Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040721b.jpg" width="353">
The debt service ratio for the household sector fell again in 1Q04 to 12.98%, the lowest level since late 2001 as estimated the US Federal Reserve Bank.
The household debt service ratio estimates the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
A companion financial obligations ratio also fell to 18.09%, its lowest since late 2001. This ratio adds automobile lease payments, rental payments on tenant-occupied property, homeowners&#39; insurance, and property tax payments to the debt service ratio.
The decline in the debt-servicing burden occurred despite a very recent pickup in the amount of mortgage interest paid, though, growth of not quite 4% lagged disposable income growth of over 6%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040721a.jpg" width="353">
Lower interest rates through 1Q helped restrain the growth in interest paid. In 2Q, however, the average interest rate on a 30-Year mortgage rose roughly 50 basis points versus 1Q.
The financial obligations data are derived from the Fed&#39;s Survey of Consumer Finances which is discussed in this <a href="http://www.federalreserve.gov/pubs/oss/oss2/papers/softwaretools.pdf"> paper</a>.
Yesterday&#39;s testimony by Chairman Greenspan before the Senate Banking Committee can be found <a href="http://www.federalreserve.gov/BoardDocs/HH/2004/July/testimony.htm"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E103/@E10310/@E10310.HTM"> Debt Service Ratio</a></th>
<th scope="col">1Q04</th>
<th scope="col">4Q03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Household</td>
<td>12.98%</td>
<td>13.06%</td>
<td>13.06%</td>
<td>13.23%</td>
<td>13.27%</td>
</tr>
</tbody>
</table>
Mortgage Applications Slump 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 21, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040721c.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association fell sharply again last week. Applications fell 4.0% on the heels of the 6.3% drop the prior week.
Purchase applications led the decline, down 6.1% (-0.5% y/y) following the 6.4% drop the prior week. Because of a large gain the first week, July purchase applications so far are 6.1% higher than in June.
During the last ten years there has been a 63% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Applications to refinance mortgages fell a scant 0.7% after the 6.1% drop the prior week (-73.3% y/y). Refi&#39;s in July are 19.2% ahead of June.
The effective interest rate on a conventional 30-Year mortgage was stable at 6.22% versus 6.52% in June. The effective rate on a 15-year mortgage also was about stable at 5.68%, down from 5.98% averaged in June.
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>.

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<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">07/16/04</th>
<th scope="col">07/09/04</th>
<th scope="col"> Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>617.9</td>
<td>643.9</td>
<td>-51.9%</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>440.3</td>
<td>468.8</td>
<td>-0.5%</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,651.1</td>
<td>1,662.4</td>
<td>-73.3%</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
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</tbody>
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The debt service ratio for the household sector fell again in 1Q04 to 12.98%, the lowest level since late 2001 as estimated the US Federal Reserve Bank. The household debt service ratio estimates the ratio of debt payments to [...]

Consumer's 1Q Debt Service Burden Lower, But ...

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/040721d.jpg" width="353">
Monthly population estimates for Japan were reported today as of July 1 by the Japanese Ministry of Public Management, Home Affairs, Post &amp; Telecommunications. The new data reveal a small outright decline in the population of Japan this year from July 2003. Details are not yet available, but the decline may owe to foreign visitors or workers leaving the country, rather than to a decrease in the number of Japanese people. Even so, patterns of births and deaths through January (which were reported yesterday) imply a slight natural decrease.
Another major force in Japanese demographics is the rapidly increasing size of the elderly population. As indicated in the table below, women over age 75 constitute more than 10-1/2% of the total population of women; this share has increased almost 4 percentage points in the last ten years. The number of elderly men is also gaining; their share of the total male population has risen 2-1/2 percentage points since 1994 to 6.5% in July.
By comparison, the population of the US is growing at about 1% a year. Older Americans are also increasing, but much more gradually as a share of the total population than in Japan. Growing numbers of the elderly increase conditions of dependency in the economies of these two nations and others as well. Japan&#39;s rates are higher now, but as the US &quot;Baby Boomers&quot; age, the share of elderly will go up markedly here too.

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<th scope="col" class="firstcol">10 Thousand People</th>
<th scope="col">July 2004</th>
<th scope="col">July 2003</th>
<th scope="col">July 2002</th>
<th scope="col">July 2001</th>
<th scope="col">July 1994</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Japan: Total</td>
<td>12761</td>
<td>12765</td>
<td>12740</td>
<td>12713</td>
<td>12496</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Change</td>
<td>-0.03</td>
<td>0.20</td>
<td>0.21</td>
<td>0.20</td>
<td>0.21*</td>
</tr>
<tr class="odd">
<td class="firstcol">Female</td>
<td>6537</td>
<td>6534</td>
<td>6516</td>
<td>6497</td>
<td>6367</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Change</td>
<td>0.05</td>
<td>0.28</td>
<td>0.29</td>
<td>0.17</td>
<td>0.26*</td>
</tr>
<tr class="odd">
<td class="firstcol">% over Age 75</td>
<td>10.6</td>
<td>10.1</td>
<td>9.7</td>
<td>9.3</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">Male</td>
<td>6224</td>
<td>6231</td>
<td>6224</td>
<td>6216</td>
<td>6129</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Change</td>
<td>-0.11</td>
<td>0.11</td>
<td>0.13</td>
<td>0.24</td>
<td>0.15*</td>
</tr>
<tr>
<td class="firstcol">% over Age 75</td>
<td>6.5</td>
<td>6.1</td>
<td>5.8</td>
<td>5.4</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">United States: Total</td>
<td>29292**</td>
<td>29081</td>
<td>28797</td>
<td>28509</td>
<td>26313</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Change</td>
<td>0.97**</td>
<td>0.98</td>
<td>1.01</td>
<td>1.03</td>
<td>1.11*</td>
</tr>
<tr>
<td class="firstcol">% over Age 75</td>
<td>N.A.</td>
<td>6.0</td>
<td>6.0</td>
<td>6.0</td>
<td>5.5</td>
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Monthly population estimates for Japan were reported today as of July 1 by the Japanese Ministry of Public Management, Home Affairs, Post & Telecommunications. The new data reveal a small outright decline in the population of Japan [...]

Demographic Shifts in Japan

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040720d.jpg" width="353">
The Government of India today reported June trade data. The monthly deficit widened significantly to 117 billion rupees (seasonally adjusted by Haver Analytics) from 65 billion rupees in May. A surge in imports was the cause, although both imports and exports are growing rapidly and stand more than 30% ahead of a year ago.
A striking aspect of this information for us is that India runs a trade deficit at all, much less the record amount recorded for June. Anecdotal evidence emphasizes the role of outsourcing, giving one the impression that trade must be in surplus. That is clearly incorrect. However, we would surmise that a good part of Indian imports consists of components used in production of Indian exports. The deep erosion of the trade balance has occurred in just the last year, and that development might suggest that energy prices play some role as well in the onrush of imports.
At the same time, Indian exports are strong. And the Indian manufacturing sector surely must derive considerable boost from foreign demand. We examined this proposition using some simple analysis with DLXVG3 software. Industrial production is, of course, a volume measure, so we deflated merchandise exports to express them in volume terms. We used the wholesale price index for India as our deflator. Year-on-year growth rates in the resulting export volume and in industrial production in manufacturing are shown in the accompanying graph. Correlation of the levels of these measures is a whopping 97% over the last 15 years. But the 12-month growth rates have little correlation. Still, the appearance of the graph give a strong hint that export growth is a driving force of industrial production in India.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">June 2004</th>
<th scope="col">May 2004</th>
<th scope="col">Apr 2004</th>
<th scope="col">Year Ago</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Balance, Billion Rupees</td>
<td>-117.20</td>
<td>-65.43</td>
<td>-54.56</td>
<td>-70.64</td>
<td>-662.86</td>
<td>-352.78</td>
<td>-340.21</td>
</tr>
<tr>
<td class="firstcol">Exports, Mo/Mo % Chg</td>
<td>3.4</td>
<td>4.9</td>
<td>-15.4</td>
<td>30.9</td>
<td>10.6</td>
<td>18.5</td>
<td>5.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports, Mo/Mo % Chg</td>
<td>18.7</td>
<td>7.6</td>
<td>-1.0</td>
<td>39.3</td>
<td>20.6</td>
<td>16.3</td>
<td>5.2</td>
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The Government of India today reported June trade data. The monthly deficit widened significantly to 117 billion rupees (seasonally adjusted by Haver Analytics) from 65 billion rupees in May. A surge in imports was the cause, although [...]

India's Trade Deficit Sets a Record in June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040720a.jpg" width="353">
Chain store sales ticked 0.2% higher last week following no change the prior period, according to the International Council of Shopping Centers (ICSC)-UBS.
So far in July sales are up 0.1% versus the June average which fell 0.8% from May.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart. 

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">07/17/04</th>
<th scope="col">07/10/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>439.2</td>
<td>438.5</td>
<td>3.3%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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Chain store sales ticked 0.2% higher last week following no change the prior period, according to the International Council of Shopping Centers (ICSC)-UBS. So far in July sales are up 0.1% versus the June average which fell 0.8% from [...]

Chain Store Sales Ticked Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040720c.jpg" width="353">
The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) fell for the second consecutive month in July to 67. June&#39;s figure was revised slightly higher. The index remained 3.1% higher than last year.
During the last fifteen years there has been an 80% correlation between the y/y change in the NAHB index and the change in single family housing starts.
The index of expected single family home sales in six months fell moderately. The current sales index was stable.
Traffic of prospective buyers dropped to the lowest level since April (-2.0% y/y).
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the National Association of Home Builders using this <a href="http://www.nahb.org">link</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM"> Nat&#39;l Association of Home Builders</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>68</td>
<td>65</td>
<td>64</td>
<td>61</td>
<td>56</td>
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The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) fell for the second consecutive month in July to 67. June's figure was revised slightly higher. The index remained 3.1% higher than last [...]

Housing Market Index Dipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040720b.jpg" width="353">
Housing starts fell 8.5% last month to the lowest level since May of last year. June starts totaled 1.802Mversus the Consensus expectation for 1.95M. It was the largest m/m drop in starts since February 2003.
Single family starts paced the decline with a 9.5% skid to the lowest level since last May.
Multi-family starts fell 3.7%, the third consecutive monthly decline.
The decline in housing starts last month was across the country&#39;s regions, but was most pronounced in the West where starts fell 16.5% from a record high.
Building permits fell 8.2% m/m from a record high.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM"> Housing Starts (000s, AR)</a></th>
<th scope="col"> June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Total</td>
<td>1,802</td>
<td>1,970</td>
<td>-2.6%</td>
<td>1,848</td>
<td>1,711</td>
<td>1,601</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,489</td>
<td>1,645</td>
<td>-1.1%</td>
<td>1,501</td>
<td>1,364</td>
<td>1,272</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>313</td>
<td>325</td>
<td>-9.3%</td>
<td>347</td>
<td>347</td>
<td>330</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,077</td>
<td>2,006</td>
<td>12.5%</td>
<td>1,831</td>
<td>1,750</td>
<td>1,637</td>
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Housing starts fell 8.5% last month to the lowest level since May of last year. June starts totaled 1.802Mversus the Consensus expectation for 1.95M. It was the largest m/m drop in starts since February 2003. Single family starts [...]

Housing Starts Fell Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040720b.jpg" width="353">
Housing starts fell 8.5% last month to the lowest level since May of last year. June starts totaled 1.802Mversus the Consensus expectation for 1.95M. It was the largest m/m drop in starts since February 2003.
Single family starts paced the decline with a 9.5% skid to the lowest level since last May.
Multi-family starts fell 3.7%, the third consecutive monthly decline.
The decline in housing starts last month was across the country&#39;s regions, but was most pronounced in the West where starts fell 16.5% from a record high.
Building permits fell 8.2% m/m from a record high.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM"> Housing Starts (000s, AR)</a></th>
<th scope="col"> June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,802</td>
<td>1,970</td>
<td>-2.6%</td>
<td>1,848</td>
<td>1,711</td>
<td>1,601</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,489</td>
<td>1,645</td>
<td>-1.1%</td>
<td>1,501</td>
<td>1,364</td>
<td>1,272</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>313</td>
<td>325</td>
<td>-9.3%</td>
<td>347</td>
<td>347</td>
<td>330</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,077</td>
<td>2,006</td>
<td>12.5%</td>
<td>1,831</td>
<td>1,750</td>
<td>1,637</td>
</tr>
</tbody>
</table>
Housing Market Index Dipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 20, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040720c.jpg" width="353">
The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) fell for the second consecutive month in July to 67. June&#39;s figure was revised slightly higher. The index remained 3.1% higher than last year.
During the last fifteen years there has been an 80% correlation between the y/y change in the NAHB index and the change in single family housing starts.
The index of expected single family home sales in six months fell moderately. The current sales index was stable.
Traffic of prospective buyers dropped to the lowest level since April (-2.0% y/y).
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the National Association of Home Builders using this <a href="http://www.nahb.org">link</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM"> Nat&#39;l Association of Home Builders</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>68</td>
<td>65</td>
<td>64</td>
<td>61</td>
<td>56</td>
</tr>
</tbody>
</table>
Chain Store Sales Ticked Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 20, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040720a.jpg" width="353">
Chain store sales ticked 0.2% higher last week following no change the prior period, according to the International Council of Shopping Centers (ICSC)-UBS.
So far in July sales are up 0.1% versus the June average which fell 0.8% from May.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart. 

<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/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">07/17/04</th>
<th scope="col">07/10/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>439.2</td>
<td>438.5</td>
<td>3.3%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040719b.jpg" width="353">
Times of economic transition are often the hardest periods to interpret as they exhibit mixed tendencies. So it was last week that we published here almost contradictory comments about CPI inflation in various countries. In some places, it remains quiescent, while elsewhere, it is picking up noticeably. So one can&#39;t generalize about the present evolution of price trends
Today brought PPI data for Germany and Switzerland for June. In these countries as well as the US, producer prices have firmed. But the inflationary potential in these figures varies widely. German and Swiss manufactured goods prices are rising, but they remain on modest uptrends: 1.5% year-on-year in Germany and 1.4% in Switzerland. But in Germany this pace is actually a bit slower than what prevailed at the end of 2003. Energy accounts for that, as those prices have moderated considerably in Germany since late last year. Excluding energy, German factory goods prices are also on a firming trend, although they were up just a modest 1.3% in June from a year earlier. Swiss producer prices look to be picking up across many categories, but all at a very modest pace.
US factory prices are on a rampage by comparison, gaining at a 4%-5% pace through June, year-on-year, measured as total manufacturing industry prices or total finished goods prices. Energy accounts for a notable portion of the advance in finished goods, as seen in the table below, but even removing it, we are still left with 3% year-on-year in recent months. And food appears to explain a good bit of that. Other price moves show wide variation. So, even though the total US PPI is showing some strength in the aggregate, it is quite uneven among sectors, so that the overall inflation potential in these wholesale prices is far from clear. Moreover, as the accompanying chart shows, there is virtually no correlation of producer prices excluding energy in Germany and the US.<div align="center"><center></center></div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">June 2004</th>
<th scope="col">May 2004</th>
<th scope="col">Apr 2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany: Manufacturing</td>
<td>1.54</td>
<td>1.64</td>
<td>0.86</td>
<td>1.76</td>
<td>0.59</td>
<td>0.10</td>
</tr>
<tr>
<td class="firstcol">Germany: Manufacturing &nbsp; ex Energy</td>
<td>1.27</td>
<td>0.98</td>
<td>0.88</td>
<td>0.20</td>
<td>0.59</td>
<td>0.40</td>
</tr>
<tr class="odd">
<td class="firstcol">Switzerland: Manufacturing</td>
<td>1.40</td>
<td>1.50</td>
<td>1.10</td>
<td>0.50</td>
<td>-0.50</td>
<td>0.00</td>
</tr>
<tr>
<td class="firstcol">US Manufacturing</td>
<td>4.92</td>
<td>5.60</td>
<td>4.04</td>
<td>2.76</td>
<td>1.82</td>
<td>-2.01</td>
</tr>
<tr class="odd">
<td class="firstcol">US Finished Goods</td>
<td>3.99</td>
<td>5.00</td>
<td>3.66</td>
<td>3.96</td>
<td>1.16</td>
<td>-1.65</td>
</tr>
<tr>
<td class="firstcol">US Finished Goods &nbsp;&nbsp; ex Energy</td>
<td>2.97</td>
<td>3.10</td>
<td>2.56</td>
<td>2.65</td>
<td>-0.54</td>
<td>1.16</td>
</tr>
</tbody>
</table>
</body>
</html>

Times of economic transition are often the hardest periods to interpret as they exhibit mixed tendencies. So it was last week that we published here almost contradictory comments about CPI inflation in various countries. In some [...]

German & Swiss PPI Rise Modestly; Inflation Potential Unclear

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

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Tian Yong Woon

This week, we review the state of play in Southeast Asia and Australia. In Thailand, political uncertainty lingers after the removal of former Prime Minister Paetongtarn, with investors now eyeing fresh elections in the coming months. The ongoing political flux has only deepened concerns over Thailand’s persistent economic underperformance relative to regional peers (chart 1). Indonesia, too, has faced recent political turmoil, as protests over lawmakers’ housing allowances turned violent. While tensions have since eased and financial markets partially recovered (chart 2), the episode highlighted the fragility of investor confidence.

Elsewhere in Southeast Asia, some economies are pressing ahead. Malaysia has made significant strides in establishing itself as a global tech hub, supported by robust direct investment flows (chart 3). Vietnam, likewise, continues to position itself as a manufacturing and electronics powerhouse. Its strong export performance has driven growth but also drawn scrutiny, particularly as the US trade deficit with Vietnam has widened alongside rising imports (chart 4).

In the Pacific, Australia has shown encouraging signs, with Q2 GDP growth outperforming expectations on the back of stronger household consumption (chart 5). This has bolstered expectations that the RBA will pause rate cuts at its month-end meeting. Even so, close attention remains on the labour market (chart 6), potential headwinds from US tariffs, and a broader productivity challenge.

**Thailand**
Thailand continues to struggle to regain its footing, weighed down by ongoing political turmoil. Former Prime Minister Paetongtarn was removed from office by the Constitutional Court in late August, following her July 1st suspension over a leaked phone call with former Cambodian leader Hun Sen. In her place, lawmakers elected former Deputy Prime Minister Anutin as the new premier. However, as part of the deal that secured his appointment, Anutin has pledged to dissolve parliament within four months and call a general election. This political upheaval compounds Thailand’s broader economic challenges. Growth has persistently lagged behind its Southeast Asian peers (chart 1), with tourism—a key revenue source—stalled and still short of pre-pandemic levels. At a time when deeper reforms are needed to unlock the country’s full potential, Thailand instead faces prolonged political flux, leaving policy clarity and direction uncertain even as neighbours forge ahead.

250908T1.jpg

**Indonesia**
Thailand is not alone in Southeast Asia in grappling with political turmoil. Indonesia has recently faced its own unrest, as initially peaceful demonstrations against housing allowances for lawmakers turned violent after a motorbike taxi driver was fatally struck by a police vehicle during an earlier rally in Jakarta. Although protests have since subsided, the turmoil comes on the heels of policy moves that have already unsettled some investors. Concerns have centred on the fiscal strain from large-scale spending programs such as Prime Minister Prabowo’s free school meals initiative. While the program is well-intentioned—aimed at reducing poverty and improving child development—its hefty cost implies spending cuts elsewhere and higher taxes, fuelling unease. Markets have reflected these concerns, with Indonesian equities and the rupiah selling off during the recent protests, though both have staged a partial rebound as tensions eased (chart 2).

250908T2.jpg

**Malaysia**
While Thailand and Indonesia have been grappling with political woes, other Southeast Asian economies have pressed ahead. Malaysia, for instance, has made notable strides in establishing itself as a global tech hub, with significant advances in semiconductors—largely centred in Penang—and, more recently, in electric vehicles, where Malacca is emerging as a key industry hub. These developments have been fuelled in part by strong foreign investment flows, which, while healthy in recent years (chart 3), slipped to a five-year low in Q2 2025 on a directional basis. Still, Malaysia’s semiconductor push remains robust: Prime Minister Anwar announced earlier this year that the country had already secured more than 63 billion ringgit ($14.9 billion) in semiconductor investments, mostly from foreign sources, under its National Semiconductor Strategy—less than a year after the scheme’s launch. More broadly, Malaysia has pressed ahead on multiple fronts in its drive toward high-income status by 2030—an ambition that is looking increasingly attainable.

250908T3.jpg

**Vietnam**
Moving to Vietnam, the economy—like Malaysia’s—has been pushing hard to establish itself as a manufacturing and electronics hub. Vietnam continues to outpace its ASEAN peers in growth and shares Malaysia’s ambition of reaching high-income status, though with a later target of 2045. Its export boom has been central to past success but has also drawn scrutiny, particularly as the US trade deficit with Vietnam has widened with rising imports (chart 4). As a result, Vietnam now faces a more constrained trade environment even as it relies on exports as a key growth driver. For now, Vietnam has avoided a worst-case scenario with the US: a recent trade deal reduced the reciprocal tariff rate from a potential 46% to 20%, though US-perceived “transshipments” will still be hit with a 40% tariff. Beyond navigating this delicate global landscape, Vietnam is also instigating deep structural reforms—such as strengthening the role of the private sector—to sustain growth and meet its long-term development goals.

250908T4.jpg

**Australia**
Moving to the Pacific, Australia is among the few economies relatively insulated from US tariffs, facing only the baseline 10% rate under the revised tariff schedule that took effect in early August. On the domestic front, Australia’s economy outperformed expectations in Q2, with real GDP growth accelerating to 1.8% y/y. The pickup was driven by stronger household consumption (chart 5), offering an encouraging signal for the outlook and easing earlier concerns about economic momentum—perhaps also suggesting that the central bank’s earlier rate cuts are beginning to take effect. 

250908T5.jpg

Turning to monetary policy, the recent upbeat data have reinforced expectations that the RBA will hold rates steady at its September meeting, after cutting a cumulative 75 bps since the start of the year. That said, markets are still pricing in further easing down the line, supported by Australia’s disinflationary trend (chart 6) and lingering downside risks from weaker global demand amid US trade tariffs. Another key dimension is the labour market, which remains tight but has shown signs of softening in recent months. A broader concern is productivity, which has stagnated in recent quarters, raising questions about the sustainability of real wage growth.

250908T6.jpg

Asia

Economic Letter from Asia: Political Woes

250905A2.jpg

250905B2.jpg

Nonfarm payrolls increased 22,000 during August after rising 79,000 in July, revised from 73,000 and falling 13,000 during June, revised from a 14,000 increase. Expectations had been for an 83,000 rise in the Action Economics Forecast Survey. The three-month average change in payrolls of 29,300 compared to 28,300 in July, but stood far below its high of 231,700 in January.

Average hourly earnings rose an expected 0.3% in August after unrevised gains of 0.3% in July and 0.2% in June. Earnings growth of 3.7% y/y equals that in June which is the lowest since July 2024, but has been trending lower from its 5.9% high in March 2022.

The unemployment rate, measured in the household survey, edged up m/m to an expected 4.3% from 4.2% in July and 4.1% in June. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, rose to 8.1% last month from 7.9% In July. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in August rose 38,000 after rising 77,000 in July.  Factory sector jobs declined 12,000, off for the fourth straight month. Durable goods employment fell 19,000 after rising 5,000, as motor vehicle & parts hiring declined 7,300 after a 2,000 July gain. Nondurables employment rose 7,000, reversing a 7,000 July decline. Construction sector employment weakened 7,000, down for the third straight month. The number of mining & logging industry jobs declined 6,000, also registering the fourth consecutive month of decline.

Private service-sector employment increased 63,000 during August after improving 85,000 in July. Increases varied greatly amongst service-sector categories. Private education & health sector employment rose 46,000 last month, following a 77,000 increase in July. The number of leisure & hospitality jobs rose 28,000 after a 6,000 gain. Trade, transportation & utilities employment gained 2,000, following a 5,000 increase, but financial activities employment weakened 3,000 after increasing 9,000 in July. The number of professional & business services jobs fell 17,000, down for the fourth straight month as temporary help employment declined 9,800, also off for the fourth month in a row. Information sector employment declined 5,000, after falling 7,000 in July and 3,000 in June. Transportation & warehousing hiring weakened 3,600 last month following a 6,300 drop.

Government sector payrolls declined 16,000 last month following a 2,000 rise. Federal government employment weakened 15,000 and has fallen for seven straight months. State government payrolls declined 13,000 after falling in each of the prior three months. To the upside, local government hiring rose 12,000 following a 17,000 July increase.

Private-sector average hourly earnings rose 0.3% (3.7% y/y) in August, the same as in July. Earnings in the goods-producing sector increased 0.4% (4.0% y/y) in August, double the July rise. In construction, earnings rose 0.6% (4.2% y/y) following a 0.3% rise, while factory sector earnings improved 0.3% (3.9% y/y) after a 0.2% gain. In the service sector, earnings rose 0.3% (3.6% y/y) in August, the same as in July. Professional & business services pay increased 0.4% (5.0% y/y) for the second consecutive month while leisure & hospitality earnings also increased 0.4% (3.7% y/y) after two straight months of 0.3% increase. Information earnings rose 0.2% (4.6% y/y) for the second straight month.

250905C2.jpg

250905D2.jpg

The length of the average workweek was 34.2 hours in August for the third straight month. The workweek in the goods-producing sector eased to 39.8 hours from 39.9 hours in July. The construction sector average workweek held at 39.0 hours while the factory sector workweek eased to 40.0 hours from 40.2 hours. The average workweek in the private service sector held at 33.2 hours. Information sector hours edged up to 37.0 from 36.9. Financial activities hours held at 37.6. Private education & health services hours eased to 32.7 from 32.8 in July.

In the **household survey**, the unemployment rate increased to 4.3% in August after rising to 4.2% in July from 4.1% in June as employment rose 288,000 after falling 260,000 in July and the size of the labor force increased 436,000 after three straight months of decline. The labor force participation rate rose to 62.3% last month from 62.2%, remaining well below the high of 63.3% early in 2020. The rate for teenagers eased to 34.8%, a five-year low. For workers aged 20-24, the rate plunged to 70.2%, a four year-low. For workers aged 25-54, the participation rate increased to 83.7%, an eleven-month high. For individuals 55 and over, the rate held steady at 38.1% but remained near a 20-year low of 38.0% in June.

The employment/population ratio for all workers steadied at 59.6% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic. For men, the rate rose to 65.0% from 64.7% in July and for women, the rate eased to 54.5 % on the heels of a slip to 54.7% in July.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

250905X2.jpg

250905F2.jpg

- Hiring weakens broadly; factory, construction & government jobs decline.
- Earnings gain slows y/y.
- Unemployment rate increases as job growth lags rise in labor force.

U.S. Payroll Employment Report Reveals Unexpected Weakness in August; Earnings Rise Steadily, but Jobless Rate Increases

Robert Brusca

250905E.jpg

Germany's factory orders declined for the third straight month in July. Real new orders fell 2.9% month-on-month in July, against expectations for a small increase. The drop was sharper than a 0.2% decrease in June; foreign orders declined 3.1% in July, as orders from the euro area contracted 3.8%, and orders from outside the euro area fell by 2.8%. These metrics suggest that demand both inside and outside the euro area remains weak. Domestic orders dropped 2.5% in July, an exact offset to their gain in June. When ranked on growth rates over the last 30 years, all three sector growth rates are below their medians (below a ranking of 50%). However, when ranked on the real index number level, total orders rank at their 55.6 percentile, foreign orders rank at their 79.5 percentile and domestic orders rank at their 15.2 percentile. All-in-all it’s an unimpressive report.

**Orders sequentially and QTD:** Sequential trends are ambivalent but still clearly weak. Sequential growth rates do not show a clear acceleration/deceleration pattern. But for total, foreign and domestic real orders, both 3-month and 12-month growth rates are negative (one exception: foreign orders over 12 months). Domestic orders show negative growth over 6 months as well. Quarter-to-date growth rates are negative for all sectors.

**Sales trends:** Real sales are mixed in July, rising 0.9% overall on declines in two sectors: consumer durables and intermediate goods. Sector sales mostly maintain growth as manufacturing sales are positive based on growth rates over 12 months, 6 months, and 3 months. Consumer goods and intermediate goods sales show deceleration and ongoing contraction. Consumer durable goods and intermediate goods show QTD declines. On the manufacturing & mining to total, manufacturing and capital goods show index standings above their respective 50% on 30 years of data. That also shows above-median growth rates on annual data along with consumer goods and consumer nondurable goods.

**Industrial confidence:** Industrial confidence measures for Germany, France, Italy, and Spain, the four largest EMU members, show improved (but still net negative readings) in July compared to June. Over three months and six months, Germany and Italy show some improvement; France still shows steady deterioration. Spain shows improvement over 3 months and it is only slight improvement. The queue standings for the industrial reading over 30 years of data show Spain with an above-median reading in July. Germany and France are exceptionally weak and Italy has been weaker only 26% of the time based on the queue standing measure. Not only are German orders and demand weak and faltering but the broad EU Commission measures of industrial confidence show broadly weak readings for the largest economies in the EMU.

250905.jpg

Germany

German Factory Orders Plunge on Domestic Weakness

Andrew Cates

**Gold prices and trade policy uncertainty**
This week’s record-breaking surge in gold prices has coincided with renewed volatility in trade policy uncertainty, reflecting the market’s heightened sensitivity to political and legal developments in Washington. A series of legislative challenges to the administration’s latest tariff measures has raised the prospect that parts of the policy framework could be overturned or significantly diluted. That possibility has injected another layer of uncertainty into an already fragile trade environment, amplifying demand for gold as a hedge. Investors appear to be weighing not only the inflationary risks of tariffs that remain in place but also the destabilizing effects of unpredictable policy reversals, leaving gold prices at historic highs and the trade policy uncertainty index elevated.

250904Z1.jpg

**US Tariffs**
Although the data in this chart extend only through June 2025, they clearly illustrate which trading partners would gain the most if US tariff policies were to be reversed. China stands out as the most heavily penalised, with effective tariff rates rising by more than 25 percentage points in just six months. Japan and South Korea have also faced significant tariff hikes, suggesting that their exporters would benefit substantially from any policy rollback. Taiwan, India, and the EU also feature prominently, though at more moderate levels. By contrast, ASEAN economies, Australia, and the UK have seen relatively smaller increases, leaving them less exposed. In aggregate, a broad reversal of tariffs would most immediately alleviate the pressure on East Asian exporters—particularly China—while also reducing costs for US importers and consumers who have been disproportionately affected by higher prices on goods from the region.

250904Z2.jpg

**The Indian economy and US trade policy** 
India faces a particularly sharp squeeze from the latest wave of US tariff hikes, given that the US now absorbs nearly one-fifth of its exports. The imposition of higher barriers has dealt a direct blow to key sectors, such as textiles and jewellery, while also undermining investor confidence. That pressure is clearly visible in the sharp depreciation of India’s trade-weighted currency, which has accelerated in 2025. Rather than offering a competitiveness boost, the weaker rupee has compounded difficulties by lifting import costs and stoking inflation at home. The result is that tariffs have both curtailed India’s export earnings and strained its domestic economy, leaving policymakers with limited options beyond seeking trade diversification and targeted support measures.

250904Z3.jpg

**Global monetary policy** 
The latest Blue Chip Financial Forecasts survey helps explain why equity markets have remained upbeat despite escalating geopolitical and trade tensions. The survey points to an expected sizeable policy easing over the coming year, particularly in the US and UK where forecasters anticipate close to a full percentage point of rate cuts. Australia and Canada are also projected to deliver meaningful reductions, while the euro area is expected to ease more modestly. Japan stands out as the exception, with expectations tilted toward further tightening. For equities, these projections of broad-based rate cuts provide a crucial cushion—supporting valuations, lowering discount rates, and reinforcing the sense that policymakers are prepared to offset the drag from tariffs and slowing global growth.

250904Z4.jpg

**Euro area inflation** 
By contrast with the US and UK, where forecasters in the latest Blue Chip Financial Forecasts survey anticipate close to a full percentage point of rate cuts, expectations for the ECB are more restrained. This reflects the fact that the ECB has already delivered a relatively large degree of policy easing, while headline inflation has now fallen back to levels close to its target. Even so, further rate reductions remain likely if underlying price pressures continue to moderate. As the chart shows, services inflation has begun to move lower in line with a clear decline in wage growth, suggesting that disinflationary momentum is building. Should this trend persist, the ECB will have scope to add to its easing cycle, though at a slower and more cautious pace than peers such as the Fed or the Bank of England.

250904Z5.jpg

**Prices and cost pressures in the US corporate sector** 
Corporate profitability has long been one of the best leading signals for US equity cycles, and the measure here (Non-financial corporate profits per unit of output – i.e. profit margins) has slipped from its late-2023 peak and moved sideways for much of the past year. That’s not a collapse, but it does raise questions about how long equities can keep rising without stronger profit momentum. The recent Q2 uptick—a 1.8% annualised gain—came despite a hefty rise in non-labour costs, with margins protected by modest pricing power and a notable 2.2% drop in unit labour costs. Whether that labour relief reflects softer wage pressures or a structural productivity boost—potentially tied to AI—will be crucial in determining if profits can remain resilient, or if this plateau is the prelude to a downturn.

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Equity markets have lost a little ground in recent days and bond markets have been more jittery, as legal challenges to US tariff policies add to a tense backdrop of geopolitical meetings between China, Russia, and India. Gold’s surge to record highs arguably captures the search for safe havens amid this uncertainty (chart 1), while the possibility of tariff reversals keeps alive the prospect of relief for the most affected exporters, notably China, Japan, and South Korea (chart 2). India’s position looks more precarious, with its reliance on the US market colliding with a weakening trade-weighted currency as tariffs bite into growth and investor confidence (chart 3). Monetary policy expectations, however, continue to offer some support, with the latest Blue Chip Financial Forecasts survey pointing to sizeable easing in the US and UK (chart 4). The ECB is expected to tread more cautiously after earlier cuts and with headline inflation now near target. Still, if inflation continues to ease, further action remains possible (chart 5). In the US, corporate resilience is also helping offset some of the gloom: despite tariff-driven spikes in non-labour costs, falling unit labour costs—possibly aided by AI productivity gains—and firmer prices allowed profits per unit of output to rise in Q2 (chart 6).

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Charts of the Week: A Few Cuts More

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The U.S. ISM Services PMI increased to 52.0 in August after falling to 50.1 in July from 50.8 in June, according to the Institute for Supply Management. The index had been declining since it reached 53.5 in February. The index hit a recent high of 55.8 in October of last year and remains below the all-time high of 67.5 in November 2021. The Action Economics Forecast Survey expected a reading of 51.0 for August.

The ISM Composite Index combines the services index and the manufacturing index released on Tuesday. This index rose to 51.6 in August from 49.8 in July. This also was the highest level in six months.

Amongst the services component series, the business activity index rose to 55.0 last month after falling to 52.6 in July. Twenty-three percent (NSA) of respondents reported improved activity while 14.2% reported decline. The new orders index increased to 56.0 from 50.3 in July. Twenty-seven percent (NSA) of respondents reported improved orders while a lessened 16.2% reported decline. The employment series was little-changed in August at 46.5, after falling from 47.2 in June. A lessened 10.3% (NSA) of respondents reported increased employment while a lower 16.8% reported decline. Working lower, the supplier delivery series fell to 50.3 in August after rising to 51.0 in July. Four percent of respondents (NSA) reported faster delivery speeds while 4.5% reported slower speeds.

On the inflation front, the prices index eased to 69.2 after surging to 69.9 in July. A lessened 36.7% (NSA) of respondents reported higher prices while 2.6% reported lower prices. The index has increased from its December 2023 53.1.

Additionally, the new export orders index eased to 47.3 (NSA) in July following a decline to 47.9 in July. Twelve percent of survey respondents reported higher exports while 16.9% reported decline. The imports index surged to 54.6 last month after falling to 45.9 in July. A higher 18.9%% of respondents reported higher imports while a lessened 9.8% reported decline. The inventory change index rose to 53.2 from 51.8 and the order backlog index fell to 40.4 in August after rising to 44.3 in July. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries.

The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Total index rebounds to six-month high.	
- Business activity and new orders improve.
- Prices index eases.

Economy in Brief: 2004

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