>5.9%</td>
<td>6.3%</td>
<td>4.2%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>2.8%</td>
<td>2.8%</td>
<td>46.3%</td>
<td>33.5%</td>
<td>24.5%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>0.7%</td>
<td>10.9%</td>
<td>9.6%</td>
<td>7.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.0%</td>
<td>0.9%</td>
<td>16.7%</td>
<td>13.4%</td>
<td>8.9%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.7%</td>
<td>0.3%</td>
<td>5.4%</td>
<td>5.1%</td>
<td>3.6%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.4%</td>
<td>10.4%</td>
<td>8.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>5.1%</td>
<td>4.1%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>0.2%</td>
<td>2.9%</td>
<td>25.3%</td>
<td>20.9%</td>
<td>20.0%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.6%</td>
<td>10.3%</td>
<td>7.6%</td>
<td>3.0%</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">Euro Area 15
Harmonized PPI
excluding Construction.</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">The EA 15
countries are Austria,
Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
Brazil's Industrial
Production Points to&nbsp; a 5% Y/Y Increase in GDP in Q2 
by <a href="/comment/Curley.html">Louise
Curley</a> September 2, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080903e.jpg" align="left" border="0" height="265" width="353">
Brazilian industrial production rose 1% in July from June and
was 7% above July, 2007. Capital goods production was up 20% over July
2007. Consumer durable goods production was up 7.5% and consumer
semidurable and nondurable goods production was up 3%. The first chart
shows these major categories of total industrial production over the
past few years.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080903f.jpg" align="right" border="0" height="265" width="353">
The quarterly year-to-year changes in industrial production
have proven to be good indicators of the quarterly changes in real GDP
as shown in the second chart where the correlation between the two
series is .87 and the R2 is .76. The industrial
production data precedes the GDP data by a month or more. The
year-to-year increase in the second quarter industrial production was
5.1% down from the 6.6% of the first quarter when the year-to-year
increase in GDP was 5.8%. If the correlation holds, we should expect a
year-to-year increase of 5% second quarter increase of around 5% over
the second quarter of 2007. The actual figure will be published
September 10.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">BRAZIL:&nbsp;Industrial
Production&nbsp; (2002=100)</th>
<th scope="col">Jul 08</th>
<th scope="col">Jun&nbsp; 08&nbsp;</th>
<th scope="col">Jul&nbsp;&nbsp;
07&nbsp;</th>
<th scope="col">M/M % chg&nbsp;</th>
<th scope="col">Y/Y % chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>130.63</td>
<td>129.28</td>
<td>121.63</td>
<td>1.04</td>
<td>7.40</td>
<td>121.29</td>
<td>114.98</td>
<td>111.79</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>188.86</td>
<td>186.65</td>
<td>157.07</td>
<td>1.18</td>
<td>20.24</td>
<td>159.48</td>
<td>133.97</td>
<td>126.78</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durable Goods</td>
<td>176.22</td>
<td>185.81</td>
<td>163.93</td>
<td>-5.16</td>
<td>7.50</td>
<td>160.92</td>
<td>148.13</td>
<td>139.99</td>
</tr>
<tr>
<td class="firstcol">Consumer Semi and Non
Durable Goods</td>
<td>113.90</td>
<td>113.87</td>
<td>110.44</td>
<td>0.03</td>
<td>3.13</td>
<td>110.98</td>
<td>107.41</td>
<td>104.78</td>
</tr>
</tbody>
</table>
</body></html>

The value of construction put in place fell 0.6% during July and that reversed the 0.3% increases during the prior two months. The decline was as-expected. Year-to-year, construction was down 4.8% but the level of activity so far this [...]

U.S. Construction Spending Fell in July

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902a.jpg" align="left" border="0" height="265" width="353">
German retail sales have now put in back-to-back declines,
each of substantial magnitude. Real and nominal sales are now lower
over 12 months. Over 6 months the rate of decline is more severe and
over 3 months the pace of decline is even more severe.
The loss in momentum is unmistakable.
For the current quarter, the results are very poor. It is
July, so we calculate the growth RATE in July centered over the average
for sales in Q2. There are
different ways to annualize things. We compound the growth rate and
present it as an actual rate from its current position compared to the
actual Q2 base. Since Q2 centers in May we take the resulting growth
rate to the 6th power to annualize it. That
leaves us with retail sales falling at a 4.3% pace in Q3 or at a -11.3%
pace in real terms (ex autos). However if we treat the level of sales
in July as the level for the whole quarter we compound by four instead
of six giving us a still weak growth rate of -7.7% for real ex-auto
sales. There is not much arguing with the notion that German retail
sales are falling sharply.


<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr>
<th colspan="9" scope="col"> German Real and Nominal Retail Sales</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td colspan="2">Saar</td>
</tr>
<tr>
<td class="firstcol">Retaill Ex auto</td>
<td>-1.3%</td>
<td>-1.4%</td>
<td>1.7%</td>
<td>-4.1%</td>
<td>-3.0%</td>
<td>-0.2%</td>
<td>-0.7%</td>
<td colspan="2">-4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
<td>-10.4%</td>
<td>-5.0%</td>
<td>-1.2%</td>
<td>-4.3%</td>
<td colspan="2">-13.4%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>2.8%</td>
<td>-10.2%</td>
<td>15.1%</td>
<td>27.4%</td>
<td>1.3%</td>
<td>1.5%</td>
<td>2.1%</td>
<td colspan="2">0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="10">Real</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.5%</td>
<td>-1.4%</td>
<td>1.3%</td>
<td>-6.2%</td>
<td>-5.4%</td>
<td>-3.2%</td>
<td>-1.0%</td>
<td colspan="2">-11.3%</td>
</tr>
</tbody>
</table>
</body></html>

German retail sales have now put in back-to-back declines, each of substantial magnitude. Real and nominal sales are now lower over 12 months. Over 6 months the rate of decline is more severe and over 3 months the pace of decline is [...]

Germany Retail Sales Give Way…

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902a.jpg" align="left" border="0" height="265" width="353">
German retail sales have now put in back-to-back declines,
each of substantial magnitude. Real and nominal sales are now lower
over 12 months. Over 6 months the rate of decline is more severe and
over 3 months the pace of decline is even more severe.
The loss in momentum is unmistakable.
For the current quarter, the results are very poor. It is
July, so we calculate the growth RATE in July centered over the average
for sales in Q2. There are
different ways to annualize things. We compound the growth rate and
present it as an actual rate from its current position compared to the
actual Q2 base. Since Q2 centers in May we take the resulting growth
rate to the 6th power to annualize it. That
leaves us with retail sales falling at a 4.3% pace in Q3 or at a -11.3%
pace in real terms (ex autos). However if we treat the level of sales
in July as the level for the whole quarter we compound by four instead
of six giving us a still weak growth rate of -7.7% for real ex-auto
sales. There is not much arguing with the notion that German retail
sales are falling sharply.

<table border="0" cellspacing="0" width="100%"> <colgroup><col></colgroup>
<thead><tr>
<th colspan="9" scope="col"> German
Real and Nominal Retail Sales</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td colspan="2">Saar</td>
</tr>
<tr>
<td class="firstcol">Retaill Ex auto</td>
<td>-1.3%</td>
<td>-1.4%</td>
<td>1.7%</td>
<td>-4.1%</td>
<td>-3.0%</td>
<td>-0.2%</td>
<td>-0.7%</td>
<td colspan="2">-4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
<td>-10.4%</td>
<td>-5.0%</td>
<td>-1.2%</td>
<td>-4.3%</td>
<td colspan="2">-13.4%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>2.8%</td>
<td>-10.2%</td>
<td>15.1%</td>
<td>27.4%</td>
<td>1.3%</td>
<td>1.5%</td>
<td>2.1%</td>
<td colspan="2">0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="10">Real</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.5%</td>
<td>-1.4%</td>
<td>1.3%</td>
<td>-6.2%</td>
<td>-5.4%</td>
<td>-3.2%</td>
<td>-1.0%</td>
<td colspan="2">-11.3%</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829e.jpg" align="left" border="0" height="265" width="353">
This Month - The European Commission&#8217;s monthly indices show
that the area continued to lose ground as economic sentiment slipped
from 88.8 in July to 86.9 in August. All main sector gauges fell in the
month save consumer confidence which advanced one thin point but
remained negative overall and weak in its historic range. 
 

Assessing the levels of the various indicators - The EU
sentiment gauge stands in the 31st percentile of its range in August
2008. The gage for EMU is slightly stronger in its 35.8th percentile.
France did not report on time this month and that often seem to be the
case for France when things are deteriorating. Reporting later does not
make things better. Germany and Italy have overall sentiment gauges
that lie in about the 35th percentile of their respective historic
ranges. Spain is in the bottom 8 percentile of its range. The UK, an EU
member, drags down the average with a heavy weight as its gauge stands
in the bottom 19 percent of its historic range. 
 

Assessing the sectors this month: In August the retail index
fell especially hard, dropping by 4 points. This compares to a three
point drop for the industrial sector. Services backtracked by only one
point, but that sector is the relative weakest in the 13th percentile
of its historic range. Retailing is in the 22nd percentile of its
historic range and consumer confidence with its one-point rise stands
in the 27th percentile of its range. Construction at a deeply negative
-18 is still in the 51st percentile of its historic range while MFG at
a -10 is at the 50th percentile the dead middle of its range. 
 

EMU inflation, the EU Commission survey and more - There is a
lot of concern about inflation in EMU at the moment. The day also saw
the release of the EMU July HICP. That preliminary reading showed
inflation has notched down to 3.8% from 4% - a move in the right
direction but still distant from the 2% ECB ceiling for inflation. In
the EU Commission survey there was some evidence that inflation
expectations were adjusting in a positive direction. For industrial
selling prices, expectations fell by three months to a +17 level and
stand in the 75th percentile of their historic range- still high. For
consumers, expected price trends in the next 12-months broke sharply
lower dropping by 8 points on the month to stand at +22 in the 57th
percentile of their historic range. In construction prices expectations
stood at a +4 down in the month and down sharply from +111 in June but
still held in the 63rd percentile of their range. All in all actual
inflation did edge lower in the month of July and expectations are
moving in the right direction, lower, in August. The ECB can breathe
somewhat of a sigh of relief. The bad inflation news on the day came
form Germany where more first half wage agreements showed signs of
edging over 4%. So it was not a perfect day but it was a good day for
inflation-watchers. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="12" scope="col">EU
Sectors and Country level Overall Sentiment </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Aug 
08</td>
<td>Jul 
08</td>
<td>Jun 
08</td>
<td>May 
08</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-SQ 
w/Overall</td>
</tr>
<tr>
<td class="firstcol">Overall</td>
<td>86.9</td>
<td>88.8</td>
<td>94.5</td>
<td>97.1</td>
<td>31.8</td>
<td>230</td>
<td>116</td>
<td>73</td>
<td>43</td>
<td>101</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-10</td>
<td>-7</td>
<td>-4</td>
<td>-3</td>
<td>50.0</td>
<td>156</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-6</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-19</td>
<td>-20</td>
<td>-17</td>
<td>-14</td>
<td>27.6</td>
<td>225</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-10</td>
<td>0.83</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-15</td>
<td>-11</td>
<td>-5</td>
<td>-3</td>
<td>22.2</td>
<td>239</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-5</td>
<td>0.49</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-18</td>
<td>-17</td>
<td>-14</td>
<td>-11</td>
<td>51.1</td>
<td>157</td>
<td>5</td>
<td>-42</td>
<td>47</td>
<td>-15</td>
<td>0.42</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-1</td>
<td>0</td>
<td>7</td>
<td>6</td>
<td>13.2</td>
<td>130</td>
<td>32</td>
<td>-6</td>
<td>38</td>
<td>17</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>% m/m</td>
<td>&nbsp;</td>
<td>Aug 
08</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>-0.8%</td>
<td>-5.6%</td>
<td>-2.9%</td>
<td>88.8</td>
<td>35.8</td>
<td>226</td>
<td>117</td>
<td>73</td>
<td>44</td>
<td>101</td>
<td>0.93</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-2.7%</td>
<td>-4.1%</td>
<td>-1.5%</td>
<td>94.7</td>
<td>37.9</td>
<td>182</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>101</td>
<td>0.64</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>N/A</td>
<td>-4.6%</td>
<td>-3.0%</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>4.8%</td>
<td>-10.1%</td>
<td>-0.1%</td>
<td>89.5</td>
<td>35.7</td>
<td>224</td>
<td>122</td>
<td>71</td>
<td>51</td>
<td>101</td>
<td>0.80</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-4.3%</td>
<td>1.6%</td>
<td>-7.8%</td>
<td>71.0</td>
<td>8.4</td>
<td>243</td>
<td>118</td>
<td>67</td>
<td>51</td>
<td>100</td>
<td>0.60</td>
</tr>
<tr>
<td class="firstcol">Memo:UK</td>
<td>-6.1%</td>
<td>-7.8%</td>
<td>2.3%</td>
<td>80.3</td>
<td>19.0</td>
<td>235</td>
<td>130</td>
<td>69</td>
<td>61</td>
<td>101</td>
<td>0.42</td>
</tr>
<tr>
<td colspan="5" class="firstcol">Since 1990
except Services (Oct
1996)
247</td>
<td>-Count</td>
<td>Services:</td>
<td>142</td>
<td>-Count</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan="9" class="firstcol">Sentiment is
an index, sector
readings are net balance diffusion measures</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

This Month - The European Commission’s monthly indices show that the area continued to lose ground as economic sentiment slipped from 88.8 in July to 86.9 in August. All main sector gauges fell in the month save consumer confidence [...]

EMU Indices Continue to Lose Ground

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829c.jpg" width="353">
The University of Michigan&#39;s reading of consumer sentiment for this month rose 2.9% from July to an index level of 63.0. That was firmer than a 0.8% uptick reported in the mid-month survey. The gain followed a 8.5% increase in July and the level was higher than Consensus expectations for a reading of 62.0. The latest level of sentiment was the highest since March.
During the last ten years there has been a 47% correlation between the level of sentiment and the three-month change in real consumer spending.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829d.jpg" width="353">
The expectations component of overall sentiment continued firm and rose 8.2% after the 8.7% increase during July. Expectations for business conditions during the next year jumped and expectations for conditions during the next five years rose firmly as well.The expected change in personal finances were unchanged after a strong July increase.
The current conditions index fell 2.9% for the month and reversed much of the improvement during July. The decline was due to a sharp decline in the index of whether now is a good time to buy large household goods. It reversed half of the July gain. The view of current personal finances also fell slightly.
The opinion of government policy, which apparently influences economic expectations, stabilized after a sharp decline in July. Only six percent of respondents thought that a good job was being done by government.
The mean expected rate of inflation during the next twelve months fell further to 5.3%. During the next five years, however, the expected inflation rate rose to 3.9% .
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August</th>
<th scope="col">August&nbsp; (Prelim.)</th>
<th scope="col">July</th>
<th scope="col">Aug. y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>63.0</td>
<td>61.7</td>
<td>61.2</td>
<td>-24.5% </td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>71.0</td>
<td>69.3</td>
<td>73.1</td>
<td>-27.8%</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>57.9</td>
<td>56.8</td>
<td>53.5</td>
<td>-21.4%</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The University of Michigan's reading of consumer sentiment for this month rose 2.9% from July to an index level of 63.0. That was firmer than a 0.8% uptick reported in the mid-month survey. The gain followed a 8.5% increase in July [...]

Michigan Consumer Sentiment Improved Further in August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829a.jpg" width="353">
Nominal personal income fell 0.7% in July after gains of 0.1% and 1.8% during the prior two months. Those increases were lifted by $90B from the government&#39;s tax rebate checks. The June drop in personal income exceeded Consensus expectations for a 0.2% decline.
Disposable personal income fell 1.1% last month following a 1.9% decline during June and a 5.7% jump during May. Net taxes increased 1.8% last month, due to the absence of rebates, after an 18.7% June jump.
Wage &amp; salary income increased a modest 0.3% (4.1% y/y) after a 0.2% rise during June. These increases left the annualized three-month growth in wages low at 3.2% versus a 5.6% increase during 2007 and a 6.3% 2006 gain. Factory sector wages ticked up 0.1% (1.1% y/y) and three-month growth totaled 2.1%. Wages &amp; salaries in the private service-providing industries increased 0.2% (4.3% y/y) while three-month growth amounted to 2.6% after last year&#39;s gain of 6.4%. Wages in the government sector were firm again and rose 0.4% (5.5% y/y) rise and three-month growth rose to 5.8%.
Interest income jumped 1.1% (-1.7% y/y) and made up the prior month&#39;s decline. Interest income rose 7.9% during all of 2007. Dividend income rose 0.6% (8.2% y/y) for the third consecutive month. That followed a 12.4% rise last year and a 21.7% gain during 2006.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829b.jpg" width="353">
The PCE chain price index was strong again and rose 0.6%, firm due to higher energy prices. The gain in the core PCE price index also remained firm with a 0.3% increase. That matched Consensus forecasts but three-month growth increased to 2.8%, the firmest growth rate since early 2006. Durable goods prices ticked up 0.1% (-1.0% y/y) for the second month. Last month&#39;s small increase was held back by a 0.2% decline in furniture prices (-4.4% y/y). Prices for nondurable goods, however, were quite firm and they posted 1.2% gain (8.2% y/y). Apparel prices also were firm and they rose 0.1% y/y after the 2.2% rate of deflation reached this past March. Services prices jumped 0.4% (3.8% y/y) led higher by a 4.1% (15.2% y/y) jump in electricity costs.
Personal consumption expenditures ticked up 0.2% after the 0.6% rise during June. Adjusted for price inflation, however, real spending fell another 0.4% after a 0.1% downtick during June. Three-month growth in real spending amounted to a negative 0.7% (AR) with real spending on motor vehicles down at a 25.2% rate. Furniture spending rose at a 6.0% rate during the last three months but spending on clothing fell at a 5.2% rate.
The personal savings rate halved to 1.2% from 2.5% in June and 4.9% in May.
The figures noted above are available in the Haver USECON and in the USNA databases.

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a> (%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>-0.7</td>
<td>0.1</td>
<td>4.2</td>
<td>6.1</td>
<td>7.1</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Disposable Personal Income</td>
<td>-1.1</td>
<td>-1.9</td>
<td>5.8</td>
<td>5.5</td>
<td>6.4</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption</td>
<td>0.2</td>
<td>0.6</td>
<td>5.3</td>
<td>5.5</td>
<td>5.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>1.2</td>
<td>2.5</td>
<td>0.3 (July &#39;07)</td>
<td>0.5</td>
<td>0.7</td>
<td>0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.6</td>
<td>0.7</td>
<td>4.5</td>
<td>2.6</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.3</td>
<td>0.3</td>
<td>2.4</td>
<td>2.2</td>
<td>2.3</td>
<td>2.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Nominal personal income fell 0.7% in July after gains of 0.1% and 1.8% during the prior two months. Those increases were lifted by $90B from the government's tax rebate checks. The June drop in personal income exceeded Consensus [...]

U.S. Income Fell Without the Stimulus Checks

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829a.jpg" align="left" border="0" height="265" width="353">
Nominal personal income fell 0.7% in July
after gains of 0.1% and 1.8% during the prior two months. Those
increases were lifted by $90B from the government's tax rebate checks.
The June drop in personal income exceeded Consensus expectations for a
0.2% decline.
Disposable personal income fell 1.1% last
month following a 1.9% decline during June and a 5.7% jump during May.
Net taxes increased 1.8% last month, due to the absence of rebates,
after an 18.7% June jump.
Wage &amp; salary income increased a modest 0.3% (4.1%
y/y) after a 0.2% rise during June. These increases left the annualized
three-month growth in wages low at 3.2% versus a 5.6% increase during
2007 and a 6.3% 2006 gain. Factory sector wages ticked up 0.1% (1.1%
y/y) and three-month growth totaled 2.1%. Wages &amp; salaries in
the private service-providing industries increased 0.2% (4.3% y/y)
while three-month growth amounted to 2.6% after last year's gain of
6.4%. Wages in the government sector were firm again and rose 0.4%
(5.5% y/y) rise and three-month growth rose to 5.8%.
Interest income jumped 1.1% (-1.7% y/y) and made up the prior
month's decline. Interest income rose 7.9% during all of 2007. Dividend
income rose 0.6% (8.2% y/y) for the third consecutive month. That
followed a 12.4% rise last year and a 21.7% gain during 2006.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829b.jpg" align="right" border="0" height="265" width="353">
The PCE chain price index was strong
again and rose 0.6%, firm due to higher energy prices. The gain in the core
PCE price index also remained firm with a 0.3% increase. That
matched Consensus forecasts but three-month growth increased to 2.8%,
the firmest growth rate since early 2006. Durable goods prices ticked
up 0.1% (-1.0% y/y) for the second month. Last month's small increase
was held back by a 0.2% decline in furniture prices (-4.4% y/y). Prices
for nondurable goods, however, were quite firm and they posted 1.2%
gain (8.2% y/y). Apparel prices also were firm and they rose 0.1% y/y
after the 2.2% rate of deflation reached this past March. Services
prices jumped 0.4% (3.8% y/y) led higher by a 4.1% (15.2% y/y) jump in
electricity costs.
Personal consumption expenditures ticked up 0.2% after the
0.6% rise during June. Adjusted for price inflation, however, real
spending fell another 0.4% after a 0.1% downtick during June.
Three-month growth in real spending amounted to a negative 0.7% (AR)
with real spending on motor vehicles down at a 25.2% rate. Furniture
spending rose at a 6.0% rate during the last three months but spending
on clothing fell at a 5.2% rate.
The personal savings rate halved to 1.2% from 2.5% in June and
4.9% in May.
The figures noted above are available in the Haver USECON
and in the USNA databases.

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition
of Personal Income</a> (%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>-0.7</td>
<td>0.1</td>
<td>4.2</td>
<td>6.1</td>
<td>7.1</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Disposable
Personal Income</td>
<td>-1.1</td>
<td>-1.9</td>
<td>5.8</td>
<td>5.5</td>
<td>6.4</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption</td>
<td>0.2</td>
<td>0.6</td>
<td>5.3</td>
<td>5.5</td>
<td>5.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>1.2</td>
<td>2.5</td>
<td>0.3 (July '07)</td>
<td>0.5</td>
<td>0.7</td>
<td>0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.6</td>
<td>0.7</td>
<td>4.5</td>
<td>2.6</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less food
&amp; energy</td>
<td>0.3</td>
<td>0.3</td>
<td>2.4</td>
<td>2.2</td>
<td>2.3</td>
<td>2.1</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment
Improved Further in August 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 29, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829c.jpg" align="left" border="0" height="265" width="353">
The University of Michigan's reading of consumer sentiment for
this month rose 2.9% from July to an index level of 63.0. That was
firmer than a 0.8% uptick reported in the mid-month survey. The gain
followed a 8.5% increase in July and the level was higher than
Consensus expectations for a reading of 62.0. The latest level of
sentiment was the highest since March.
During the last ten years there has been a 47% correlation
between the level of sentiment and the three-month change in real
consumer spending.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829d.jpg" align="right" border="0" height="265" width="353">
The expectations component of overall sentiment continued firm
and rose 8.2% after the 8.7% increase during July. Expectations for
business conditions during the next year jumped and expectations for
conditions during the next five years rose firmly as well.The expected
change in personal finances were unchanged after a strong July increase.
The current conditions index fell 2.9% for the month and
reversed much of the improvement during July. The decline was due to a
sharp decline in the index of whether now is a good time to buy large
household goods. It reversed half of the July gain. The view of current
personal finances also fell slightly.
The opinion of government policy, which apparently influences
economic expectations, stabilized after a sharp decline in July. Only
six percent of respondents thought that a good job was being done by
government.
The mean expected rate of inflation during the next twelve
months fell further to 5.3%. During the next five years, however, the
expected inflation rate rose to 3.9% .
The University of Michigan survey is not seasonally
adjusted.The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database,
with details in the proprietary UMSCA database.

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">August</th>
<th scope="col">August&nbsp; (Prelim.)</th>
<th scope="col">July</th>
<th scope="col">Aug. y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>63.0</td>
<td>61.7</td>
<td>61.2</td>
<td>-24.5% </td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>71.0</td>
<td>69.3</td>
<td>73.1</td>
<td>-27.8%</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>57.9</td>
<td>56.8</td>
<td>53.5</td>
<td>-21.4%</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
EMU Indices Continue to Lose Ground 
by <a href="/comment/Brusca.html">Robert
Brusca</a> August 29, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080829e.jpg" align="left" border="0" height="265" width="353">
This Month - The European Commission&#8217;s monthly indices show
that the area continued to lose ground as economic sentiment slipped
from 88.8 in July to 86.9 in August. All main sector gauges fell in the
month save consumer confidence which advanced one thin point but
remained negative overall and weak in its historic range. 
 

Assessing the levels of the various indicators - The EU
sentiment gauge stands in the 31st percentile of its range in August
2008. The gage for EMU is slightly stronger in its 35.8th percentile.
France did not report on time this month and that often seem to be the
case for France when things are deteriorating. Reporting later does not
make things better. Germany and Italy have overall sentiment gauges
that lie in about the 35th percentile of their respective historic
ranges. Spain is in the bottom 8 percentile of its range. The UK, an EU
member, drags down the average with a heavy weight as its gauge stands
in the bottom 19 percent of its historic range. 
 

Assessing the sectors this month: In August the retail index
fell especially hard, dropping by 4 points. This compares to a three
point drop for the industrial sector. Services backtracked by only one
point, but that sector is the relative weakest in the 13th percentile
of its historic range. Retailing is in the 22nd percentile of its
historic range and consumer confidence with its one-point rise stands
in the 27th percentile of its range. Construction at a deeply negative
-18 is still in the 51st percentile of its historic range while MFG at
a -10 is at the 50th percentile the dead middle of its range. 
 

EMU inflation, the EU Commission survey and more - There is a
lot of concern about inflation in EMU at the moment. The day also saw
the release of the EMU July HICP. That preliminary reading showed
inflation has notched down to 3.8% from 4% - a move in the right
direction but still distant from the 2% ECB ceiling for inflation. In
the EU Commission survey there was some evidence that inflation
expectations were adjusting in a positive direction. For industrial
selling prices, expectations fell by three months to a +17 level and
stand in the 75th percentile of their historic range- still high. For
consumers, expected price trends in the next 12-months broke sharply
lower dropping by 8 points on the month to stand at +22 in the 57th
percentile of their historic range. In construction prices expectations
stood at a +4 down in the month and down sharply from +111 in June but
still held in the 63rd percentile of their range. All in all actual
inflation did edge lower in the month of July and expectations are
moving in the right direction, lower, in August. The ECB can breathe
somewhat of a sigh of relief. The bad inflation news on the day came
form Germany where more first half wage agreements showed signs of
edging over 4%. So it was not a perfect day but it was a good day for
inflation-watchers. 


<table border="0" cellspacing="0" width="100%"> <colgroup></colgroup>
<thead><tr>
<th colspan="12" scope="col">EU
Sectors and Country level Overall Sentiment </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Aug 
08</td>
<td>Jul 
08</td>
<td>Jun 
08</td>
<td>May 
08</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-SQ 
w/Overall</td>
</tr>
<tr>
<td class="firstcol">Overall</td>
<td>86.9</td>
<td>88.8</td>
<td>94.5</td>
<td>97.1</td>
<td>31.8</td>
<td>230</td>
<td>116</td>
<td>73</td>
<td>43</td>
<td>101</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-10</td>
<td>-7</td>
<td>-4</td>
<td>-3</td>
<td>50.0</td>
<td>156</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-6</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-19</td>
<td>-20</td>
<td>-17</td>
<td>-14</td>
<td>27.6</td>
<td>225</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-10</td>
<td>0.83</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-15</td>
<td>-11</td>
<td>-5</td>
<td>-3</td>
<td>22.2</td>
<td>239</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-5</td>
<td>0.49</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-18</td>
<td>-17</td>
<td>-14</td>
<td>-11</td>
<td>51.1</td>
<td>157</td>
<td>5</td>
<td>-42</td>
<td>47</td>
<td>-15</td>
<td>0.42</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-1</td>
<td>0</td>
<td>7</td>
<td>6</td>
<td>13.2</td>
<td>130</td>
<td>32</td>
<td>-6</td>
<td>38</td>
<td>17</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>% m/m</td>
<td>&nbsp;</td>
<td>Aug 
08</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>-0.8%</td>
<td>-5.6%</td>
<td>-2.9%</td>
<td>88.8</td>
<td>35.8</td>
<td>226</td>
<td>117</td>
<td>73</td>
<td>44</td>
<td>101</td>
<td>0.93</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-2.7%</td>
<td>-4.1%</td>
<td>-1.5%</td>
<td>94.7</td>
<td>37.9</td>
<td>182</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>101</td>
<td>0.64</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>N/A</td>
<td>-4.6%</td>
<td>-3.0%</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>4.8%</td>
<td>-10.1%</td>
<td>-0.1%</td>
<td>89.5</td>
<td>35.7</td>
<td>224</td>
<td>122</td>
<td>71</td>
<td>51</td>
<td>101</td>
<td>0.80</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-4.3%</td>
<td>1.6%</td>
<td>-7.8%</td>
<td>71.0</td>
<td>8.4</td>
<td>243</td>
<td>118</td>
<td>67</td>
<td>51</td>
<td>100</td>
<td>0.60</td>
</tr>
<tr>
<td class="firstcol">Memo:UK</td>
<td>-6.1%</td>
<td>-7.8%</td>
<td>2.3%</td>
<td>80.3</td>
<td>19.0</td>
<td>235</td>
<td>130</td>
<td>69</td>
<td>61</td>
<td>101</td>
<td>0.42</td>
</tr>
<tr>
<td colspan="5" class="firstcol">Since
1990
except Services (Oct
1996)
247</td>
<td>-Count</td>
<td>Services:</td>
<td>142</td>
<td>-Count</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan="9" class="firstcol">Sentiment
is
an index, sector
readings are net balance diffusion measures</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

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

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

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Winnie Tapasanun

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The U.S. trade deficit in goods and services (BOP basis) narrowed to $60.18 billion in June after widening to $71.66 billion in May ($71.52 billion originally), according to the U.S. Census Bureau. This was the second month in three in which the deficit had narrowed. The June deficit was the smallest since September 2023 and much smaller than the $73.89 billion in June 2024. A deficit of $61.6 billion had been expected in the Action Economics Forecast Survey. Exports declined 0.5% m/m (+3.3% y/y) in June following a 4.1% drop in May (-4.0% previously) and four successive m/m increases. Imports fell 3.7% (-1.4% y/y) after an unrevised 0.1% downtick in May, registering the third consecutive m/m fall and the fourth in five months.

The real (inflation-adjusted) goods trade deficit (customs value; chained 2017 dollars) narrowed to $84.61 billion in June after widening to $93.32 billion in May; it was smaller than the $92.82 billion in June 2024. The $87.43 billion average monthly real trade deficit in Q2'25 was the smallest since Q4'23 and significantly smaller than the record $143.28 billion in Q1'25. A trade balance (net exports) added 4.99%-points to Q2'25 real GDP growth after subtracting 4.61%-points in Q1'25.

The deficit in goods trade (BOP basis) narrowed to $85.88 billion in June, the smallest since September 2023, after widening to $97.30 billion in May; it was much smaller than the $99.56 billion in June 2024. Goods exports fell 0.7% (+3.3% y/y) in June following a 5.9% drop in May and four straight m/m rises. Imports of goods decreased 4.5% (-2.9% y/y), down for the fourth month in five, after a 0.1% May easing.

The customs value goods trade deficit fell to $84.85 billion in June, the smallest since September 2023, after widening to $96.21 billion in May; it was much smaller than the $98.81 billion in June 2024. The latest figure was slightly smaller than an $85.99 billion deficit in the advance report released on July 29. Custom value exports fell 0.7% (+3.5% y/y) in June following a 5.6% drop in May and four consecutive m/m gains. This reflected m/m falls of 7.4% (+0.7% y/y) in industrial supplies & materials and 2.6% (+22.8% y/y) in other goods. To the upside, exports for the following end-use categories rose m/m in June: nonfood consumer goods excluding autos (4.6%; 4.3% y/y), foods, feeds & beverages (4.4%; 1.2% y/y), capital goods excluding autos (3.4%; 9.7% y/y), and automotive vehicles, parts & engines (1.6%; -15.8% y/y).

Customs value imports slid 4.6% (-2.9% y/y) in June, the third straight m/m slide and the fourth in five months, after a 0.1% downtick in May. This reflected m/m drops of 12.7% (-13.3% y/y) in nonfood consumer goods excluding autos, 5.2% (-12.4% y/y) in industrial supplies & materials, 4.9% (+7.8% y/y) in other goods, 3.6% (-12.2% y/y) in automotive vehicles, parts & engines, and 1.5% (+3.8% y/y) in foods, feeds & beverages. In contrast, imports of capital goods excluding autos, the only end-use category with a monthly increase in June, rose 0.7% (14.0% y/y), the seventh m/m rise in eight months, on top of a 0.3% May rebound. Meanwhile, petroleum imports fell 3.8% (-24.7% y/y) in June, the fourth m/m fall in five months, reversing a 1.5% rise in May. Nonpetroleum imports slid 4.6% (-1.1% y/y), the third straight m/m slide, after a 0.2% May decline.

The services trade surplus rose to $25.70 billion in June after narrowing to $25.64 billion in May; it was in line with $25.67 billion in June 2024. Services exports fell 0.2% (+3.3% y/y) in June, the fifth m/m fall in six months, on top of a 0.6% decline in May. This reflected m/m drops of 4.8% (-11.3% y/y) in government goods & services, 2.1% (+30.8% y/y) in maintenance & repair services, and 1.1% (-0.02% y/y) in travel services, while exports for construction services (0.9%; -5.7% y/y), insurance services (0.7%; 18.9% y/y) and charges for the use of intellectual property (0.5%; 7.0% y/y) increased m/m in June. Services imports fell 0.3% (+4.5% y/y) after a 0.3% May fall and two successive m/m increases. This reflected m/m drops of 1.9% (+48.0% y/y) in maintenance & repair services, 1.5% (+2.9% y/y) in travel services, and 1.3% (-1.3% y/y) in transport services, while imports for construction services (2.0%; 82.3% y/y), charges for the use of intellectual property (0.8%; 1.3% y/y) and financial services (0.5%; 4.9% y/y) rose m/m in June.

The U.S. goods trade deficit with China narrowed to a seasonally adjusted $9.38 billion in June, the smallest on record, after falling to $13.97 billion in May. Exports surged 45.4% (-16.6% y/y) following a 19.9% May slump, while imports fell 6.9% (-45.6% y/y) on top of a 26.3% May plunge. The goods trade deficit with the European Union narrowed markedly to $9.52 billion in June, the smallest since June 2013, after widening to $22.54 billion in May, with exports up 6.8% (16.6% y/y) and imports down 19.2% (-8.2% y/y). The trade shortfall with Japan narrowed marginally to $5.72 billion in June, the smallest since February, from $5.77 billion in the previous month, reflecting declines of 3.4% (-7.5% y/y) in exports and 2.3% (-0.4% y/y) in imports.

The international trade data, including relevant data on oil prices, can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- $60.2 bil. trade deficit, reflecting $85.9 bil. goods deficit & $25.7 bil. services surplus.
- Exports -0.5% m/m, down for the second consecutive month.
- Imports -3.7% m/m, down for the third straight month.
- Real goods trade deficit narrows to $84.6 bil. after May’s widening.
- Goods trade deficits w/ China at a record low, w/ EU at a June ’13 low, and w/ Japan at a 4-month low.

U.S. Trade Deficit Narrows in June; the Smallest Since Sept. ’23

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The S&P Global PMI indexes once again showed mixed performance in July. Most large economies continue to do better, and the total PMI services sectors continue to make up for shortcomings in manufacturing.

**Stability on a low growth path**
In July, 24% of the reporting countries showed activity was slowing; that's down from 48% in both June and May and indicates some progress. Only five of the reporting jurisdictions have PMI values below 50 indicating economic contraction in July; that July figure compares to five in June and seven in May. Declining activity continues to be an unusual event. Medians and average readings for the group of 25 countries or regions show extreme stability in the recent months as well as across sequential averages.

**Growth moderately improves**
Comparing period averages from 12-months to six-months to three-months, unweighted readings of the U.S., the U.K., and European monetary union show extremely flat PMI values oscillating between values of 51.2 to 51.7 on those period averages; over three months, six months, and 12 months. The jurisdictions in the table show PMI readings below 50 are rare; once again declining activity is an unusual event. The proportion of reporters slowing over three months is 34.8% compared to 52.2% over six months and 30.4% over 12 months. Once again, we see these statistics tilted toward improving growth rather than towards slowing

**Summing up**
The queue percentile standings for the group in July have an average value at 48.4% which is below the 50% mark that coincides with the median for the period. This tells us the growth is largely worse than what its median has been over the past 4 1/2 years. On a queue ranking basis, the largest economies consistently perform better with readings above the 50% mark for the U.S. and for the European Monetary System including each of its four largest EMU economies (Germany, France, Italy, and Spain). Japan has a queue standing in its 57th percentile. However, China’s percentile standing is in its 26th percentile and the U.K. is at its 40.5 percentile. Not all large economies are in the catbird seat, but most are faring well despite the moderate growth track globally.

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Service Sectors Prop-up Global Economy

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Total factory orders declined 4.8% (+5.6% y/y) in June after surging 8.3% in May, revised from 8.2%, as reported by the U.S. Census Bureau. A 4.9% decline had been expected in the Action Economics Forecast Survey. A halving in orders for nondefense aircraft accounted for much of the June decline. Factory orders excluding transportation altogether rose 0.4% after increasing 0.3% in May, revised from 0.2%.

Durable goods orders fell 9.4% (+10.9% y/y) in June after 16.5% rise in May. The advance report indicated a 9.3% decline. Transportation orders fell 22.4% (+30.5% y/y). Automobile orders declined 3.1% (-2.7% y/y). Computer & electronic product orders increased 0.6% (5.2% y/y) while electrical equipment, appliances & components rose 0.1% (4.5% y/y). Machinery orders improved 0.3% (3.0% y/y). Furniture & related products increased 0.1% (1.1% y/y). Primary metals orders increased 0.6% (-0.5% y/y) while fabricated metals orders edged 0.1% (3.1% y/y) higher.

Nondurable goods orders, which equal nondurable goods shipments, rose 0.5% (0.6% y/y) in June after edging 0.1% higher in May. Shipments of petroleum & coal products rose 1.4% (-4.5% y/y) and beverage & tobacco products rose 1.5% (4.2% y/y). Food product shipments improved 0.4% (0.9% y/y) and textile product shipments rose a minimal 0.1% (1.9% y/y). To the downside, apparel shipments declined 0.9% (-4.7% y/y) and chemical product shipments eased 0.1% (+3.6% y/y). Paper products declined 0.3% (+0.7% y/y).

Total shipments increased 0.5% (1.8% y/y) in June following a 0.2% May increase. Excluding transportation, shipments rose 0.4% (1.3% y/y) in June after a 0.1% uptick in May. Shipments of durable goods industries rose 0.5% (3.0% y/y) in April, the seventh consecutive m/m rise.  Transportation equipment shipments rose 0.8% (4.3% y/y) as nondefense aircraft shipments fell 6.2% (+13.8% y/y). Machinery shipments rose 1.0% (1.5% y/y), and electrical equipment, appliances & components shipments increased 0.6 (4.6% y/y). Primary metals shipments rose 0.6% (2.4% y/y), fabricated metals shipment rose 0.2% (1.9% y/y), but furniture & related products eased 0.2% (+1.4% y/y).

Unfilled orders rose 1.0% (7.1% y/y) in June after a 3.4% jump in May. Excluding transportation, unfilled orders held steady (+0.8 y/y) after a 0.1% rise in May. Backlogs of durable goods increased 1.0% (7.1% y/y), reflecting a 2.1% rise (14.7% y/y) in nondefense aircraft and a 0.1% decline (-1.8% y/y) in machinery. Electrical equipment, appliances & components backlogs also rose 0.1% (1.0% y/y) while computer & electronic equipment backlogs eased 0.1% both m/m and y/y.
 
Inventories increased 0.2% (1.1% y/y) in June after edging 0.1% higher in May. Excluding transportation, inventories rose 0.2% (1.0% y/y) in June after a 0.1% uptick in May. Durable goods inventories rose 0.2% (1.5% y/y) in June, the same as in May, and rose 0.1% in both of the prior two months. Nondurable goods inventories increased 0.2% 0.5% y/y) after declines in both of the prior two months.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Total orders less transportation rise moderately.
- Shipments pick up.  
- Unfilled orders surge as inventories rise modestly.

U.S. Factory Orders Retreat in June, Largely Centered in Aircraft

Tian Yong Woon

This week, we examine the latest wave of trade developments across Asia as the US unveiled a full list of its modified reciprocal tariff rates, set to take effect on August 7. As anticipated, many of the updated rates are now lower than the original tariffs, with Cambodia and Vietnam seeing the sharpest reductions (chart 1). However, from peak tariff levels, China stands out—continuing to benefit from a 10% pause rate, down from triple-digit highs.

South Korea secured a deal just before the deadline, lowering its tariff from 25% to 15%. The new rate also applies to auto exports, offering relief to Korean automakers (chart 2). Thailand and Cambodia followed with US trade agreements after agreeing to an unconditional ceasefire following earlier military clashes. Their US-imposed tariffs dropped from 36% to 19%, highlighting how US trade policy can intersect with geopolitical interests and, in this case, may help reduce trade uncertainty (chart 3).

Malaysia, a key mediator in the ceasefire, also finalized a trade deal, reducing its tariff rate to 19% and gaining exemptions on key exports such as semiconductors (chart 4). Turning to Japan, while its US trade deal helped avert immediate tensions, the vague terms and a headline $550 billion investment—mostly in the form of loans—leave room for future friction (chart 5). China, however, remains a wildcard. Talks to extend its tariff pause are ongoing, but failure could see a return to extreme tariff levels (chart 6). Meanwhile, tech tensions linger, despite eased restrictions on Nvidia AI chip exports.

**Latest US tariff developments**
We gained further clarity on the new reciprocal tariff rates announced by the US administration last week, as the White House released a full list of the modified rates on Thursday. It also announced that the new rates will take effect on August 7, giving partner countries a bit more time to negotiate new terms. Overall, as earlier indications suggested, Trump’s post-pause tariff rates—regardless of whether trade deals were secured—have often ended up lower than the original rates, as shown in chart 1. The largest reductions from original tariff levels have so far come from Cambodia and Vietnam. However, when looking at the steepest reductions from peak tariff rates, China stands out. It continues to benefit from a 10% tariff pause—down sharply from the triple-digit rates imposed at the height of US-China trade tensions earlier this year. On the flipside, a handful of economies—including New Zealand, the Philippines, and Brunei—are now facing modified tariff rates that are actually higher than their original Liberation Day levels. Notably, the Philippines ended up in this group despite having secured a trade deal with the US.

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**South Korea**
As for South Korea, the US reduced its tariff rate to 15% just ahead of the August 1 deadline, a significant drop from the original Liberation Day rate of 25%. In return, South Korea committed to, among other terms, $350 billion in investments into the US. Of that total, $150 billion will go specifically toward shipbuilding cooperation—supporting the entry of Korean firms into the US shipbuilding industry—while the remaining $200 billion will be directed toward semiconductors and other sectors. Similar to Japan’s arrangement, the new 15% tariff rate will also apply to South Korean auto exports, likely providing relief to the country’s automakers. As shown in chart 2, South Korea’s vehicle exports—and, by extension, its export-driven growth—have come under pressure, with more recent headwinds stemming from the broad 25% auto tariffs imposed by the US. Notably, South Korea’s dealmaking pace with the US has been considered exceptionally swift, especially given that the country had only recently undergone an administrative transition following its presidential elections, leaving limited time to initiate formal trade negotiations.

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**Thailand and Cambodia**
Moving to other parts of Asia, one of the more notable developments last week was the signing of two additional US trade deals—specifically with Thailand and Cambodia. The two countries had recently been engaged in escalating border clashes but agreed to an unconditional ceasefire after mediation by Malaysia and the US. In reality, tensions between Thailand and Cambodia had been simmering for some time, likely driving in part the heightened uncertainty shown in chart 3, though other factors may have played a role. Notably, US President Trump stated that he had made it clear to both governments that no trade deal would be considered while they remained in conflict—an ultimatum that may have incentivized both sides to pursue de-escalation. Ultimately, US trade deals with both countries were announced, reducing their tariff rates from the original Liberation Day level of 36% to 19%. This illustrates how the US approach to dealmaking goes beyond trade, sometimes factoring in broader geopolitical considerations as well.

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**Malaysia**
Touching further on Malaysia, which played a key role in mediating the Thailand-Cambodia conflict mentioned earlier, a last-minute US-Malaysia trade deal also materialized shortly after the agreements with Thailand and Cambodia were hinted at. Under the new terms, Malaysia’s tariff rate was reduced to 19%, down from the original 24%. Malaysian Trade Minister Zafrul described the deal as a “win-win,” noting that Malaysia has either reduced or eliminated tariffs on nearly all American products. Notably—and perhaps offering some interim relief—Malaysia also secured tariff exemptions for its exports of semiconductors and pharmaceuticals. This is especially significant, as semiconductor exports account for a substantial share of Malaysia’s shipments to the US, as shown in chart 4.

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**Japan**
Turning to Japan, the recent US-Japan trade deal appears to have averted the worst for now. However, many key details remain unclear, particularly regarding Japan’s reported $550 billion investment into the US. While the headline figure is striking, Japan’s chief trade negotiator, Akazawa, later clarified that only 1–2% of the amount would constitute actual investment, with the remainder largely consisting of loans. More critically, the deal—like several other recent US-Asia trade agreements—was not accompanied by formal documentation, leaving its terms vague and, perhaps more concerning, open to future revision. These loose ends present ongoing risks to US-Japan economic relations and could potentially unwind recent market gains driven by trade optimism, as uncertainty remains and may yet resurface (see chart 5). This lingering uncertainty likely contributed to the Bank of Japan’s decision to hold its policy rate steady last week. The central bank adopted a wait-and-see approach before considering further rate hikes, while notably revising its inflation forecasts upward and presenting a slightly improved growth outlook for the fiscal year.

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**China**
Amid the recent flurry of US trade deals, one critical issue that may have slipped from the spotlight—but remains central to the global outlook —is China. Ongoing discussions between the two countries aim to extend China’s current tariff pause. If talks break down, US Treasury Secretary Scott Bessent has warned that the existing 10% tariff on Chinese exports could “boomerang” back to its previously exorbitant levels. This could potentially drive the US effective import tariff rate on China well above its already-elevated levels, as shown in chart 6. Meanwhile, the recent reversal of export restrictions by the US on Nvidia’s H20 AI chips may have brought temporary relief to China’s AI sector. However, Chinese authorities have raised national security concerns over the chips’ built-in tracking features and potential remote shutdown capabilities—adding yet another layer of complexity to the already tense US-China trade relationship and broader economic rivalry.

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Asia

Economic Letter from Asia: New Duty Roster

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Nonfarm payrolls increased 73,000 during July after rising 14,000 in June, revised from 147,000, and 19,000 in May, revised from 144,000. Expectations had been for a 102,000 rise in the Action Economics Forecast Survey. The three-month average change in payrolls of 35,000 compared to 64,000 in June. The Bureau of Labor Statistics indicates that monthly revisions result from additional reports received from businesses and government agencies since the last published estimates.

Average hourly earnings rose an expected 0.3% during July after unrevised gains of 0.2% and 0.4% in June & May. Earnings growth of 3.9% y/y is little changed over twelve months, but has been trending lower from its 5.9% high in March 2022.

The unemployment rate, measured in the household survey, edged up m/m to an expected 4.2% from 4.1% and compared to 4.2% in the previous three months. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, rose to 7.9% last month from 7.7% In June. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in July rose 83,000, factory sector jobs declined 11,000, off for the third straight month. Construction sector employment increased 2,000, after rising 3,000 in June. The number of mining & logging industry jobs declined 4,000 after falling in both of the prior two months. 

Private service sector employment increased 96,000 July after improving 16,000 in June. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 79,000 last month, following a 52,000 increase in June. The number of trade, transportation & utilities jobs gained 11,000, following a 22,000 decline and financial activities employment improved 15,000 after a 2,000 drop, while leisure & hospitality employment rose just 5,000 after a 4,000 gain. The number of professional & business services jobs fell 14,000, down for the third straight month.  Information sector employment fell 2,000, after holding steady in June.

Government sector payrolls declined 10,000 last month and revered June’s 11,000 rise. Federal government employment weakened 12,000 and has fallen for six straight months. Local government employment eased 3,000 after rising 10,000 in June while state government payrolls rose 5,000 after increasing 10,000.

Private-sector average hourly earnings rose 0.3% (3.9% y/y) in July. Earnings in the goods-producing sector edged up 0.1% (3.6% y/y). In construction, earnings rose 0.2% (3.7% y/y) following a 0.4% rise, but factory sector earnings eased 0.1% (+3.6% y/y). In the service sector, earnings rose 0.4% (4.0% y/y) in July after increasing 0.2% in June.

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The length of the average workweek rose to 34.3 hours in July from 34.2 hours in June. The workweek in the goods-producing sector lengthened to 39.9 hours from 39.7 hours. The construction sector average workweek rose to 39.1 hours from 38.9 while the factory sector workweek held steady at 40.1 hours. The average workweek in the private service sector edged up to 33.2 hours from 33.1 hours.

In the **household survey**, the unemployment rate increased to 4.2% in July after falling to 4.1% as employment fell 260,000 after rising 93,000 in June and the size of the labor force declined 38,000, off for the third straight month. The labor force participation rate eased to 62.2% last month from 62.3% and remained below the high of 63.3% early in 2020. The rate for teenagers declined to 35.0%, after plunging to 35.1%. For workers aged 20-24, the rate declined to 70.9%. For workers aged 25-54, the participation rate eased to 83.4%. For individuals 55 and over, the rate improved slightly to 38.1% but remained near a 20-year low of 38.0% in June.

The employment/population ratio for all workers slipped to 59.6% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic. For men, the rate fell to 64.7% in July from 64.9% and for women, the rate eased to 54.7% from 54.8% in June.

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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- Recent job growth reduced by fewer factory & government jobs.
- Earnings gain remains steady y/y.
- Jobless rate reverses June decline.

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