Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716f.jpg" align="left" border="0" height="265" width="353">
Although the ECB policy remains steadfastly fixed on the
behavior of the HICP headline, it is the HICP core that is showing
signs of behaving. The six month pace of the core at 2.3% is as low as
it has been since Oct 2007 (eight months ago). The three-month pace at
1.3% is as low as that metric has been since March of 2006 (twenty
seven months ago). The trends may be too good to be true or even
lasting but for now they are a note of optimism in an otherwise rotten
policy environment. Moreover I think their message is the right one.

Headline inflation, the ostensible ECB target rate, is not
supposed to rise more that 2% Y/Y. I fact the headline pace has not
been below 2% since August of 2007. The current pace is 4.0% double the
targeted top pace.

However the sharp drop in the Zew index this week has everyone
in Europe thinking about coming weakness. This may be one reason that
oil prices finally became vulnerable on Mr Bernanke&#8217;s remarks
yesterday, as oil fell an outsized $6/bbl.

There has been a certain denial of the transmission of the US
business cycle to Europe and to the rest of the world. But with so many
benefiting from US demand it is hard to understand where that view
originated. Europeans seemed to foster a view of newfound invincibility
but the jump in inflation has undermined that. And the view itself
helped the euro to climb to new heights, but now there is evidence of
growth fading more severely and that will test the ECB and likely bring
the euro down a notch or two.

While the ECB does not make the core HICP the centerpiece of
policy the fact that core inflation has decelerated to 1.3% over three
months from 2.3% over six months and 2.5% over 12-months seems to say
that there is some progress on the inflation front apart for the
headline where oil especially is wreaking such havoc. The ECB does have
some authentic scope to be a bit pragmatic on the inflation front due
to the kind trend in core inflation. A weakening economy will give it
more lee way still.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Trends in HICP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-08</td>
<td>May-08</td>
<td>Apr-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>0.5%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>4.0%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.2%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>0.4%</td>
<td>0.8%</td>
<td>0.6%</td>
<td>7.6%</td>
<td>6.0%</td>
<td>4.9%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>0.3%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol" colspan="8">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.5%</td>
<td>0.6%</td>
<td>-0.4%</td>
<td>2.7%</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>4.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.6%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>4.2%</td>
<td>4.6%</td>
<td>4.0%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.6%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>4.9%</td>
<td>4.5%</td>
<td>5.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol" colspan="8">Core excl Food Energy
&amp; Alcohol</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.1%</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>1.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.9%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>2.5%</td>
</tr>
</tbody>
</table>
</body></html>

Although the ECB policy remains steadfastly fixed on the behavior of the HICP headline, it is the HICP core that is showing signs of behaving. The six month pace of the core at 2.3% is as low as it has been since Oct 2007 (eight [...]

Euro Area HICP Sees Core Decelerate

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716d.jpg" width="353">
Industrial production recovered unexpectedly by 0.5% last month, but the gain was due mostly to warmer temperatures. The rise followed an unrevised 0.2% decline during May. Consensus expectations had been for no change in output last month.
Warmer temperatures lifted utility output by 2.1% during June and that offset the decline during May.
Factory output also was better than expected and rose 0.2% following an unrevised flat reading during May. The three-month rate change, however, remained negative at -3.1% (AR).
Production in the high tech sector again was firm and rose 1.8% (23.6% y/y). Production of computers &amp; office equipment rose 0.8% (14.7% y/y) but the three-month growth rate slowed further to 3.7% (AR). Output of communications equipment jumped 1.6% and three-month growth totaled 18.4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716e.jpg" width="353">
The trend in output outside the high-tech sector has been decidedly weak. Less high-tech, factory output rose all of 0.2% last month and three-month output growth remained a negative 4.1% (AR). Output of motor vehicles &amp; parts did rise 5.4% in June but three-month growth was still low at -4.0%. June output of furniture fell 0.4% and at an 8.1% rate during the last three months. Electrical equipment rose at a 4.2% rate during the last three months. Machinery output continued to decline sharply at a 14.7% annual rate during the last three months.
In the nondurables area, output of apparel recovered 1.3% in June but it was still down at a 3.1% rate during the last three months.
Capacity utilization increased to 79.9% from an upwardly revised 79.6% during May. Utilization in the factory sector, however, was unchanged at 77.6%, near its lowest also since late-2004.
Speculative Bubbles and Overreaction to Technological Innovation from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-18.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">INDUSTRIAL PRODUCTION (SA)</th>
<th scope="col">June</th>
<th scope="col">May</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>0.5</td>
<td>-0.2</td>
<td>0.3</td>
<td>1.7</td>
<td>2.2</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.2</td>
<td>0.0</td>
<td>-0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Consumer Goods</td>
<td>0.8</td>
<td>-0.2</td>
<td>-0.8</td>
<td>1.7</td>
<td>0.3</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Business Equipment</td>
<td>0.2</td>
<td>0.2</td>
<td>1.6</td>
<td>3.3</td>
<td>10.4</td>
<td>7.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Construction Supplies</td>
<td>-0.8</td>
<td>0.4</td>
<td>-6.2</td>
<td>-2.5</td>
<td>2.2</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>2.1</td>
<td>-2.1</td>
<td>4.0</td>
<td>3.3</td>
<td>-0.6</td>
<td>2.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production recovered unexpectedly by 0.5% last month, but the gain was due mostly to warmer temperatures. The rise followed an unrevised 0.2% decline during May. Consensus expectations had been for no change in output last [...]

U.S. Industrial Production Up in June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716a.jpg" width="353">
The June consumer price index (CPI-U), as reported by the Bureau of Labor Statistics, jumped 1.1% after May&#39;s 0.6% rise. The increase, fueled by higher energy prices, was the strongest since October 2005 and it lifted the y/y increase to 4.9%, its strongest since 1991. Consensus expectations had been for a 0.7% increase for last month.
Energy prices jumped 6.6% in June after the 4.4% surge during May. Gasoline prices spiked a seasonally adjusted 10.1% and were up 32.8% y/y. (Not seasonally adjusted gasoline prices rose 7.9% m/m last month and they are up another 1.5% so far in July.) Fuel oil prices also were quite strong and surged 8.5% (61.2% y/y). Natural gas &amp; electricity prices rose 1.5% (10.1% y/y).
Food &amp; beverage prices were strong again and jumped 0.7%. That lifted the y/y gain of 5.2% to its fastest since 1990. The three-month rate of increase jumped to an even firmer 8.1%. Prices for cereals &amp; bakery products rose at a 15.2% rate during the last three months while dairy and related products increased at an 11.1% rate. Prices for meats poultry &amp; fish showed upward pressure lately and rose at a 7.8% rate while dairy product prices surged at an 11.1% rate.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716b.jpg" width="353">
Less food &amp; energy consumer prices again matched expectations and rose 0.2%, the same as during May. During the last three months core prices rose at a 2.5% annual rate, the quickest since January.
Core goods prices offset May&#39;s slip and nudged up 0.1%. On a the three-month basis prices nudged lower at a 0.1% rate. Prices for new &amp; used motor vehicles rose 0.1% in June but are down at a 0.7% annual rate during the last three months. Apparel prices also ticked up 0.1% and, together with a firm 0.5% gain in April, was enough to lift the three month increase to 1.0%, its firmest since January. Prices for household furnishings &amp; operations were unchanged. They posted a 0.5% uptick during the last three months versus a 0.1% decline during all of last year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716c.jpg" width="353">
Core services prices posted 0.4% increase, which was the largest rise since January, and it lifted the three month growth rate to 3.6%. The strength again was led by a 3.4% (13.4% y/y) surge in public transportation prices and they are up at a 23.6% rate during the last three months. Medical care services prices rose a reduced 0.3% (4.6% y/y) and shelter prices increased 0.3% (2.6% y/y). Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.3% (2.6% y/y) and rents rose 0.4% (3.7% y/y). Education costs rose another 0.5% and here prices rose at an accelerated 5.1% rate during the last three months following a 2.4% rise during 2007.
The chained CPI, which adjusts for shifts in consumption patterns, rose a faster 0.8%. Less food and beverages chained prices rose 0.1%.
PCE and CPI Inflation Differentials: Converting Inflation Forecasts from the Federal Reserve Bank of Kansas City can be fund <a href="http://www.kansascityfed.org/Publicat/Econrev/PDF/1q08Hakkio.pdf"> here</a>.
Has the Behavior of Inflation and Long-term Inflation Expectations Changed? also from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/Publicat/ECONREV/PDF/1q08Clark.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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> (%)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>1.1</td>
<td>0.6</td>
<td>4.9</td>
<td>2.9</td>
<td>3.2</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.3</td>
<td>0.2</td>
<td>2.4</td>
<td>2.3</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.1</td>
<td>-0.1</td>
<td>0.2</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.4</td>
<td>0.3</td>
<td>3.3</td>
<td>3.4</td>
<td>3.4</td>
<td>2.8</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>6.6</td>
<td>4.4</td>
<td>24.4</td>
<td>5.6</td>
<td>11.0</td>
<td>17.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.8</td>
<td>0.3</td>
<td>5.3</td>
<td>4.0</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td>&nbsp;&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.8</td>
<td>0.6</td>
<td>4.2 </td>
<td>2.5</td>
<td>2.9 </td>
<td>2.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>0.1</td>
<td>0.0</td>
<td>2.1</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The June consumer price index (CPI-U), as reported by the Bureau of Labor Statistics, jumped 1.1% after May's 0.6% rise. The increase, fueled by higher energy prices, was the strongest since October 2005 and it lifted the y/y increase [...]

U.S. Consumer Price Index Jumped 1.1%, Y/Y Gain The Most Since 1991

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716a.jpg" align="left" border="0" height="265" width="353">
The June consumer price index (CPI-U), as
reported by the Bureau of Labor Statistics, jumped 1.1% after May's
0.6% rise. The increase, fueled by higher energy prices, was the
strongest since October 2005 and it lifted the y/y increase to 4.9%,
its strongest since 1991. Consensus expectations had been for a 0.7%
increase for last month.
Energy prices jumped 6.6% in June after
the 4.4% surge during May. Gasoline prices spiked a seasonally adjusted
10.1% and were up 32.8% y/y. (Not seasonally adjusted gasoline prices
rose 7.9% m/m last month and they are up another 1.5% so far in July.)
Fuel oil prices also were quite strong and surged 8.5% (61.2% y/y).
Natural gas &amp; electricity prices rose 1.5% (10.1% y/y).
Food &amp; beverage prices were strong
again and jumped 0.7%. That lifted the y/y gain of 5.2% to its fastest
since 1990. The three-month rate of increase jumped to an even firmer
8.1%. Prices for cereals &amp; bakery products rose at a 15.2% rate
during the last three months while dairy and related products increased
at an 11.1% rate. Prices for meats poultry &amp; fish showed upward
pressure lately and rose at a 7.8% rate while dairy product prices
surged at an 11.1% rate.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716b.jpg" align="right" border="0" height="265" width="353">
Less food &amp; energy consumer prices
again matched expectations and rose 0.2%, the same as during May.
During the last three months core prices rose at a 2.5% annual rate,
the quickest since January.
Core goods prices offset May's slip and
nudged up 0.1%. On a the three-month basis prices nudged lower at a
0.1% rate. Prices for new &amp; used motor vehicles rose 0.1% in
June but are down at a 0.7% annual rate during the last three months.
Apparel prices also ticked up 0.1% and, together with a firm 0.5% gain
in April, was enough to lift the three month increase to 1.0%, its
firmest since January. Prices for household furnishings &amp;
operations were unchanged. They posted a 0.5% uptick during the last
three months versus a 0.1% decline during all of last year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716c.jpg" align="left" border="0" height="265" width="353">
Core services prices posted 0.4% increase,
which was the largest rise since January, and it lifted the three month
growth rate to 3.6%. The strength again was led by a 3.4% (13.4% y/y)
surge in public transportation prices and they are up at a 23.6% rate
during the last three months. Medical care services prices rose a
reduced 0.3% (4.6% y/y) and shelter prices increased 0.3% (2.6% y/y).
Owners equivalent rent of primary residence, a measure not equivalent
to other house price measures, rose 0.3% (2.6% y/y) and rents rose 0.4%
(3.7% y/y). Education costs rose another 0.5% and here prices rose at
an accelerated 5.1% rate during the last three months following a 2.4%
rise during 2007.
The chained CPI, which adjusts for shifts in consumption
patterns, rose a faster 0.8%. Less food and beverages chained prices
rose 0.1%.
PCE and CPI Inflation Differentials: Converting
Inflation Forecasts from the Federal Reserve Bank of Kansas
City can be fund <a href="http://www.kansascityfed.org/Publicat/Econrev/PDF/1q08Hakkio.pdf">
here</a>.
Has the Behavior of Inflation and
Long-term Inflation Expectations Changed? also from the
Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/Publicat/ECONREV/PDF/1q08Clark.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/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>1.1</td>
<td>0.6</td>
<td>4.9</td>
<td>2.9</td>
<td>3.2</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.3</td>
<td>0.2</td>
<td>2.4</td>
<td>2.3</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.1</td>
<td>-0.1</td>
<td>0.2</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.4</td>
<td>0.3</td>
<td>3.3</td>
<td>3.4</td>
<td>3.4</td>
<td>2.8</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>6.6</td>
<td>4.4</td>
<td>24.4</td>
<td>5.6</td>
<td>11.0</td>
<td>17.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.8</td>
<td>0.3</td>
<td>5.3</td>
<td>4.0</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td>&nbsp;&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>0.8</td>
<td>0.6</td>
<td>4.2 </td>
<td>2.5</td>
<td>2.9 </td>
<td>2.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.1</td>
<td>0.0</td>
<td>2.1</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
U.S. Industrial Production Up in
June 
by <a href="/comment/Moeller.html">Tom
Moeller</a> July 16, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716d.jpg" align="left" border="0" height="265" width="353">
Industrial production recovered unexpectedly by 0.5% last
month, but the gain was due mostly to warmer temperatures. The rise
followed an unrevised 0.2% decline during May. Consensus expectations
had been for no change in output last month.
Warmer temperatures lifted utility output by 2.1% during June
and that offset the decline during May.
Factory output also was better than expected and rose 0.2%
following an unrevised flat reading during May. The three-month rate
change, however, remained negative at -3.1% (AR).
Production in the high tech sector again was firm and rose
1.8% (23.6% y/y). Production of computers &amp; office equipment
rose 0.8% (14.7% y/y) but the three-month growth rate slowed further to
3.7% (AR). Output of communications equipment jumped 1.6% and
three-month growth totaled 18.4%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716e.jpg" align="right" border="0" height="265" width="353">
The trend in output outside the high-tech sector has been
decidedly weak. Less high-tech, factory output rose all of 0.2% last
month and three-month output growth remained a negative 4.1% (AR).
Output of motor vehicles &amp; parts did rise 5.4% in June but
three-month growth was still low at -4.0%. June output of furniture
fell 0.4% and at an 8.1% rate during the last three months. Electrical
equipment rose at a 4.2% rate during the last three months. Machinery
output continued to decline sharply at a 14.7% annual rate during the
last three months.
In the nondurables area, output of apparel recovered 1.3% in
June but it was still down at a 3.1% rate during the last three months.
Capacity utilization increased to 79.9% from an upwardly
revised 79.6% during May. Utilization in the factory sector, however,
was unchanged at 77.6%, near its lowest also since late-2004.
Speculative Bubbles and Overreaction to
Technological Innovation from the Federal Reserve Bank
of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-18.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">INDUSTRIAL
PRODUCTION (SA)</th>
<th scope="col">June</th>
<th scope="col">May</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>0.5</td>
<td>-0.2</td>
<td>0.3</td>
<td>1.7</td>
<td>2.2</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.2</td>
<td>0.0</td>
<td>-0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>0.8</td>
<td>-0.2</td>
<td>-0.8</td>
<td>1.7</td>
<td>0.3</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>0.2</td>
<td>0.2</td>
<td>1.6</td>
<td>3.3</td>
<td>10.4</td>
<td>7.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-0.8</td>
<td>0.4</td>
<td>-6.2</td>
<td>-2.5</td>
<td>2.2</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>2.1</td>
<td>-2.1</td>
<td>4.0</td>
<td>3.3</td>
<td>-0.6</td>
<td>2.1</td>
</tr>
</tbody>
</table>
Euro Area HICP Sees Core Decelerate 
by <a href="/comment/Brusca.html">Robert
Brusca</a> July 16, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716f.jpg" align="left" border="0" height="265" width="353">Although the ECB policy remains steadfastly fixed on the
behavior of the HICP headline, it is the HICP core that is showing
signs of behaving. The six month pace of the core at 2.3% is as low as
it has been since Oct 2007 (eight months ago). The three-month pace at
1.3% is as low as that metric has been since March of 2006 (twenty
seven months ago). The trends may be too good to be true or even
lasting but for now they are a note of optimism in an otherwise rotten
policy environment. Moreover I think their message is the right one.

Headline inflation, the ostensible ECB target rate, is not
supposed to rise more that 2% Y/Y. I fact the headline pace has not
been below 2% since August of 2007. The current pace is 4.0% double the
targeted top pace.

However the sharp drop in the Zew index this week has everyone
in Europe thinking about coming weakness. This may be one reason that
oil prices finally became vulnerable on Mr Bernanke&#8217;s remarks
yesterday, as oil fell an outsized $6/bbl.

There has been a certain denial of the transmission of the US
business cycle to Europe and to the rest of the world. But with so many
benefiting from US demand it is hard to understand where that view
originated. Europeans seemed to foster a view of newfound invincibility
but the jump in inflation has undermined that. And the view itself
helped the euro to climb to new heights, but now there is evidence of
growth fading more severely and that will test the ECB and likely bring
the euro down a notch or two.

While the ECB does not make the core HICP the centerpiece of
policy the fact that core inflation has decelerated to 1.3% over three
months from 2.3% over six months and 2.5% over 12-months seems to say
that there is some progress on the inflation front apart for the
headline where oil especially is wreaking such havoc. The ECB does have
some authentic scope to be a bit pragmatic on the inflation front due
to the kind trend in core inflation. A weakening economy will give it
more lee way still.
<table border="0" cellspacing="0" width="100%"> <colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Trends
in HICP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-08</td>
<td>May-08</td>
<td>Apr-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>0.5%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>4.0%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.2%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>0.4%</td>
<td>0.8%</td>
<td>0.6%</td>
<td>7.6%</td>
<td>6.0%</td>
<td>4.9%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>0.3%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol" colspan="8">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.5%</td>
<td>0.6%</td>
<td>-0.4%</td>
<td>2.7%</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>4.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.6%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>4.2%</td>
<td>4.6%</td>
<td>4.0%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.6%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>4.9%</td>
<td>4.5%</td>
<td>5.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol" colspan="8">Core
excl Food Energy
&amp; Alcohol</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.1%</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>1.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.9%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>2.5%</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715j.jpg" width="353">
The Federal Reserve Bank of New York reported that its July index of manufacturing activity in the Empire State remained negative at -4.92 after the unrevised -8.68 during June. It was the fifth negative reading this year. A more negative reading of -8.0 for July had been the Consensus expectation.
The figure is a diffusion index. Since the series&#39; inception in 2001 there has been a 55% correlation between the index level and the three-month change in U.S. factory sector industrial production.
Negative readings for inventories and unfilled orders weighed heavily on the July index. The new orders and shipments indexes, however, improved to their first positive readings since April.
The employment index turned to its most negative reading since 2003. In the (perhaps too) short seven year history of the NY employment index, there has been an 86% correlation between it and the three-month growth in overall factory sector employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715k.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
Pricing pressure rose to the highest level in the series&#39; history. The latest index level was 77.89. Since the series&#39; inception in 2001 there has been an 81% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months fell to its lowest level since the recession year of 1981.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">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/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;07&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>-4.92</td>
<td>-8.68</td>
<td>25.73</td>
<td>17.23</td>
<td>20.24</td>
<td>15.53</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>77.89</td>
<td>66.28</td>
<td>34.57</td>
<td>35.64</td>
<td>41.88</td>
<td>44.74</td>
</tr>
</tbody>
</table>


</html>

The Federal Reserve Bank of New York reported that its July index of manufacturing activity in the Empire State remained negative at -4.92 after the unrevised -8.68 during June. It was the fifth negative reading this year. A more [...]

U.S. Empire State Index Remained Negative

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715h.jpg" width="353">
The retail price for a gallon of regular gasoline held at $4.11 per gallon last week, according to the U.S. Department of Energy survey. For all grades of gasoline the average price also held steady w/w at an average $4.16 per gallon.
Yesterday, the spot market price for a gallon of regular gasoline was $3.31 per gallon, about where it has been since early June.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database, daily prices are in the DAILY database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715i.jpg" width="353">
According to the U.S. Department of Energy the demand for gasoline during the latest four weeks fell 2.9% from a year earlier due to the increase in gasoline prices, along with the slowdown in economic growth. That was the weakest reading for gasoline demand in three years.
The DOE figures are available in Haver&#39;s OILWKLY database.
Last week the price for a barrel of West Texas Intermediate crude oil slipped to $140.16 per barrel, down slightly from $142.46 during all of last week.
Price for natural gas also have been quite strong but last week slipped to $12.240 per mmbtu (92..1% y/y), near the record high reached in late-2005.
Consumer Sentiment and Consumer Spending from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-19.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">07/14/08</th>
<th scope="col">07/07/08</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>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>4.11</td>
<td>4.11</td>
<td>34.9%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>140.16</td>
<td>142.46</td>
<td>98.4%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
</body>
</html>

The retail price for a gallon of regular gasoline held at $4.11 per gallon last week, according to the U.S. Department of Energy survey. For all grades of gasoline the average price also held steady w/w at an average $4.16 per gallon. [...]

U.S. Gasoline Price Held at $4.11 per Gallon

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715g.jpg" width="353">
Total business inventories rose 0.3% during May after a 0.5% April gain. The latest increase fell short of expectations and it reduced three-month growth in inventories to 4.1% (AR) which was its slowest since November.
Retail inventories fell 0.4% and reversed all of the March increase. The three-month growth rate fell further to a negative 2.2% which reflects the draw-down of automobile inventories. Inventories of motor vehicle &amp; parts fell at a 7.6% annual rate during the last three months due to further production cutbacks. Outside of autos, retail inventories rose at a slight 0.4 rate over the last three months versus a 2.7% rise last year and a 4.9% increase during 2006.
The industry detail in the retail sector indicated that furniture inventories fell at a 1.4% rate during the last three months. Clothing &amp; accessory store inventories continued to fall sharply at a 4.1% rate while general merchandise stores&#39; inventories dropped at a 2.0% rate.
Wholesale inventories rose at a 9.7% rate during the last three months, boosted by the rise in oil prices but less petroleum inventories also rose at a firm 9.8% rate which was twice the rate of increase during all of last year.
Factory inventories rose 0.5% after the sight decline during April. Three-month growth fell to 5.9% (AR) which was half the growth earlier this year. Despite the rise in oil prices, petroleum inventories still rose at a modest 2.1% rate over the last three months. Elsewhere, factory inventory accumulation has been fairly steady in 2008 at a 6.2% rate.
Total business sales surged again, in May by 0.8%. Three-month growth jumped to a 15.1% annual rate.
The inventory-to-sales ratio for all business fell to 1.24 in May which was the low for this cycle.
Fed Chairman ChairmanBen S. Bernanke&#39;s Semiannual Monetary Policy Report to the Congress can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20080715a.htm"> 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/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">May</th>
<th scope="col">April</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>0.3%</td>
<td>0.5%</td>
<td>5.3%</td>
<td>3.8%</td>
<td>5.9%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>1.7%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Auto</td>
<td>-0.2%</td>
<td>0.7%</td>
<td>1.6%</td>
<td>2.7%</td>
<td>4.9%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.8%</td>
<td>1.4%</td>
<td>8.7%</td>
<td>5.5%</td>
<td>8.3%</td>
<td>7.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.5%</td>
<td>-0.0%</td>
<td>6.1%</td>
<td>3.7%</td>
<td>6.4%</td>
<td>8.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Total business inventories rose 0.3% during May after a 0.5% April gain. The latest increase fell short of expectations and it reduced three-month growth in inventories to 4.1% (AR) which was its slowest since November. Retail [...]

U.S. Business Inventories' Trend Growth Slower

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715f.jpg" align="left" border="0" height="265" width="353">
The Zew index took a real turn for the worse. Expectations are
on an all time low. German denial is coming rapidly to a close. Belief
in the de-linked business cycle is going the way of belief in the tooth
fairy. It&#8217;s something you just have to grow out of even if you once
believed in it. The current conditions index is still relative high
valued standing in the 61st percentile of its range. But it fell very
sharply in July to an index reading of 17.1 from 37.6 the month before.
German optimists are becoming a rarer breed.

German expectations for various stock sectors is at its lowest
reading since the full series began in April of 1999. Sector
expectations rank at 122 out of 122 months of history. Profit
expectations are abysmal.

But the German story is still more complicated. Ordinarily a
drop like this would bring expectations that the ECB would not continue
hiking rates or might even foster expectations of cutting them and
undermine the euro exchange rate. But this time the euro has popped up
to anew high Vs the dollar showing that US troubles have for the moment
trumped concerns that Germans might have about their own economy and
the EMU economy at large. I think this will pass. One thing that is
clear is that energy and financial problems are dragging down the
growth rates in the European economies but that at the current level,
the euro is just too high. I cannot see the euro moving significantly
higher from here.



<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr>
<th scope="col" colspan="8">ZEW Economic Index For Germany</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Level of Zew Index</td>
<td colspan="3">Averages</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>Yr Ago</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Current</td>
<td>17</td>
<td>37.6</td>
<td>38.6</td>
<td>88.2</td>
<td>31.1</td>
<td>32.0</td>
<td>50.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>-63.9</td>
<td>-52.4</td>
<td>-41.4</td>
<td>10.4</td>
<td>-52.6</td>
<td>-45.0</td>
<td>-35.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td colspan="3">Percentiles</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current</td>
<td>61.7</td>
<td>72.7</td>
<td>73.2</td>
<td>99.7</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>0.0</td>
<td>7.5</td>
<td>14.7</td>
<td>48.4</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Percentiles are readings in this
period as percentile of the full range of values back to 1/92</td>
</tr>
</tbody>
</table>
</body></html>

The Zew index took a real turn for the worse. Expectations are on an all time low. German denial is coming rapidly to a close. Belief in the de-linked business cycle is going the way of belief in the tooth fairy. It’s something you [...]

ZEW Components Weak Expectations Are a Disaster

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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Consumer credit outstanding increased $13.1 billion (2.3% y/y) in September after rising $3.1 billion in August, revised from $0.4 billion, and $17.7 billion in July, revised from $18.1 billion. A $10.0 billion rise had been expected in the Action Economics Forecast Survey.

Nonrevolving credit outstanding rose $11.4 billion (2.1% y/y) in September after increasing $9.2 billion in August, revised from $6.3 billion, and increasing $6.7 billion in July, revised from $6.9 billion. Nonrevolving credit held by depository institutions declined 6.8% y/y in September after falling 7.4% y/y in August. Finance company debt holdings fell 1.5% y/y after declining 1.3%, while credit union holdings rose an increased 12.8% y/y in September, the quickest growth since in two years. Nonrevolving debt of the federal government rose 3.6% y/y in September, the same as in August.

In September, revolving credit outstanding, which includes credit cards, rose $1.7 billion (2.6% y/y) after falling $6.1 billion in August, revised from a $6.0 billion decline, and rising $11.0 billion in July, revised from $11.2 billion. Revolving credit outstanding held by depository institutions fell 3.0% y/y. Revolving credit held by finance companies fell a steady 14.7% y/y in September, while credit union debt rose 4.5% y/y in September, up from 3.7% y/y in August.

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s **USECON** database. The Action Economics forecast figures are contained in the **AS1REPNA** database.

**AI and the Economy** is the title of today’s speech by Federal Reserve Vice Chair Philip N. Jefferson and it can be found [here](https://www.federalreserve.gov/newsevents/speech/jefferson20251107a.htm).

251107H5.jpg

251107I5.jpg

- Notable gain in credit usage follows prior month’s slowdown.
- Nonrevolving credit usage strengthens and revolving turns positive.

U.S. Consumer Credit Strengthens in September

251107A2.jpg

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) eased 0.1% during the four weeks ended November 7, 2025 after improving 0.3% in the prior four-week period. The index increased 0.5% y/y following a 0.8% y/y gain at the end of October.

Prices in the **Textile** group increased 2.5% during the last four weeks and rose 3.3% y/y. The cost of burlap increased 23.8% in the last four weeks while surging 48.1% over the last year. Showing modest improvement, cotton prices rose 0.9% in four weeks but declined 5.6% y/y.

**Metals** group prices increased 1.5% (5.9% y/y) in the last four weeks as the cost of aluminum rose 4.9	% (10.3% y/y). Zinc prices moved up 3.6% (5.4% y/y) and the cost of steel scrap rose 1.4% (-5.9% y/y). Lead prices increased 1.1% (-0.2% y/y) in four weeks and the cost of copper scrap rose 0.6% (13.9% y/y). Working lower, tin prices declined 2.2% (+13.8% y/y) in four weeks.

**Miscellaneous** group prices weakened 2.9% in the last four weeks and were off 1.0% y/y, as framing lumber prices fell 11.3% (-4.3% y/y). The cost of tallow, used for frying & baking, declined 9.0% (+10.5% y/y) in four weeks. Offsetting this weakness, natural rubber prices rose 2.0% in four weeks, but were off 6.6% y/y.

Prices in the **crude oil & benzene** group declined 1.6% (-10.8% y/y) in the last four weeks. The cost of West Texas Intermediate crude oil fell 2.2% in four weeks to $60.31 per barrel and declined 15.6% y/y. The price was increased from a low of $58.47 in the third week of last month. The price of the petro-chemical benzene fell 3.8% (-23.2% y/y) in four weeks.

**Excluding crude oil**, the industrial commodity price index was unchanged (+1.5% y/y) over the last four weeks after rising 0.5% during the prior four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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251107B2.jpg

- Textile and metals prices strengthen.
- Framing lumber costs plummet.
- Crude oil prices weaken.

FIBER: Industrial Commodity Price Index Moves Sideways in Latest Four Weeks

251107E.jpg

The chart provides a good overview for German trade trend. The table breaks trade trends down by categories and provides growth rates on shorter horizons of 3 months, 6 months and 12 months. But the chart depicts the overarching trends well. It shows the German surplus being diminished on a gradual path and not altogether in a clear monotonic fashion. Export and import lines on the chart move mostly sideways (horizontal). The export line is below the import line since late last year. These two series plots on the right-hand scale and they depict growth rates (year-over-year). So sideways movements mean roughly steady growth. Exports have been growth steadily year-over-year at a weak pace that on occasion has been a decline in terms of their year-on-year value. Generally, the green line is in positive territory. The red import line has been stronger, indicating somewhat better, steadier import growth over the period.

While exports had a good September, export growth sequenced from 12-months to 6-months, to 3-months has been weakening. Imports also put in a strong September but are showing some erosion from 12-month to 6-months to 3-months in terms of annualized rates of growth. Still, import growth rates remain quite strong and consistent; the sense of erosion is clear but also moderate – it’s a moderate erosion in progress for imports.

Capital goods exports from Germany are improving- this observation is based on lagged data with a one-month lag built in. But consumer goods and vehicle exports are slowing and rather sharply- likely as a result of U.S. tariffs.

Import side trends, with the same lag, are not as clear cut. Capital goods imports are growing, and motor vehicle imports are improving and accelerating. Consumer goods imports have erratically slowed.

Real exports and imports on sequential lagged data show exports contracting on most horizons while imports generate consistent positive growth in real terms. There is a big difference in these two trends expressed in real terms.

On balance, German trade trends are shifting. The trade balance is gradually eroding. Change is in play.

251107.jpg

Germany

German Trade Surplus Shrinks Despite Strong Exports

Andrew Cates

**The global growth cycle**
The new orders-to-inventory spread in the global manufacturing PMI is often been viewed as one of the most reliable forward-looking indicators of the global economic cycle. When new orders are rising relative to inventories, it typically signals that demand is firming, production pipelines are beginning to refill, and industrial momentum is building. Conversely, when inventories accumulate faster than orders, it often foreshadows a slowdown. As the chart shows, this spread has been holding up relatively well in recent months, suggesting that despite ongoing headwinds—US tariff policies, uneven global demand, and geopolitical uncertainty—the underlying pulse of global manufacturing remains resilient.

251106Z1.jpg

**US credit standards**
The latest Senior Loan Officer Opinion Survey (SLOOS) from the Federal Reserve suggests that credit conditions remain tight but are no longer worsening, marking a tentative stabilization after several quarters of tightening. Banks reported modest easing in standards for some categories of corporate and commercial real estate loans, though mortgage lending remains constrained. Demand for business credit continues to soften, reflecting both higher borrowing costs and a cautious corporate outlook. Historically, periods of widespread tightening—like those seen in 2008 and 2020—have coincided with sharp rises in the private sector savings balance (a proxy for deleveraging), as firms and households retrench simultaneously. The current configuration, shown in the chart, indicates lingering deleveraging pressures, but not a collapse in credit availability.

251106Z2.jpg

**China**
Moving to China, the latest official and Caixin PMI releases for October painted a mixed picture of activity. Both manufacturing indices softened, suggesting that the industrial rebound which underpinned much of China’s recent growth may be losing some traction. The official non-manufacturing PMI, by contrast, edged higher, hinting at continued resilience in construction and public-sector-linked services, while the Caixin services measure—which tends to reflect smaller, private-sector firms—slipped modestly. The divergence underscores China’s two-speed recovery: industrial production and exports have carried the economy, while household spending and smaller enterprises remain subdued. If manufacturing momentum fades in the coming months, the economy could face a renewed loss of balance, with fewer reliable growth engines. Still, overall performance this year has surpassed expectations, and the government’s 5% growth target remains within reach, provided activity holds steady through year-end. Looking ahead, marginal policy support and improved external sentiment—helped by selective tariff relief from the US—could offer limited, though welcome, cushioning.

251106Z3.jpg

**Australia** 
In Australia, the RBA left the cash rate unchanged at its November meeting, maintaining a cautious stance amid a still-complex inflation and growth backdrop. The case for further easing has become less compelling as core inflation (trimmed mean CPI) remains above target and labour market conditions—while gradually softening—continue to show resilience. The unemployment rate has edged higher but remains low by historical standards, consistent with lingering wage and services price pressures. Recent data also hint at a tentative pickup in activity, supported by strong population growth and stabilising commodity exports. Against that backdrop, the RBA has stressed that the path for policy remains finely balanced, with a strong focus on incoming inflation data and global financial conditions. While downside risks persist—particularly from China’s slowdown and weak global trade—the persistence of domestic price pressures means the bar for renewed rate cuts remains relatively high.

251106Z4.jpg

**Argentina**
Turning to Argentina, markets continue to digest the implications of President Milei’s midterm election victory amid deepening economic and financial imbalances. The peso’s broad nominal effective exchange rate has remained under heavy pressure, extending its long-running slide as investors weigh the challenges of implementing fiscal consolidation and monetary reform in a fragile political and social environment. In stark contrast, the Buenos Aires stock index has surged to record highs, reflecting optimism that Milei’s reformist agenda—anchored in deregulation, privatisation, and fiscal restraint—may eventually stabilise the economy and attract renewed capital inflows. The divergence between a falling currency and soaring equity prices highlights the tension between near-term macro risks and longer-term reform hopes. Going forward, investor confidence will hinge on the government’s ability to deliver credible policy execution while managing the inflationary fallout from ongoing peso weakness.

251106Z5.jpg

**Global CO2 emissions**
Shifting focus to more structural issues, the chart underscores how decarbonisation challenges remain deeply concentrated in a few heavy-emitting sectors. Energy production alone accounts for nearly 40% of global CO₂ emissions, with manufacturing, households, and transport together contributing another 50%. This composition highlights the complex trade-offs of the energy transition: the very sectors that underpin modern living standards—power generation, industrial output, mobility, and housing—are also those most difficult to decarbonise. Climate change is therefore not just an environmental issue but a structural economic one, shaping investment, infrastructure, and pricing systems for decades to come. The tension between sustaining growth and cutting emissions will remain a defining challenge for policymakers, particularly as clean technologies face constraints in scaling fast enough to offset rising global demand for energy-intensive goods and services.

251106Z6.jpg

Recent financial market developments have been shaped by a renewed bout of volatility, with heightened concerns about stretched AI valuations triggering a big correction across parts of the tech sector. This comes against a backdrop of lingering uncertainty in Washington, where the US government shutdown has continued to delay the release of several key economic reports, clouding visibility on near-term momentum. Still, the broader macro signals offer a mixed but nuanced picture. Global manufacturing PMIs have continued to hold up, hinting that underlying industrial momentum remains resilient (chart 1). The latest US Senior Loan Officer Survey points to a stabilisation in credit conditions—banks remain cautious, but the most intense phase of tightening may have now passed (chart 2). In China, the October PMIs reflected renewed softness in manufacturing alongside a still-steady services sector, tentatively suggesting that growth may be rebalancing, albeit at a weaker aggregate pace of growth (chart 3). Australia’s inflation and labour market data, meanwhile, have complicated the case for near-term policy easing, with the RBA opting to stay on hold this week as core inflation remain sticky. In Argentina, currency weakness persists even as equity markets rally, highlighting the policy and market tension surrounding President Milei’s reform agenda (chart 5). And finally, at a more structural level, latest global emissions data serve as a reminder that energy, manufacturing, transport, and households remain the principal sources of CO₂—illustrating how the climate and energy transition will continue to shape the macro landscape well beyond the current economic cycle (chart 6).

Charts of the Week: Uneven But Unbroken

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Initial claims for unemployment insurance fell 12,643 during the week ended October 25 to 219,520 (+0.6% y/y) and mostly reversed the prior week’s increase to 232,163. The four-week moving average of initial claims eased to 226,766 from 227,953. They have trended higher this year, after weakening late in 2024. The four-week average hit a low of 200,323 in January 2024.

Federal government employees initially filed 9,435 jobless insurance claims last week after 10,062 in the prior week. These figures are increased from 588 at the end of September.

Continuing claims for unemployment insurance rose to 1.957 million (5.5% y/y) in the week ended October 18 from 1.947 million in the prior week. The four-week moving average rose to 1.940 million from 1.931 million. It was the highest level since the last week of August.	

Federal government employees continuing benefits rose to 23,188 in the week ended October 18 from 14,472 in the prior week. These figures are increased from 8,680 at the end of September.

The insured unemployment rate varied greatly across individual states and territories. In the week ended October 18, the highest unemployment rates were in New Jersey (2.14%), Washington (2.03%), California (1.93%), Massachusetts (1.84%), the District of Columbia (1.86%) and Connecticut (1.70%). The lowest were in South Dakota (0.25%), Florida (0.36%), North Carolina & Louisiana (0.41%), Nebraska (0.44%) and Virginia (0.49%). Rates in other notable states include New York (1.51%), Illinois (1.50%), Pennsylvania (1.39%), and Texas (1.11%). These state data are not seasonally adjusted.

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

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- Decline in initial claims reverses earlier gain.
- Continuing claims move higher.
- State unemployment rates vary.

Economy in Brief: 2008

Jump to:

Euro Area HICP Sees Core Decelerate

U.S. Industrial Production Up in June

U.S. Consumer Price Index Jumped 1.1%, Y/Y Gain The Most Since 1991

U.S. Consumer Price Index Jumped 1.1%, Y/Y Gain The Most Since 1991

U.S. Empire State Index Remained Negative

U.S. Gasoline Price Held at $4.11 per Gallon

U.S. Business Inventories' Trend Growth Slower

ZEW Components Weak Expectations Are a Disaster