Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016h.jpg" width="353">
Growth in productivity together growth in the labor force largely determines a country&#39;s potential growth rate. Recent trends in German productivity, especially in industry, suggest that the recent increase in Germany&#39;s growth rate has solid underpinnings. Productivity in German Industry, as measured by output per employee, increased by 2.4% in August from July and was 8.0% above August, 2005. The comparable figures for productivity as measured by output per working hour are 2.5% and 11.6% respectively. The two measures differ from month to month but show the same general trends, as can be seen in the first chart. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016i.jpg" width="353">
Germany also reports productivity data in more detail on a quarterly basis. Data are currently available only through the second quarter. Productivity for the total economy in the quarterly series is much lower than that of the productivity in industry in the monthly series, as can be seen in the second chart. Part of the difference in the two series is due to the fact that agriculture and public and personal service, both with low productivity are included in the quarterly series but not in the monthly series.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016g.jpg" width="353">
The growth in productivity in the manufacturing industry in Germany is now above that of the United States, as can be seen in the third chart. Moreover, when both indexes are compared on a common base year--2000--the current level of the German index is higher than that of the U. S.--meaning that the level of manufacturing productivity in Germany has now risen more than that of the U. S. since 2000. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PRODUCTIVITY&nbsp; (2000=100)</th>
<th scope="col">Q2 06</th>
<th scope="col">Q1 06</th>
<th scope="col">Q2 05</th>
<th scope="col">Q/Q %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> Manufacturing</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany&nbsp;</td>
<td>131.25</td>
<td>117.29</td>
<td>123.94</td>
<td>11.94</td>
<td>5.93</td>
<td>5.47</td>
<td>3.59</td>
<td>3.58</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; United States&nbsp;</td>
<td>126.35</td>
<td>125.53</td>
<td>121.86</td>
<td>0.65</td>
<td>3.69</td>
<td>4.10</td>
<td>18.5</td>
<td>6.21</td>
</tr>
<tr>
<td class="firstcol">Total Economy&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Quarterly Series</td>
<td>108.55</td>
<td>107.80</td>
<td>106.52</td>
<td>0.66</td>
<td>1.91</td>
<td>1.32</td>
<td>0.69</td>
<td>1.21</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Monthly Series &nbsp; (Aggregated on a qtrly basis)</td>
<td>119.7</td>
<td>119.6</td>
<td>114.3</td>
<td>0.11</td>
<td>4.78</td>
<td>4.68</td>
<td>4.72</td>
<td>1.83</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly Series Total Economy</td>
<td>Aug 06</td>
<td>Jul 06</td>
<td>Aug 05</td>
<td>M/M %</td>
<td>Y/Y %</td>
<td>2005 %</td>
<td>2004 %</td>
<td>2003 %</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Output per employee</td>
<td>125.0</td>
<td>122.1</td>
<td>115.7</td>
<td>2.38</td>
<td>8.04</td>
<td>5.05</td>
<td>5.13</td>
<td>2.78</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Output per working hour</td>
<td>124.0</td>
<td>121.0</td>
<td>118.5</td>
<td>2.48</td>
<td>4.64</td>
<td>4.68</td>
<td>4.72</td>
<td>1.83</td>
</tr>
</tbody>
</table>
</body>
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Growth in productivity together growth in the labor force largely determines a country's potential growth rate. Recent trends in German productivity, especially in industry, suggest that the recent increase in Germany's growth rate [...]

German Productivity Growth in Manufacturing Tops That of the United States

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016d.jpg" width="353">
The U.S. federal government&#39;s budget deficit for FY 2006 fell to $247.7B following deficits near $300B during 2005 and $400B during 2004. The full year figure compared favorably to the August estimate from the Congressional Budget Office of a $260B deficit. CBO expects the FY 2007 deficit to total $286B.
As a percentage of GDP, the U.S. budget deficit fell to 1.9% from 2.6% in FY2005 but may return to 2.5% during the current year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016f.jpg" width="353">
Net revenues grew 11.8% during FY2006. Individual income tax receipts (44% of total receipts) registered 12.6% growth after a 14.6% surge the prior year. Withheld taxes rose 7.9% due to growth in employment, nearly double the 4.4% gain during the prior fiscal year, and that was up from 2.5% growth during FY2004. Non-withheld taxes (primarily on capital gains) surged 20.7%, slightly slower than the 31.9% gain during FY2005. Corporate income taxes (13% of total receipts) surged 27.2% as corporate profits grew. Estate &amp; gift taxes increased by 12.6% while higher employment levels raised social insurance &amp; retirement receipts by 5.5%.
As a percentage of GDP revenues rose to 18.1%, the highest level in five years.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016e.jpg" width="353">
U.S. net outlays grew 7.4% last year versus 7.8% growth during FY2005. Defense spending (19% of total outlays) grew 6.8%, down from 8.6% growth during FY2005. Medicare expenditures (12% of outlays) advanced 10.5%, about stable with the prior year&#39;s growth, and social security spending (21% of outlays) rose a diminished 4.8%. Higher interest rates boosted the government&#39;s interest expense by 23.2% y/y.
As a percentage of GDP outlays rose to 19.9%, up more than one percentage point since 2000.
The Budget Results for Fiscal Year 2006 from the U.S. Treasury Department can be found <a href="http://www.treas.gov/press/releases/hp135.htm"> here</a>.
CBO&#39;s baseline projections of the U.S. budget are available <a href="http://www.cbo.gov/budget/08-17-budproj.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/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2006</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$56.0B</td>
<td>-$64.9B</td>
<td>$35.2B (9/05)</td>
<td>-$247.7</td>
<td>-$318.7B</td>
<td>-$412.7B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$283.3B</td>
<td>$153.9B</td>
<td>12.6%</td>
<td>11.8%</td>
<td>14.5%</td>
<td>5.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$227.3B</td>
<td>$218.8B</td>
<td>5.0%</td>
<td>7.4%</td>
<td>7.8%</td>
<td>6.2%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. federal government's budget deficit for FY 2006 fell to $247.7B following deficits near $300B during 2005 and $400B during 2004. The full year figure compared favorably to the August estimate from the Congressional Budget [...]

Higher Receipts Lower U.S. Budget Deficit

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016a.jpg" width="353">
Unexpectedly, the October index of manufacturing activity in New York State improved to its highest level since this past June. The Empire State Manufacturing Index of General Business Conditions rose 9.1 points to 22.92 versus Consensus expectations for a slight decline to 11.3. The figures are reported by the Federal Reserve Bank of New York.
Since the series&#39; inception in 2001 there has been a 75% correlation between the index level and the three month change in U.S. factory sector industrial production.
The indexes for employment, inventories and shipments led the improvement though new orders, unfilled orders and delivery times fell. The rise in the employment index was to the second highest level this year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016b.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 continued to ease. The prices paid index fell ten points to its lowest level in over a year. Since 2001 there has been an 88% correlation between the index of prices paid and the three month change in the core intermediate materials PPI.
Expectations, however, deteriorated. The Empire State index of expected business conditions in six months fell another five points to its lowest level since May reflecting declines in most sub-indexes, except employment. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016c.jpg" width="353">
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. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.
The U.S. Treasury Yield Curve: 1961 to the Present from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200628/200628pap.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<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">October</th>
<th scope="col">September</th>
<th scope="col">Oct. &#39;05 </th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>22.92</td>
<td>13.84</td>
<td>15.02</td>
<td>15.56</td>
<td>28.79</td>
<td>15.98</td>
</tr>
</tbody>
</table>
</body>
</html>

Unexpectedly, the October index of manufacturing activity in New York State improved to its highest level since this past June. The Empire State Manufacturing Index of General Business Conditions rose 9.1 points to 22.92 versus [...]

Empire State Index Highest Since June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016a.jpg" width="353">
Unexpectedly, the October index of manufacturing activity in New York State improved to its highest level since this past June. The Empire State Manufacturing Index of General Business Conditions rose 9.1 points to 22.92 versus Consensus expectations for a slight decline to 11.3. The figures are reported by the Federal Reserve Bank of New York.
Since the series&#39; inception in 2001 there has been a 75% correlation between the index level and the three month change in U.S. factory sector industrial production.
The indexes for employment, inventories and shipments led the improvement though new orders, unfilled orders and delivery times fell. The rise in the employment index was to the second highest level this year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016b.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 continued to ease. The prices paid index fell ten points to its lowest level in over a year. Since 2001 there has been an 88% correlation between the index of prices paid and the three month change in the core intermediate materials PPI.
Expectations, however, deteriorated. The Empire State index of expected business conditions in six months fell another five points to its lowest level since May reflecting declines in most sub-indexes, except employment. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016c.jpg" width="353">
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. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.
The U.S. Treasury Yield Curve: 1961 to the Present from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200628/200628pap.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<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">October</th>
<th scope="col">September</th>
<th scope="col">Oct. &#39;05 </th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>22.92</td>
<td>13.84</td>
<td>15.02</td>
<td>15.56</td>
<td>28.79</td>
<td>15.98</td>
</tr>
</tbody>
</table>
Higher Receipts Lower U.S. Budget Deficit 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016d.jpg" width="353">
The U.S. federal government&#39;s budget deficit for FY 2006 fell to $247.7B following deficits near $300B during 2005 and $400B during 2004. The full year figure compared favorably to the August estimate from the Congressional Budget Office of a $260B deficit. CBO expects the FY 2007 deficit to total $286B.
As a percentage of GDP, the U.S. budget deficit fell to 1.9% from 2.6% in FY2005 but may return to 2.5% during the current year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016f.jpg" width="353">
Net revenues grew 11.8% during FY2006. Individual income tax receipts (44% of total receipts) registered 12.6% growth after a 14.6% surge the prior year. Withheld taxes rose 7.9% due to growth in employment, nearly double the 4.4% gain during the prior fiscal year, and that was up from 2.5% growth during FY2004. Non-withheld taxes (primarily on capital gains) surged 20.7%, slightly slower than the 31.9% gain during FY2005. Corporate income taxes (13% of total receipts) surged 27.2% as corporate profits grew. Estate &amp; gift taxes increased by 12.6% while higher employment levels raised social insurance &amp; retirement receipts by 5.5%.
As a percentage of GDP revenues rose to 18.1%, the highest level in five years.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016e.jpg" width="353">
U.S. net outlays grew 7.4% last year versus 7.8% growth during FY2005. Defense spending (19% of total outlays) grew 6.8%, down from 8.6% growth during FY2005. Medicare expenditures (12% of outlays) advanced 10.5%, about stable with the prior year&#39;s growth, and social security spending (21% of outlays) rose a diminished 4.8%. Higher interest rates boosted the government&#39;s interest expense by 23.2% y/y.
As a percentage of GDP outlays rose to 19.9%, up more than one percentage point since 2000.
The Budget Results for Fiscal Year 2006 from the U.S. Treasury Department can be found <a href="http://www.treas.gov/press/releases/hp135.htm"> here</a>.
CBO&#39;s baseline projections of the U.S. budget are available <a href="http://www.cbo.gov/budget/08-17-budproj.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/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2006</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$56.0B</td>
<td>-$64.9B</td>
<td>$35.2B (9/05)</td>
<td>-$247.7</td>
<td>-$318.7B</td>
<td>-$412.7B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$283.3B</td>
<td>$153.9B</td>
<td>12.6%</td>
<td>11.8%</td>
<td>14.5%</td>
<td>5.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$227.3B</td>
<td>$218.8B</td>
<td>5.0%</td>
<td>7.4%</td>
<td>7.8%</td>
<td>6.2%</td>
</tr>
</tbody>
</table>
German Productivity Growth in Manufacturing Tops That of the United States  
by <a href="/comment/Curley.html">Louise Curley</a> October 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016h.jpg" width="353">
Growth in productivity together growth in the labor force largely determines a country&#39;s potential growth rate. Recent trends in German productivity, especially in industry, suggest that the recent increase in Germany&#39;s growth rate has solid underpinnings. Productivity in German Industry, as measured by output per employee, increased by 2.4% in August from July and was 8.0% above August, 2005. The comparable figures for productivity as measured by output per working hour are 2.5% and 11.6% respectively. The two measures differ from month to month but show the same general trends, as can be seen in the first chart. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016i.jpg" width="353">
Germany also reports productivity data in more detail on a quarterly basis. Data are currently available only through the second quarter. Productivity for the total economy in the quarterly series is much lower than that of the productivity in industry in the monthly series, as can be seen in the second chart. Part of the difference in the two series is due to the fact that agriculture and public and personal service, both with low productivity are included in the quarterly series but not in the monthly series.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016g.jpg" width="353">
The growth in productivity in the manufacturing industry in Germany is now above that of the United States, as can be seen in the third chart. Moreover, when both indexes are compared on a common base year--2000--the current level of the German index is higher than that of the U. S.--meaning that the level of manufacturing productivity in Germany has now risen more than that of the U. S. since 2000. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PRODUCTIVITY&nbsp; (2000=100)</th>
<th scope="col">Q2 06</th>
<th scope="col">Q1 06</th>
<th scope="col">Q2 05</th>
<th scope="col">Q/Q %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> Manufacturing</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany&nbsp;</td>
<td>131.25</td>
<td>117.29</td>
<td>123.94</td>
<td>11.94</td>
<td>5.93</td>
<td>5.47</td>
<td>3.59</td>
<td>3.58</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; United States&nbsp;</td>
<td>126.35</td>
<td>125.53</td>
<td>121.86</td>
<td>0.65</td>
<td>3.69</td>
<td>4.10</td>
<td>18.5</td>
<td>6.21</td>
</tr>
<tr>
<td class="firstcol">Total Economy&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Quarterly Series</td>
<td>108.55</td>
<td>107.80</td>
<td>106.52</td>
<td>0.66</td>
<td>1.91</td>
<td>1.32</td>
<td>0.69</td>
<td>1.21</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Monthly Series &nbsp; (Aggregated on a qtrly basis)</td>
<td>119.7</td>
<td>119.6</td>
<td>114.3</td>
<td>0.11</td>
<td>4.78</td>
<td>4.68</td>
<td>4.72</td>
<td>1.83</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly Series Total Economy</td>
<td>Aug 06</td>
<td>Jul 06</td>
<td>Aug 05</td>
<td>M/M %</td>
<td>Y/Y %</td>
<td>2005 %</td>
<td>2004 %</td>
<td>2003 %</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Output per employee</td>
<td>125.0</td>
<td>122.1</td>
<td>115.7</td>
<td>2.38</td>
<td>8.04</td>
<td>5.05</td>
<td>5.13</td>
<td>2.78</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Output per working hour</td>
<td>124.0</td>
<td>121.0</td>
<td>118.5</td>
<td>2.48</td>
<td>4.64</td>
<td>4.68</td>
<td>4.72</td>
<td>1.83</td>
</tr>
</tbody>
</table>
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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/061013i.jpg" width="353">
Last week, we discussed the CPIs of two small Eastern European countries, who were quick in reporting their September data; in both cases, Estonia and Slovenia, there was evidence that the recent fall in energy prices was already helping cut inflation, and nip a price problem in the bud. Today, we hear from a much larger European economy, France. Sure enough, lined out in some detail, is a clear statement about the fall in oil product prices.
France&#39;s CPI has been pretty well behaved all along, and we&#39;ve commented more than once about how reassuring it has been that so many countries have not suffered a major, sustained acceleration in overall consumer prices. So in one sense, there is little to tell. But that&#39;s a good thing. The total CPI did fall in September by 0.3%, seasonally adjusted, after a 0.3% increase in August. Over the last 12 months, the not seasonally adjusted index is up 1.2%, a noticeable slowing from August&#39;s 1.9%. Similarly, Germany&#39;s data, which came out yesterday, had a 0.1% decline in September and a 12-month increase of just 1.0% after 1.7% in August.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061013j.jpg" width="353">
We see from the table that in France the subset excluding energy is marginally firmer for the 12 months, up 1.3%, indicating that weaker energy lowered the total by 0.1% in September; that contribution in August was a +0.5%, so the latest is a significant turnaround. Energy prices themselves dropped 2.6% in the month alone and oil products, 4.3%.
This helped reduce other line items, of course. Transportation costs were up a mere 0.6% from a year earlier after a 3.5% advance in August, while housing -- which includes utilities in the French layout -- was up 3.8% in September from a year ago, much less than August&#39;s 4.7%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061013k.jpg" width="353">
Prices of some things remain troublesome, most notably food. Food prices, in France and elsewhere, have been picking up. The 12-month rise was 2.7% in September, following 2.4% in August and just 0.8% across 2005. The same is true in Estonia, where the category was up 7.5% in September from a year ago and in Slovenia where it was up 3.8% in September and 4.7% in August compared with 0.8% over 2005. Among the larger economies, in Germany, food was up 3.1% in September; it had also risen just 0.8% during 2005.
So we seem to face a rolling-kind of inflation evolution. The total inflation rate in several countries is remaining remarkably calm, but relative prices are all over the board. This is healthy. Some sector is always &quot;troublesome&quot; and that keeps people, merchants and policymakers vigilant. But economies are increasingly flexible, so that the trouble in one area is met with adjustment elsewhere instead of just battering its way through everything. We hope this situation holds; it will be good for the general welfare if it does. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FRANCE/@F04/@F04.HTM">France CPI</a><a href="http://www.haverselect.com/dlx/FRANCE/@F04/@F04.HTM">, % Changes,</a> NSA ex as Noted</th>
Month/Month
Year/Year
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sept 2006</td>
<td>Aug 2006</td>
<td>Sept 2006</td>
<td>Aug 2006</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">All Items, SA</td>
<td>-0.3</td>
<td>0.3</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">All Items</td>
<td>-0.2</td>
<td>0.3</td>
<td>1.2</td>
<td>1.9</td>
<td>1.5</td>
<td>2.1</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.0</td>
<td>0.3</td>
<td>1.3</td>
<td>1.4</td>
<td>1.1</td>
<td>1.5</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>-2.6</td>
<td>0.6</td>
<td>1.0</td>
<td>7.2</td>
<td>8.2</td>
<td>10.2</td>
<td>-0.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Oil Products</td>
<td>-4.3</td>
<td>0.6</td>
<td>-2.1</td>
<td>7.2</td>
<td>11.1</td>
<td>16.4</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Transportation</td>
<td>-1.8</td>
<td>0.3</td>
<td>0.6</td>
<td>3.5</td>
<td>3.7</td>
<td>4.5</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">Housing</td>
<td>0.0</td>
<td>0.4</td>
<td>3.8</td>
<td>4.7</td>
<td>4.4</td>
<td>4.5</td>
<td>2.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>0.4</td>
<td>-0.5</td>
<td>2.7</td>
<td>2.4</td>
<td>0.8</td>
<td>0.0</td>
<td>2.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Last week, we discussed the CPIs of two small Eastern European countries, who were quick in reporting their September data; in both cases, Estonia and Slovenia, there was evidence that the recent fall in energy prices was already [...]

France CPI: Energy Brings Down Total Inflation, But Food Prices Have Been Picking Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061013g.jpg" width="353">
Total business inventories rose 0.6% in August following an upwardly revised 0.7% July gain. Consensus expectations had been for a 0.5% increase. The gain lifted the y/y rate of business inventory accumulation to its highest (7.7%) since early 2005.
During the last ten years there has been a 57% correlation between the y/y change in business inventories and the change in factory sector industrial production. Using quarterly figures, there has been an 84% correlation between the change in real private nonfarm inventories and production.
Business sales rose 0.8% (8.1% y/y) on the strength of higher wholesale sales (12.5% y/y) and higher factory shipments (6.1% y/y). The inventory to sales ratio was stable for the third month at 1.26, but was above the May low of 1.25. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061013h.jpg" width="353">
Retail inventories rose 0.5% and that&#39;s the same rate of increase excluding autos (4.4% y/y) which rose 0.5% (14.1% y/y). Higher building materials inventories led the rise with a 1.0% (9.4% y/y) gain. General merchandise inventories grew 0.7% (0.7% y/y) and clothing store inventories rose 0.4% (5.8 y/y). Furniture inventories fell 0.3% (+4.4% y/y).
Wholesale inventories surged another 1.1% (9.7% y/y) in August though petroleum inventories fell 6.5% (+9.7% y/y). Drug and chemical inventories surged while durables rose 0.9% (10.0% y/y). 
Factory inventories rose 0.4%, half the prior month&#39;s rate of accumulation.
Understanding How Employment Responds to Productivity Shocks in a Model with Inventories from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/working_papers/pdfs/wp06-6.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/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.6%</td>
<td>0.7%</td>
<td>7.7%</td>
<td>4.4%</td>
<td>7.6%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.5%</td>
<td>0.4%</td>
<td>7.5%</td>
<td>2.7%</td>
<td>6.7%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.5%</td>
<td>0.3%</td>
<td>4.4%</td>
<td>4.5%</td>
<td>7.1%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>1.1%</td>
<td>0.9%</td>
<td>9.7%</td>
<td>7.1%</td>
<td>9.8%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.4%</td>
<td>0.8%</td>
<td>6.5%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

Total business inventories rose 0.6% in August following an upwardly revised 0.7% July gain. Consensus expectations had been for a 0.5% increase. The gain lifted the y/y rate of business inventory accumulation to its highest (7.7%) [...]

U.S. Business Inventory Accumulation Highest Since 2005

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061013c.jpg" width="353">
Total import prices fell 2.1% last month after an unrevised 0.8% August increase. The decline outpaced Consensus expectations for a large 1.5% decline. 
Prices of petroleum imports plunged 10.3% after a 2.1% August gain. In October, the price of Brent crude oil already has fallen another 8.5% to $57.07 per bbl. Less petroleum, import prices increased a modest 0.1% after the firm 0.5% rise during August.
During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies and a lower 57% against the real value of the dollar.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061013d.jpg" width="353">
Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-6.pdf"> here</a>.
Capital goods prices were unchanged (-0.2% y/y) for the second month. Excluding computers, capital good prices rose 0.2% (1.8% y/y) after having been unchanged during August. Prices for nonauto consumer goods rose 0.1% (0.9% y/y) for the second month while prices for nonoil industrial supplies &amp; materials rose 0.4% (6.6% y/y) after a little revised 1.5% August increase.
Export prices fell 0.5% as both agricultural prices fell 0.7% (4.4% y/y) and nonagricultural commodities prices dropped 0.5% (+3.7% y/y).
Oil Prices and the U.S. Trade Deficit from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-24.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/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>-2.1%</td>
<td>0.8%</td>
<td>2.0%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-10.3%</td>
<td>2.1%</td>
<td>2.9%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.1%</td>
<td>0.5%</td>
<td>2.0%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>-0.5%</td>
<td>0.4%</td>
<td>3.7%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Total import prices fell 2.1% last month after an unrevised 0.8% August increase. The decline outpaced Consensus expectations for a large 1.5% decline. Prices of petroleum imports plunged 10.3% after a 2.1% August gain. In October, [...]

U.S. Import Prices Down With Oil, All Others Tame

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061013e.jpg" width="353">
The preliminary reading of consumer sentiment in October from the University of Michigan rose 8.1% versus last month to 92.3. That gain doubled September&#39;s 4.1% rise and lifted the level to the highest since July of last year. Consensus expectations had been for a lesser rise to 86.1.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expected inflation during the next year fell further to 3.5% from 3.6% last month, its lowest level since January 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation actually rose to 3.6% its highest level since May.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061013f.jpg" width="353">
Expectations for the economy rose 6.6% m/m to the highest level since July of last year. Expected business conditions next year improved sharply and over the next five years they improved to the highest since June 2005. The expected change in personal finances added moderately to the sharp gain during September.
The reading of current economic conditions surged nearly 10% m/m and rose to the highest level since April. The current read of personal finances (19.8% y/y) rose to the best level since April and perceived buying conditions for large household goods recouped all of the prior month&#39;s decline and rose 15.8% y/y.
Consumers&#39; opinion about gov&#39;t economic policy rose 6.1% (11.5% y/y) after three months having been unchanged.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Globalization: A Force for Good? yesterday&#39;s remarks by Fed Governor Frederic S. Mishkin are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20061012/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">October (Prelim.)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>92.3</td>
<td>85.4</td>
<td>82.0</td>
<td>24.4%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.1</td>
<td>96.6</td>
<td>103.8</td>
<td>16.3%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.4</td>
<td>78.2</td>
<td>68.0</td>
<td>32.0%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>


</html>

The preliminary reading of consumer sentiment in October from the University of Michigan rose 8.1% versus last month to 92.3. That gain doubled September's 4.1% rise and lifted the level to the highest since July of last year. [...]

U.S. Consumer's Sentiment Buoyant

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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Andrew Cates

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

250828Z1.jpg

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

250828Z2.jpg

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

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

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

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

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

Charts of the Week: Riskbusters

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

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

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

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

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

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

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

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

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

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

FRB Kansas City Manufacturing Index Unchanged in August

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

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

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

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

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

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


U.S. Pending Home Sales Decline in July

Kathleen Stephansen, CBE

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

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

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

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

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

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

Economy in Brief: October 2006

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