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/070207e.jpg" width="353">
European industry is trying hard to grow and some sectors are more successful than others, according to data for December 2006 reported today by various statistical agencies. German production fell by 0.7% after a 1.8% surge in November. Its growth has moderated since August, but analysts were surprised by today&#39;s drop, having projected a gain for the month of about 0.5%. The VAT went up on January 1, so activity was expected to be strong through the end of 2006, but it appears to have tailed off earlier. Even so, industrial output for 2006 as a whole was up 6.1%, the strongest since the tech boom period in 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207d.jpg" width="353">
In the UK, basic manufacturing has done fairly well in 2006, with that sector&#39;s production index up 2.4% from a year ago (based on seasonally adjusted data) and the year total up 1.3% from 2005, more than reversing a decline in 2005. Machinery, especially electrical equipment, was the strongest segment. In Britain, mining is in a decline as oil production decreases. This is weighing significantly on total industrial production, which was up in December by only 0.5% from December 2005 and actually down modestly for the year as a whole compared with 2005. That year, it fell 1.8%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207f.jpg" width="353">
Denmark&#39;s industrial production fell back in December by 3 points (2.7%), but it enjoyed vigorous expansion through most of the rest of 2006. Wood products, clothing, oil refining and machinery all contributed sizable gains.
In Hungary, the number reported today is an advance estimate for a subset of the larger companies. Their production advanced 2.2% in December, bringing the gain to 11.2% for the year as a whole. Details for December will be reported on February 15. Through November, the breakdown looked similar to other neighboring nations, with strength greatest in machinery and equipment. In Hungary, rubber and plastics production has also been strong.
Sometimes, with all the publicity favoring manufacturing in Asia, one can get the impression that industry elsewhere is languishing. But as we see here, that is not so and especially for machinery, European companies are experiencing sizable growth.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">IP: Indexes, 2000=100</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany: Total IP*</td>
<td>115.2</td>
<td>116.0</td>
<td>113.8</td>
<td>108.6</td>
<td>112.9</td>
<td>106.4</td>
<td>102.6</td>
</tr>
<tr>
<td class="firstcol">UK: Total IP**</td>
<td>95.2</td>
<td>95.3</td>
<td>95.1</td>
<td>94.8</td>
<td>95.2</td>
<td>95.3</td>
<td>97.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing**</td>
<td>99.3</td>
<td>99.1</td>
<td>98.9</td>
<td>97.0</td>
<td>98.5</td>
<td>97.2</td>
<td>98.3</td>
</tr>
<tr>
<td class="firstcol">Denmark: Total</td>
<td>109</td>
<td>112</td>
<td>111</td>
<td>109</td>
<td>108</td>
<td>104</td>
<td>102</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary: Total, 5 or more Employees</td>
<td>155.6</td>
<td>152.2</td>
<td>152.3</td>
<td>134.4</td>
<td>145.8</td>
<td>131.1</td>
<td>122.1</td>
</tr>
</tbody>
</table>
</body>
</html>

European industry is trying hard to grow and some sectors are more successful than others, according to data for December 2006 reported today by various statistical agencies. German production fell by 0.7% after a 1.8% surge in [...]

Machinery Output Leads Industrial Production in Several European Nations

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207c.jpg" width="353">
The total number of mortgage applications were about flat last week after a 3.2% jump at the end of January according to the Mortgage Bankers Association.
Purchase applications fell 0.8% marking the third decline in the last four weeks.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance were roughly unchanged after a sharp 4.9% gain during the prior week.
The effective interest rate on a conventional 30-year mortgage fell sharply to 6.44% and reversed most of the prior week&#39;s increase. Rates averaged 6.40% last month and 6.28% in December. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing also fell to 6.23%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Monetary Policy Inertia and Recent Fed Actions from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-03.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">02/02/07</th>
<th scope="col">01/26/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>630.1</td>
<td>631.1</td>
<td>1.7%</td>
<td>584.2</td>
<td>708.6</td>
<td>735.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>404.7</td>
<td>408.0</td>
<td>-4.8%</td>
<td>406.9</td>
<td>470.9</td>
<td>454.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,943.4</td>
<td>1,940.2</td>
<td>11.0%</td>
<td>1,634.0</td>
<td>2,092.3</td>
<td>2,366.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications were about flat last week after a 3.2% jump at the end of January according to the Mortgage Bankers Association. Purchase applications fell 0.8% marking the third decline in the last four [...]

Mortgage Applications About Flat

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207a.jpg" width="353">
Nonfarm labor productivity grew 3.0% last quarter after a downwardly revised 0.1% downtick during 3Q06. The gain was well ahead of Consensus expectations and raised growth of 2.1% for the whole year about even with the 2.3% increase during 2005.
The implications of productivity growth were addressed directly in The Level and Distribution of Economic Well-Being, yesterday&#39;s speech by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/BoardDocs/Speeches/2007/20070206/default.htm"> here</a>.
Compensation per hour last quarter grew an accelerated 4.8% after an upwardly revised 3.1% gain during 3Q. Together, these growth rates pulled compensation growth for the year to 5.3% which was the strongest since a 7.2% increase during 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207b.jpg" width="353">
Unit labor cost growth moderated sharply to 1.7% from an upwardly revised 3.2% during 3Q as a result of the improvement in productivity. The full year gain in unit labor costs of 3.2% was the strongest since a 4.2% increase during 2000. During the last thirty years there has been an 85% correlation between labor cost growth the growth in the GDP chain price deflator, although that correlation has fallen sharply in recent years.
Factory sector productivity growth last quarter decelerated sharply to 2.2% from a little revised 6.3% jump during 3Q. The annual gain in factory sector productivity also fell to a still firm 3.9% from 4.7% in 2005. Factory sector compensation per hour jumped 7.3% after 3.3% growth during 3Q. The annual gain in compensation of 4.1% was down just a bit from 4.6% growth during 2005. Unit labor costs jumped 5.0% last quarter as a result of the surge in compensation. The surge nevertheless left the annual gain at a modest 0.2% after a 0.1% decline during 2005.
The Economic Outlook: Prospects for 2007 from Charles I Plosser, President, Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/publicaffairs/speeches/plosser/2007/02-07-07_phila-chamber.cfm"> 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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">4Q &#39;06</th>
<th scope="col">3Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>3.0%</td>
<td>-0.1%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>4.8%</td>
<td>3.1%</td>
<td>4.9%</td>
<td>5.3%</td>
<td>4.4%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.7%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>2.0%</td>
<td>0.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm labor productivity grew 3.0% last quarter after a downwardly revised 0.1% downtick during 3Q06. The gain was well ahead of Consensus expectations and raised growth of 2.1% for the whole year about even with the 2.3% increase [...]

U.S. Productivity Stronger Than Expected in 4Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207a.jpg" width="353">
Nonfarm labor productivity grew 3.0% last quarter after a downwardly revised 0.1% downtick during 3Q06. The gain was well ahead of Consensus expectations and raised growth of 2.1% for the whole year about even with the 2.3% increase during 2005.
The implications of productivity growth were addressed directly in The Level and Distribution of Economic Well-Being, yesterday&#39;s speech by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/BoardDocs/Speeches/2007/20070206/default.htm"> here</a>.
Compensation per hour last quarter grew an accelerated 4.8% after an upwardly revised 3.1% gain during 3Q. Together, these growth rates pulled compensation growth for the year to 5.3% which was the strongest since a 7.2% increase during 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207b.jpg" width="353">
Unit labor cost growth moderated sharply to 1.7% from an upwardly revised 3.2% during 3Q as a result of the improvement in productivity. The full year gain in unit labor costs of 3.2% was the strongest since a 4.2% increase during 2000. During the last thirty years there has been an 85% correlation between labor cost growth the growth in the GDP chain price deflator, although that correlation has fallen sharply in recent years.
Factory sector productivity growth last quarter decelerated sharply to 2.2% from a little revised 6.3% jump during 3Q. The annual gain in factory sector productivity also fell to a still firm 3.9% from 4.7% in 2005. Factory sector compensation per hour jumped 7.3% after 3.3% growth during 3Q. The annual gain in compensation of 4.1% was down just a bit from 4.6% growth during 2005. Unit labor costs jumped 5.0% last quarter as a result of the surge in compensation. The surge nevertheless left the annual gain at a modest 0.2% after a 0.1% decline during 2005.
The Economic Outlook: Prospects for 2007 from Charles I Plosser, President, Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/publicaffairs/speeches/plosser/2007/02-07-07_phila-chamber.cfm"> 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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">4Q &#39;06</th>
<th scope="col">3Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>3.0%</td>
<td>-0.1%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>4.8%</td>
<td>3.1%</td>
<td>4.9%</td>
<td>5.3%</td>
<td>4.4%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.7%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>2.0%</td>
<td>0.7%</td>
</tr>
</tbody>
</table>
Mortgage Applications About Flat 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 7, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207c.jpg" width="353">
The total number of mortgage applications were about flat last week after a 3.2% jump at the end of January according to the Mortgage Bankers Association.
Purchase applications fell 0.8% marking the third decline in the last four weeks.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance were roughly unchanged after a sharp 4.9% gain during the prior week.
The effective interest rate on a conventional 30-year mortgage fell sharply to 6.44% and reversed most of the prior week&#39;s increase. Rates averaged 6.40% last month and 6.28% in December. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing also fell to 6.23%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Monetary Policy Inertia and Recent Fed Actions from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-03.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">02/02/07</th>
<th scope="col">01/26/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>630.1</td>
<td>631.1</td>
<td>1.7%</td>
<td>584.2</td>
<td>708.6</td>
<td>735.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>404.7</td>
<td>408.0</td>
<td>-4.8%</td>
<td>406.9</td>
<td>470.9</td>
<td>454.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,943.4</td>
<td>1,940.2</td>
<td>11.0%</td>
<td>1,634.0</td>
<td>2,092.3</td>
<td>2,366.8</td>
</tr>
</tbody>
</table>
Machinery Output Leads Industrial Production in Several European Nations 
by <a href="/comment/Stone.html">Carol Stone</a> February 7, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207e.jpg" width="353">
European industry is trying hard to grow and some sectors are more successful than others, according to data for December 2006 reported today by various statistical agencies. German production fell by 0.7% after a 1.8% surge in November. Its growth has moderated since August, but analysts were surprised by today&#39;s drop, having projected a gain for the month of about 0.5%. The VAT went up on January 1, so activity was expected to be strong through the end of 2006, but it appears to have tailed off earlier. Even so, industrial output for 2006 as a whole was up 6.1%, the strongest since the tech boom period in 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207d.jpg" width="353">
In the UK, basic manufacturing has done fairly well in 2006, with that sector&#39;s production index up 2.4% from a year ago (based on seasonally adjusted data) and the year total up 1.3% from 2005, more than reversing a decline in 2005. Machinery, especially electrical equipment, was the strongest segment. In Britain, mining is in a decline as oil production decreases. This is weighing significantly on total industrial production, which was up in December by only 0.5% from December 2005 and actually down modestly for the year as a whole compared with 2005. That year, it fell 1.8%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070207f.jpg" width="353">
Denmark&#39;s industrial production fell back in December by 3 points (2.7%), but it enjoyed vigorous expansion through most of the rest of 2006. Wood products, clothing, oil refining and machinery all contributed sizable gains.
In Hungary, the number reported today is an advance estimate for a subset of the larger companies. Their production advanced 2.2% in December, bringing the gain to 11.2% for the year as a whole. Details for December will be reported on February 15. Through November, the breakdown looked similar to other neighboring nations, with strength greatest in machinery and equipment. In Hungary, rubber and plastics production has also been strong.
Sometimes, with all the publicity favoring manufacturing in Asia, one can get the impression that industry elsewhere is languishing. But as we see here, that is not so and especially for machinery, European companies are experiencing sizable growth.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">IP: Indexes, 2000=100</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany: Total IP*</td>
<td>115.2</td>
<td>116.0</td>
<td>113.8</td>
<td>108.6</td>
<td>112.9</td>
<td>106.4</td>
<td>102.6</td>
</tr>
<tr>
<td class="firstcol">UK: Total IP**</td>
<td>95.2</td>
<td>95.3</td>
<td>95.1</td>
<td>94.8</td>
<td>95.2</td>
<td>95.3</td>
<td>97.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing**</td>
<td>99.3</td>
<td>99.1</td>
<td>98.9</td>
<td>97.0</td>
<td>98.5</td>
<td>97.2</td>
<td>98.3</td>
</tr>
<tr>
<td class="firstcol">Denmark: Total</td>
<td>109</td>
<td>112</td>
<td>111</td>
<td>109</td>
<td>108</td>
<td>104</td>
<td>102</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary: Total, 5 or more Employees</td>
<td>155.6</td>
<td>152.2</td>
<td>152.3</td>
<td>134.4</td>
<td>145.8</td>
<td>131.1</td>
<td>122.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206h.jpg" width="353">
Japan&#39;s Cabinet Office released today preliminary diffusion and composite indexes of business cyclical developments for December. Final figures will be released on February 16, one day after the release of data for the fourth quarter GDP.
Diffusion indexes aggregate the direction of changes in selected series that indicate a phase of the business cycle--leading, coincident and lagging. (The leading, coincident and lagging series are shown in the Composite Indexes in the Indexes of Business Cycles in Haver&#39;s JAPAN data base.) A diffusion index number below 50% is a sign that the economy may slow in three to six months. The leading diffusion index is not, however, by itself, a particularly good forecaster of Gross National Product. In the first chart the leading diffusion index aggregated on a quarterly basis is shown with GDP. The correlation between the two series is a mere 22%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206g.jpg" width="353">
Composite indexes aggregate the percentage changes in the selected series to indicate the volume of economic activity. When the composite coincident index is rising, the economic cycle is considered to be in the expansion phase, and when declining, in the contraction phase.The Cabinet Office suggests that because of the volatility in all the series, that one should use three month moving averages. On this basis the year to year change in the composite coincident index appears to be a better indicator of the year to year changes in GDP as can be seen in the second chart, where the correlation between the two series is 77%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206i.jpg" width="353">.The leading diffusion index is signaling caution. Although the index increased in December to 25% from 18.2% in November, it marked the second month that the index was below 50%. Except for October when the index was 54.5%, the index has been below 50% in last half of 2006 and on a three month average basis, the index has been below 50 since July, 2006. The composite coincident index, however, suggests that the economy is still in the expansion phase. Although this indicator dipped slightly in December to 113.4 from 113.5, on a three month average basis, it rose from 112.8 in November to 113.3 in December. The three month moving averages of the leading diffusion index and the coincident composite index are shown in the third chart. Even on a three month moving average, the leading diffusion index is still highly volatile, suggesting that its use in forecasting GDP may entail a wider band of error than the use of the composite coincident indicator.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN:&nbsp; DIFFUSION AND COMPOSITE INDEXES&nbsp;</th>
<th scope="col">Dec&nbsp; 06</th>
<th scope="col">Nov 06</th>
<th scope="col">Dec 05</th>
<th scope="col">M/M DIF</th>
<th scope="col">Y/Y DIF</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Diffusion Indexes (%)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Leading</td>
<td>25.0</td>
<td>18.2</td>
<td>66.7</td>
<td>6.8</td>
<td>-11.7</td>
<td>49.1</td>
<td>55.2</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Coincident</td>
<td>61.1</td>
<td>65.0</td>
<td>90.9</td>
<td>-3.9</td>
<td>-29.8</td>
<td>66.4</td>
<td>71.6</td>
<td>61.4</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Lagging </td>
<td>50.0</td>
<td>60.0</td>
<td>66.7</td>
<td>-10.</td>
<td>-16.7</td>
<td>64.3</td>
<td>72.2</td>
<td>77.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Composite Indexes (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Leading</td>
<td>102.5</td>
<td>104.2</td>
<td>104.8</td>
<td>-1.7</td>
<td>-2.3</td>
<td>105.5</td>
<td>102.8</td>
<td>103.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Coincident</td>
<td>113.4</td>
<td>113.5</td>
<td>110.9</td>
<td>-0.1</td>
<td>7.5</td>
<td>111.6</td>
<td>107.7</td>
<td>105.2</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Lagging </td>
<td>124.3</td>
<td>126.2</td>
<td>120.5</td>
<td>-1.9</td>
<td>3.8</td>
<td>124.6</td>
<td>119.7</td>
<td>114.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Japan's Cabinet Office released today preliminary diffusion and composite indexes of business cyclical developments for December. Final figures will be released on February 16, one day after the release of data for the fourth quarter [...]

Leading Diffusion and Coincident Composite Indicators in Japan Give Mixed Signals

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206a.jpg" width="353">
Unleaded gasoline prices at the pump rose slightly last week to an average $2.19 per gallon after two weeks unchanged at $2.17.
Colder temperatures have given lift to crude oil prices which recently have hovered just under $60.00 per barrel versus an average $55.76 for WTI crude during January.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Expected Inflation Near and Far from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20070201/cover.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/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">02/05/07</th>
<th scope="col">01/29/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price, Regular</td>
<td>$2.19</td>
<td>$2.17</td>
<td>-6.4%</td>
<td>$2.57</td>
<td>$2.27</td>
<td>$1.85</td>
</tr>
</tbody>
</table>


</html>

Unleaded gasoline prices at the pump rose slightly last week to an average $2.19 per gallon after two weeks unchanged at $2.17. Colder temperatures have given lift to crude oil prices which recently have hovered just under $60.00 per [...]

Gasoline Prices Rose Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206b.jpg" width="353">
With a 1.3% increase last week, the International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales recovered from the sharp 0.9% decline at the end of January. The lift enabled the new month to begin 0.7% ahead of the old.
The average level of chain store sales in January rose 2.8% from December.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS rose 0.7% after the 1.2% drop the prior week and so far for January is down 0.3%.
Stock Market Dispersion and Unemployment from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20070201/cover.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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">2/03/07</th>
<th scope="col">1/27/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>482.8</td>
<td>476.4</td>
<td>4.3%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


</html>

With a 1.3% increase last week, the International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales recovered from the sharp 0.9% decline at the end of January. The lift enabled the new month to begin 0.7% [...]

Weekly Chain Store Sales Recover

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206b.jpg" width="353">
With a 1.3% increase last week, the International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales recovered from the sharp 0.9% decline at the end of January. The lift enabled the new month to begin 0.7% ahead of the old.
The average level of chain store sales in January rose 2.8% from December.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS rose 0.7% after the 1.2% drop the prior week and so far for January is down 0.3%.
Stock Market Dispersion and Unemployment from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20070201/cover.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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">2/03/07</th>
<th scope="col">1/27/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>482.8</td>
<td>476.4</td>
<td>4.3%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>
Gasoline Prices Rose Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 6, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206a.jpg" width="353">
Unleaded gasoline prices at the pump rose slightly last week to an average $2.19 per gallon after two weeks unchanged at $2.17.
Colder temperatures have given lift to crude oil prices which recently have hovered just under $60.00 per barrel versus an average $55.76 for WTI crude during January.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Expected Inflation Near and Far from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20070201/cover.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/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">02/05/07</th>
<th scope="col">01/29/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price, Regular</td>
<td>$2.19</td>
<td>$2.17</td>
<td>-6.4%</td>
<td>$2.57</td>
<td>$2.27</td>
<td>$1.85</td>
</tr>
</tbody>
</table>
   Leading Diffusion and Coincident Composite Indicators in Japan Give Mixed Signals 
by <a href="/comment/Curley.html">Louise Curley</a> February 6, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206h.jpg" width="353">
Japan&#39;s Cabinet Office released today preliminary diffusion and composite indexes of business cyclical developments for December. Final figures will be released on February 16, one day after the release of data for the fourth quarter GDP.
Diffusion indexes aggregate the direction of changes in selected series that indicate a phase of the business cycle--leading, coincident and lagging. (The leading, coincident and lagging series are shown in the Composite Indexes in the Indexes of Business Cycles in Haver&#39;s JAPAN data base.) A diffusion index number below 50% is a sign that the economy may slow in three to six months. The leading diffusion index is not, however, by itself, a particularly good forecaster of Gross National Product. In the first chart the leading diffusion index aggregated on a quarterly basis is shown with GDP. The correlation between the two series is a mere 22%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206g.jpg" width="353">
Composite indexes aggregate the percentage changes in the selected series to indicate the volume of economic activity. When the composite coincident index is rising, the economic cycle is considered to be in the expansion phase, and when declining, in the contraction phase.The Cabinet Office suggests that because of the volatility in all the series, that one should use three month moving averages. On this basis the year to year change in the composite coincident index appears to be a better indicator of the year to year changes in GDP as can be seen in the second chart, where the correlation between the two series is 77%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070206i.jpg" width="353">.The leading diffusion index is signaling caution. Although the index increased in December to 25% from 18.2% in November, it marked the second month that the index was below 50%. Except for October when the index was 54.5%, the index has been below 50% in last half of 2006 and on a three month average basis, the index has been below 50 since July, 2006. The composite coincident index, however, suggests that the economy is still in the expansion phase. Although this indicator dipped slightly in December to 113.4 from 113.5, on a three month average basis, it rose from 112.8 in November to 113.3 in December. The three month moving averages of the leading diffusion index and the coincident composite index are shown in the third chart. Even on a three month moving average, the leading diffusion index is still highly volatile, suggesting that its use in forecasting GDP may entail a wider band of error than the use of the composite coincident indicator.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN:&nbsp; DIFFUSION AND COMPOSITE INDEXES&nbsp;</th>
<th scope="col">Dec&nbsp; 06</th>
<th scope="col">Nov 06</th>
<th scope="col">Dec 05</th>
<th scope="col">M/M DIF</th>
<th scope="col">Y/Y DIF</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Diffusion Indexes (%)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Leading</td>
<td>25.0</td>
<td>18.2</td>
<td>66.7</td>
<td>6.8</td>
<td>-11.7</td>
<td>49.1</td>
<td>55.2</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Coincident</td>
<td>61.1</td>
<td>65.0</td>
<td>90.9</td>
<td>-3.9</td>
<td>-29.8</td>
<td>66.4</td>
<td>71.6</td>
<td>61.4</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Lagging </td>
<td>50.0</td>
<td>60.0</td>
<td>66.7</td>
<td>-10.</td>
<td>-16.7</td>
<td>64.3</td>
<td>72.2</td>
<td>77.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Composite Indexes (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Leading</td>
<td>102.5</td>
<td>104.2</td>
<td>104.8</td>
<td>-1.7</td>
<td>-2.3</td>
<td>105.5</td>
<td>102.8</td>
<td>103.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Coincident</td>
<td>113.4</td>
<td>113.5</td>
<td>110.9</td>
<td>-0.1</td>
<td>7.5</td>
<td>111.6</td>
<td>107.7</td>
<td>105.2</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Lagging </td>
<td>124.3</td>
<td>126.2</td>
<td>120.5</td>
<td>-1.9</td>
<td>3.8</td>
<td>124.6</td>
<td>119.7</td>
<td>114.2</td>
</tr>
</tbody>
</table>


</html>

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.

250828Z3.jpg

**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.

250828Z4.jpg

**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.

250828Z5.jpg

**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: February 2007

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Machinery Output Leads Industrial Production in Several European Nations

Mortgage Applications About Flat

U.S. Productivity Stronger Than Expected in 4Q

U.S. Productivity Stronger Than Expected in 4Q

Leading Diffusion and Coincident Composite Indicators in Japan Give Mixed Signals

Gasoline Prices Rose Slightly

Weekly Chain Store Sales Recover

Weekly Chain Store Sales Recover