Robert Brusca

Output and capacity: IP rose by 0.8% in August and manufacturing capacity rose for the second month in a row. For MFG, utilized capacity is just at 66.6% barely two thirds of the capacity put in place. However, even going back to the [...]

IP Trend Turns Higher

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915e.jpg" align="left" border="0" height="265" width="353">
Inventories fell again in the current month. Still the 1% drop
while large is the smallest drop in eight months. Inventories average a
1.3% monthly decline in Q2 so in Q4 inventories are improving by 30%
over the previous quarter. 
 

The inventory conundrum - For the impact
on GDP, it is not the change in inventory levels that matters but the
change in the change. If inventories fall by the same amount in each
month of Q2 and in Q3 the change in inventory investment will be zero
(the same amount of investment in each quarter). The fact that
inventories are falling by less in Q3 is the key to seeing there is a
boost in GDP in the offing even though inventories are still falling.
Right now the average drop per month in Q3 is $13bln compared to a drop
of $18bln in Q2. Annualize that difference and you get a large swing.
Still you still have to inflation-adjust those numbers and remember, it
is only one month in the new quarter. But you get the picture.
Inventories are a positive factor already. 
 

I to S ratio is LOW - In the table above we
show the percentile standing of the I-to-S ratio in its three-year
range. For retailers it is the lowest inventory-to-sales ratio in three
years. Wholesalers have inventories at a mid range mark, while for
manufacturers inventories are still in the top 22% of their three year
range (78th percentile) relative to sales. 
 

Sequential growth trend is your friend--
The sequential growth rates show that the pace of sales has moved from
the negative to the positive from 12-months to six-months to 3-months
across manufacturers, retailers and wholesalers. This is good news. The
pace of inventory declines for the most part seems to have plateaued as
three month growth rates are even with six month growth rates for the
major business sectors. 
 

The end of days&#8230;the dog days -- Despite the
fact that inventories are still declining you cans see the whites of
the business expansion&#8217;s eyes. The end of recession is at hand; the
start of recovery is in play. Sales are on an upswing across sectors
the I-to-S ratios are mostly low and the pace of the inventory decline
is flattening out. These facts should make inventories a positive
factor for growth in Q3 and could make them a powerful factor for Q4
growth as well. Remember that inventories are still falling and the
rebuilding process has not yet begun, so this switch powered eventually
by inventory growth, not just slower paring, could go on for some time.

<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">2009.Jul</th>
<th colspan="9" scope="col">Inventory
and Sales Paired Growth Rates by Major Divisions</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2"> 3-Mo Growth</td>
<td colspan="2"> 6-Mo Growth</td>
<td colspan="2"> 12-Mo Growth</td>
<td colspan="2"> YrAgo Growth</td>
<td style="font-weight: bold;">I:S ratio</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>%-tile</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Business</td>
<td> 4.7%</td>
<td>-13.6%</td>
<td> -1.9%</td>
<td>-14.2%</td>
<td> -17.8%</td>
<td>-11.8%</td>
<td> 7.9%</td>
<td>6.7%</td>
<td> 52.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturers</td>
<td> 3.8%</td>
<td>-10.0%</td>
<td> -3.6%</td>
<td>-11.8%</td>
<td> -22.2%</td>
<td>-10.0%</td>
<td> 7.1%</td>
<td>7.8%</td>
<td> 78.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Retailers</td>
<td> 5.5%</td>
<td>-14.6%</td>
<td> 0.2%</td>
<td>-13.9%</td>
<td> -9.5%</td>
<td>-12.9%</td>
<td> 1.5%</td>
<td>2.2%</td>
<td> 0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesalers</td>
<td> 5.0%</td>
<td>-17.0%</td>
<td> -2.0%</td>
<td>-17.4%</td>
<td> -19.8%</td>
<td>-12.8%</td>
<td> 15.2%</td>
<td>11.0%</td>
<td> 52.2%</td>
</tr>
<tr>
<td class="firstcol" colspan="10">
Ratio of STOCKS to Sales;
Stocks Vs Flows</td>
</tr>
<tr class="even">
<td colspan="7" class="firstcol">Inventory-to-Sales
Ratios
In Perspective</td>
<td colspan="3">Over three Years</td>
</tr>
<tr class="odd">
<td class="firstcol"> 2009.Jul</td>
<td> Current</td>
<td> 3Mo Ago</td>
<td> 6Mo Ago</td>
<td> Yr Ago</td>
<td> 2Yrs Ago</td>
<td> 3Yrs Ago</td>
<td> %-tile</td>
<td> Max</td>
<td> Min</td>
</tr>
<tr class="odd">
<td class="firstcol"> Total Business</td>
<td>1.36</td>
<td>1.43</td>
<td>1.46</td>
<td>1.27</td>
<td>1.28</td>
<td>1.28</td>
<td>52.4%</td>
<td>1.46</td>
<td>1.25</td>
</tr>
<tr class="odd">
<td class="firstcol"> Manufacturers</td>
<td>1.40</td>
<td>1.45</td>
<td>1.46</td>
<td>1.21</td>
<td>1.20</td>
<td>1.19</td>
<td>78.6%</td>
<td>1.46</td>
<td>1.18</td>
</tr>
<tr class="odd">
<td class="firstcol"> Retailers</td>
<td>1.45</td>
<td>1.53</td>
<td>1.57</td>
<td>1.51</td>
<td>1.50</td>
<td>1.50</td>
<td>0.0%</td>
<td>1.62</td>
<td>1.45</td>
</tr>
<tr class="odd">
<td class="firstcol"> Wholesalers</td>
<td>1.23</td>
<td>1.31</td>
<td>1.34</td>
<td>1.13</td>
<td>1.17</td>
<td>1.17</td>
<td>52.2%</td>
<td>1.34</td>
<td>1.11</td>
</tr>
</tbody>
</table>
</body></html>

Inventories fell again in the current month. Still the 1% drop while large is the smallest drop in eight months. Inventories average a 1.3% monthly decline in Q2 so in Q4 inventories are improving by 30% over the previous quarter. The [...]

Sales Trim Losses As Inventories Are Looking Lean

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915d.jpg" align="left" border="0" height="265" width="353">
The PPI headline spurted by 1.7% in August as the core rose by
02% and core for consumer prices at the producer level edged up by just
0.1%. Finished energy prices rose by 8% in the month. The headline
displays an accelerating pattern of growth rates for 12-month to
6-month to 3-month rates of inflation. But the core pattern has been
more settled and core pattern for consumer prices at the producer level
has been even more tranquil. 
 

We learned from the last time energy prices spiked in the
recession that a transmission of their gains to the core was not
automatic. Rising energy prices have both inflationary and deflationary
effects. When consumers and firms do not have the power to bargain for
wage and price hikes, as is the case now, it is more likely that rising
energy prices impact growth adversely instead of impacting inflation
positively. 
 

Still what we are seeing here are volatile price movements.
Energy prices have had a standard deviation of 5 percentage points on
the month to month percentage changes since the recession began. That
kind of volatility tends to impart considerable uncertainty into the
headline PPI each month. 
 

The 8% m/m rise in energy prices in August is the largest
since a 10.2% gain in November 2007. Energy prices are up in four of
the last five months and in six of the last eight months. Prior to that
energy prices had fallen for five months in a row. 
 

Spot oil prices on world markets, however, have been hovering
around the $70/bbl mark for a number of months. Oil prices have been
playing catch up since the recession has come off its worst of times
and oil prices have bounced and are trying and find a new higher
equilibrium. 
 

For now the core PPI price patterns are reassuring. Since
global oil price trends are not running away we can look for the energy
market in the US to find a level that is consistent with global prices
and for the energy component of the PPI to settle down. It does not
look very inflationary now in this economy but we are looking for
recovery to set in. As that happens the risk will multiply and the
potential for inflation to take root will improve somewhat. I am no
inflation monger. But circumstance will change. For now inflation is
not the worry, it&#8217;s just a bad monthly result in the least important of
all US inflation reports. 
 

Long live the CPI and the PCE deflator where trends are more
important. In that regard the tranquil inflation embedded in core
consumer prices at the producer prices level is reassuring.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="6" scope="col">Key Trends In Producer Prices</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Aug-09</td>
<td colspan="4">PPI Trends By Type Of Good</td>
</tr>
<tr class="odd">
<td class="firstcol">PPI</td>
<td>1Mo:M/M</td>
<td>3-Mo:ar</td>
<td>6-Mo:ar</td>
<td>1-Yr</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Total PPI</td>
<td>1.7%</td>
<td>11.0%</td>
<td>4.3%</td>
<td>-4.3%</td>
<td>9.8%</td>
</tr>
<tr>
<td class="firstcol">Finished Consumer Gds</td>
<td>2.3%</td>
<td>14.4%</td>
<td>5.5%</td>
<td>-5.9%</td>
<td>11.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Foods</td>
<td>0.4%</td>
<td>0.0%</td>
<td>-1.7%</td>
<td>-3.9%</td>
<td>9.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Finished C Gds Excl
Foods</td>
<td>2.9%</td>
<td>19.5%</td>
<td>8.1%</td>
<td>-7.0%</td>
<td>12.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Nondurables less Food</td>
<td>3.9%</td>
<td>26.6%</td>
<td>10.4%</td>
<td>-10.4%</td>
<td>16.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
ConsNonDurxF&amp;E</td>
<td>0.0%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>3.0%</td>
<td>5.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Durable Goods</td>
<td>0.3%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.5%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Finished Core Cons Gds</td>
<td>0.1%</td>
<td>2.2%</td>
<td>2.0%</td>
<td>2.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.3%</td>
<td>2.3%</td>
<td>0.6%</td>
<td>1.8%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG Industries</td>
<td>0.1%</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; NonMFG Industries</td>
<td>0.3%</td>
<td>2.9%</td>
<td>0.8%</td>
<td>2.2%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">Core PPI</td>
<td>0.2%</td>
<td>2.4%</td>
<td>1.4%</td>
<td>2.3%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">Memo: Finished Energy</td>
<td>8.0%</td>
<td>59.6%</td>
<td>19.8%</td>
<td>-21.3%</td>
<td>27.9%</td>
</tr>
</tbody>
</table>
</body></html>

The PPI headline spurted by 1.7% in August as the core rose by 02% and core for consumer prices at the producer level edged up by just 0.1%. Finished energy prices rose by 8% in the month. The headline displays an accelerating pattern [...]

PPI Headline Spurts As Core Is Stable

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915b.jpg" align="left" border="0" height="265" width="353">
In the September ZEW survey, released today, German analysts
and institutional investors were only slightly more optimistic about
the next six months than they were in August. The ZEW balance of
optimists over pessimists rose only 1.2 percentage points from 56.1% to
57.7%. The views of the financial community tend to be considerably
more volatile than the views of those engaged in industry, trade and
services. The latter represented in the IFO measure of German economic
opinion, were still showing an excess of pessimism regarding
the outlook for the next six months of 7.7% in August. The two measures
are shown in the first chart. The correlation between the two series is
only .41 suggesting that the two groups frequently differ as to the
outlook.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915c.jpg" align="right" border="0" height="265" width="353">
The German investors were also subdued in appraising the
current situation. The excess of pessimists regarding the current
situation declined only 3.2 percentage points to 74.0 from 77.2 in
August. Again, the views of the financial community are more volatile
than those of the participants in the IFO survey. The excess of
pessimists among the latter was only 31% in August. In contrast to
their often divergent views on the outlook the two communities tend to
view the current outlook similarly. In spite of the greater volatility,
the views of the financial community move in the same direction as that
of the business community, as attested by the high degree of
correlation--.94--between the two series shown in the second chart.
According to the President of ZEW, Prof, Dr. Dr. h.c. mult.
Wolfgang Franz, "The economic expectations for Germany are consistent
with the picture that the Germany economy is recovering, but at a slow
pace."

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Sep 09</th>
<th scope="col">Aug&nbsp; 09</th>
<th scope="col">Sep 08</th>
<th scope="col">M/M&nbsp;</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007 </th>
<th scope="col"> 2006 </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> ZEW % balance</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>-74.0</td>
<td>-77.2</td>
<td>-1.0</td>
<td>3.2</td>
<td>-73.0</td>
<td>7.3</td>
<td>75.9</td>
<td>18.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations for Economy 6 mos
ahead</td>
<td>57.7</td>
<td>56.1</td>
<td>-1.0</td>
<td>1.6</td>
<td>98.8</td>
<td>-47.5</td>
<td>-3.0</td>
<td>22.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">IFO % balance</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>n.a.</td>
<td>-31.0</td>
<td>--</td>
<td>n.a.</td>
<td>n.a.</td>
<td>4.0</td>
<td>18.1</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations 6 mos ahead</td>
<td>n.a.</td>
<td>-7.7</td>
<td>--</td>
<td>n.a.</td>
<td>n.a.</td>
<td>-17.4</td>
<td>5.2</td>
<td>7.9</td>
</tr>
</tbody>
</table>
</body></html>

In the September ZEW survey, released today, German analysts and institutional investors were only slightly more optimistic about the next six months than they were in August. The ZEW balance of optimists over pessimists rose only 1.2 [...]

Optimism Among German Investors Somewhat Subdued

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915a.jpg" align="left" border="0" height="265" width="353">
US retail sales rang up strong results in August. The cash for
clunkers program aided auto sales to a greater extent that most
economists had anticipated. Sales rose by 2.7% month-over-month boosted
by vehicle sales which rose by 10.7% on the month. Most major
categories of sales rose in the month; furniture and electronics was a
minor exception dropping by 0.1% and building materials was a major
exception falling by an outsized 1.2% on the month. Stripping out
gasoline stations where sales rose 5.1% mostly on higher prices and
removing motor vehicles as well left retail sales up by 0.6% on the
month. That particular sub-group exhibits improving sequential growth
rates as well. 
 

Year-over-year sales declines are still severe and that is a
legacy of the severity of the recession and its impact on the consumer.
Over 7miln jobs have been lost in the business cycle and that is a huge
loss of income and of spending power for those consumers. But while the
Yr/Yr drops are severe there are also some distortions. Nondurable
goods sales excluding gas stations are down by only 0.9% Yr./Yr.
Durables spending is down by 5.8% Yr/Yr on large declines in building
materials and in furniture. The boost to vehicle sales this month
leaves them lower Yr/Yr by just 1%. 
 

The messages from this report are that the consumer sector has
been hit hard by recession. Cash for clunkers has boosted auto&#8217;s up
form weakness overall and has given those sales a huge boost in the
month- a boost that is likely not sustainable &#8211; that&#8217;s the bad news
looking ahead. Still, the August results leave sales in the new quarter
(Q3) expanding at an annual rate of 9.5%. Extracting the vehicle
component that growth rate comes down to 2.7%. Ex food and energy sales
are up at a pace of 8.5% in Q3 and estimating the inflation impact
leaves real core sales up at a pace of nearly 7% at an annual rate in
Q3 compared to Q2. This is the compounded growth rate for Q3, two
months into the quarter. But a drop off in auto sales is likely to trim
this impact of quarterly consumer spending on retail sales by the time
the quarter&#8217;s final numbers are in. 
 

While it is good news for August and it the best news may be
that sales have spread beyond autos, and have done so without a
government help plan. The real question is how far will auto sales fall
when the cash for clunkers program ends? There will be a spillover of
some sales into September but Q4 will have to do what it can without
any boost from this special program. All that raises some questions
about the future, despite some nice improving fundamentals for the
economy. The downside of government support programs is that those
programs one day end&#8230; a second downside factor is that somebody has to
pay for them. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="6" scope="col">Retail Sales Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Mo/Mo</td>
<td colspan="4">Seasonally Adjusted Annual
Rate</td>
</tr>
<tr class="grey5">
<td class="firstcol">Retail Aggregates</td>
<td>2009.Aug</td>
<td>3-Mo</td>
<td>6Mo</td>
<td>Yr/Yr</td>
<td>YrAgo:Y/Y</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail &amp; Food
Service</td>
<td>2.7%</td>
<td>14.3%</td>
<td>4.7%</td>
<td>-5.3%</td>
<td>0.8%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail Excl
MV&amp;Parts</td>
<td>1.1%</td>
<td>5.1%</td>
<td>0.1%</td>
<td>-6.2%</td>
<td>4.7%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail Excl
MV&amp;Parts&amp;Gas</td>
<td>0.6%</td>
<td>1.0%</td>
<td>-2.3%</td>
<td>-2.9%</td>
<td>2.5%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Durables</td>
<td>2009.Aug</td>
<td>3-Mo</td>
<td>6Mo</td>
<td>Yr/Yr</td>
<td>YrAgo:Y/Y</td>
</tr>
<tr class="grey3">
<td class="firstcol">Totals</td>
<td>5.9%</td>
<td>32.1%</td>
<td>10.8%</td>
<td>-5.8%</td>
<td>-10.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Building Materials</td>
<td>-1.2%</td>
<td>-13.6%</td>
<td>-9.5%</td>
<td>-13.6%</td>
<td>-2.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Motor Vehicles
&amp; Parts</td>
<td>10.6%</td>
<td>70.3%</td>
<td>29.5%</td>
<td>-1.0%</td>
<td>-14.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; MV Dealers</td>
<td>11.9%</td>
<td>83.3%</td>
<td>35.0%</td>
<td>-0.8%</td>
<td>-15.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Furniture,electonics,etc</td>
<td>-0.2%</td>
<td>-4.5%</td>
<td>-15.9%</td>
<td>-11.6%</td>
<td>-5.0%</td>
</tr>
<tr class="grey5">
<td class="firstcol">NonDurables</td>
<td>2009.Aug</td>
<td>3-Mo</td>
<td>6Mo</td>
<td>Yr/Yr</td>
<td>YrAgo:Y/Y</td>
</tr>
<tr class="grey2">
<td class="firstcol">Totals</td>
<td>1.4%</td>
<td>7.8%</td>
<td>2.3%</td>
<td>-5.1%</td>
<td>6.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Food&amp;Bev</td>
<td>0.5%</td>
<td>0.9%</td>
<td>1.9%</td>
<td>-1.1%</td>
<td>6.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Health</td>
<td>0.4%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>3.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Gasoline</td>
<td>5.1%</td>
<td>47.4%</td>
<td>24.5%</td>
<td>-26.7%</td>
<td>20.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Clothing</td>
<td>2.4%</td>
<td>1.2%</td>
<td>-4.8%</td>
<td>-5.1%</td>
<td>0.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">SportGoods</td>
<td>2.3%</td>
<td>12.8%</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>0.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">GenlMerch</td>
<td>1.6%</td>
<td>5.0%</td>
<td>-1.9%</td>
<td>-0.7%</td>
<td>3.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">NonStore Retailers</td>
<td>0.1%</td>
<td>9.7%</td>
<td>2.5%</td>
<td>-2.6%</td>
<td>4.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Misc Retail</td>
<td>0.2%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>3.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">NonDurables EXCL Gas</td>
<td>0.8%</td>
<td>3.2%</td>
<td>-0.4%</td>
<td>-0.9%</td>
<td>3.8%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Services</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food Service &amp;
Drinking</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>-1.7%</td>
<td>0.7%</td>
<td>3.7%</td>
</tr>
</tbody>
</table>
</body></html>

US retail sales rang up strong results in August. The cash for clunkers program aided auto sales to a greater extent that most economists had anticipated. Sales rose by 2.7% month-over-month boosted by vehicle sales which rose by [...]

US Retail Sales Make Strong Gains...

US Retail Sales Make StrongGains...

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background-color:#f0f0f0;
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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090914a.jpg" align="left" border="0" height="265" width="353">
Retail sales in New Zealand fell 0.46% in July, contrary to
expectations of a rise. Moreover, June sales were revised downward from
a 0.1% increase to a 0.06% decline. The upturn in sales in April and
May has fizzled out as can be seen in the first chart. Excluding motor
vehicles and related sales, sales were down 0.49% indicating that
vehicles and related sales increased slightly. Among the few other
areas where spending increased were fresh produce, clothing, and
recreation all of which represent relatively small portions of total
sales. Among the biggest losers were the more important supermarkets
and department stores, which declined 0.3% and 2.0% respectively<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090914b.jpg" align="right" border="0" height="265" width="353">.
Retail sales have become a less reliable indicator of total
consumption over the years as can be seen in the second chart that
shows the ratio of retail sales to total private consumption in the
National Accounts. In the last ten years the ratio has dropped from .62
to .51. New Zealand has yet to release national account data for the
second quarter. In spite of their diminished importance in total
consumption, the retail sales data suggest that consumption has added
little to the economy in the second quarter and so far in the third
quarter.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">NEW
ZEALAND</th>
<th scope="col">Jul 09</th>
<th scope="col">Jun&nbsp; 09</th>
<th scope="col">Jul 08</th>
<th scope="col">M/M %&nbsp;</th>
<th scope="col">Y/Y %</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007 </th>
<th scope="col"> 2006 </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> Retail Sales
(Millions NZ$)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>5392</td>
<td>6417</td>
<td>5485</td>
<td>-0.46</td>
<td>-1.70</td>
<td>65847</td>
<td>65071</td>
<td>61329</td>
</tr>
<tr>
<td class="firstcol">Fresh Produce</td>
<td>87</td>
<td>85</td>
<td>79</td>
<td>2.35</td>
<td>10.13</td>
<td>911</td>
<td>893</td>
<td>921</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation</td>
<td>203</td>
<td>196</td>
<td>188</td>
<td>3.57</td>
<td>7.98</td>
<td>2276</td>
<td>2358</td>
<td>2197</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>212</td>
<td>209</td>
<td>221</td>
<td>1.44</td>
<td>-4.07</td>
<td>2578</td>
<td>2594</td>
<td>2445</td>
</tr>
<tr class="odd">
<td class="firstcol">Supermarkets</td>
<td>1293</td>
<td>1297</td>
<td>1180</td>
<td>-0.31</td>
<td>9.58</td>
<td>14369</td>
<td>13518</td>
<td>12587</td>
</tr>
<tr>
<td class="firstcol">Department Stores</td>
<td>299</td>
<td>305</td>
<td>329</td>
<td>-1.97</td>
<td>-912</td>
<td>3855</td>
<td>3770</td>
<td>3570</td>
</tr>
</tbody>
</table>
</body></html>

Retail sales in New Zealand fell 0.46% in July, contrary to expectations of a rise. Moreover, June sales were revised downward from a 0.1% increase to a 0.06% decline. The upturn in sales in April and May has fizzled out as can be [...]

Disappointing Retail Sales In New Zealand

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FOMC expects more inflation and less growth than in March

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

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Tom Moeller

250820A5.jpg

250820B5.jpg

Mortgage applications fell 1.4% (+22.7% y/y) in the week ending August 15 after rising 10.9% in the prior week, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for purchase loans edged 0.1% higher (22.7% y/y) last week, following a 1.4% gain in the prior week. Applications to refinance a home loan fell 3.1% (+22.8% y/y) last week, following a 23.0% rise in the week of August 8.

The effective interest rate on a 30-year fixed-rate loan held steady at 6.86% in the week ending August 15 after falling from 6.94% in the first week of August. It was the lowest rate since the first week of March, down from a high of 7.28% in the second week of January. The rate on 15-year fixed-rate mortgages rose to 6.13% in the latest week from 6.09% in the week of August 8. Conversely, the rate on 30-year Jumbo loans decreased to 6.82% last week from 6.86% one week earlier. The rate on a 5-year ARM rose to 6.24% in the week of August 15 and reversed the prior week’s decline to 6.05%.

The share of applications for refinancing an existing loan eased to 46.1% of total applications in the week ending August 15 after rising to 46.5% in the prior week. The share hit a low of 34.6% in the fourth week of May. The adjustable-rate mortgage (ARM) share of activity declined to 8.60% in the latest week after rising to 9.60% in the week of August 8.

The average size of a mortgage loan fell 2.7% (+4.1% y/y) to $387,800 in the week of August 15, following a 4.5% rise in the prior week. The average size of a purchase loan edged 0.5% higher (0.6% y/y) to $429,000 in the latest week after falling 1.2% in the week ending August 8. The average size of a loan to refinance a mortgage fell 7.3% (+9.5% y/y) to $339,800 last week, after rising 18.3% to $366,400 in the prior week. It was increased from $277,900 in the last week of May.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

**Tracking Labor Market Stress** from the Federal Reserve Bank of San Francisco is available [here](https://www.frbsf.org/research-and-insights/publications/economic-letter/2025/08/tracking-labor-market-stress/).

- Purchase applications edge higher while loan refinancing declines.
- Effective fixed-interest rate on 30-year loans remains at four-month low.
- Average loan size declines.

U.S. Mortgage Applications Decline Last Week as Interest Rates Steady

250819F1.jpg

250819G1.jpg

Total housing starts increased 5.2% (12.9% y/y) in July to 1.428 million (SAAR) after rising 5.9% in June to 1.358 million, revised from 1.321 million, and falling 8.3% to 1.282 in May, revised from 1.263 million, according to the U.S. Census Bureau. Total starts in July remained 22.5% below their peak of 1.820 million units reached in April 2022. The Action Economics Forecast Survey expected 1.30 million starts in July.

Single-family starts in July rose 2.8% (7.8% y/y) to 939,000 after falling 3.8% in June to 913,000, revised from 883,000, and edging 0.1% higher in May to 949,000, revised from 926,000. Multi-family starts surged 9.9% (24.1% y/y) in July to 489,000 after strengthening 33.6% in June to 445,000, revised from 438,000, and declining 26.0% to a little-revised 333,000 units in May.

Housing starts in the Midwest surged 33.3% (40.8% y/y) in July to 252,000 after rising 3.3% in June. Adding to this increase, starts in the South rose 19.2% (29.5% y/y) to 833,000 after holding steady in June. Offsetting these gains, starts in the West declined 27.5% (-14.4% y/y) to 232,000 after rising 8.1% in June. Housing starts in the Northeast declined 26.0% (-35.5% y/y) to 111,000 after increasing 44.2% in June.

Building permits declined 2.8% (-5.7% y/y) last month to 1.354 million after easing slightly in June. It was the fourth consecutive monthly decline. Single-family permits rose 0.5% (-7.9% y/y) in July to 870,000 after weakening for four straight months. Multi-family permits fell 8.2% (-1.4% y/y) to 484,000 after rising 6.5% in June. Building permits in the Northeast rose 25.2% (-7.9% y/y), and they edged up 0.5% (12.9% y/y) in the Midwest. In the South, building permits declined 4.6% (-6.1% y/y) while in the West, building permits weakened 10.1% (-15.2% y/y).

The housing starts and building permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

250819H1.jpg

250819I1.jpg

- Increase brings starts to five-month high.
- Multi-family starts surge while single-family starts rise moderately.
- Building permits decline is led by multi-family.

U.S. Housing Starts Strengthen Unexpectedly in July

Winnie Tapasanun

250819A35.jpg

250819B35.jpg

Online retail sales, formally known as retail e-commerce sales, rose a seasonally adjusted 1.4% q/q in Q2'25 to $304.2 billion following a 0.1% downtick in Q1’25 (0.0% initially) and a 1.7% increase in Q4’24 (unrevised), according to the U.S. Census Bureau. The Q2’25 reading was the 14th q/q gain in 15 quarters. The year-on-year rate of increase decelerated to 5.3% in Q2'25, the lowest since Q2'22, from 6.0% Q1’25. The latest y/y number was lower than 7.1% in Q2'24; thus, having remained significantly below a high of 45.3% in Q1'21 and a peak of 53.5% in Q2’20.

The Q2'25 rise in retail e-commerce sales compared to a 0.4% q/q gain (3.9% y/y) to $1,865.4 billion in total retail sales during the same period. This overall measure of retail sales excludes food services and restaurant sales. Retail e-commerce sales accounted for 16.3% of total retail sales in Q2'25 following 16.1% in Q1'25, registering the highest rate since Q2'20; the percentage was 16.1% in 2024, 15.3% in 2023, and 7.1% in 2015.

Details of the retail e-commerce sales data by sector are not seasonally adjusted. Sales of nonstore retailers, which accounted for 58.5% of total e-commerce sales, rose 5.3% (1.8% y/y) in Q2'25, the fourth q/q rise in five quarters, following a 20.7% decrease in Q1'25. Building materials & garden equipment sales recovered 34.7% (9.9% y/y), the largest q/q gain since Q2'20, reversing a 16.2% drop. Health & personal care sales rebounded 12.8% (1.7% y/y), the second q/q increase in three quarters, after having plummeted 40.9%.

Clothing accessory store sales rose 9.2% (-1.3% y/y) in Q2'25 after a 38.3% plunge in Q1'25. General merchandise store sales increased 8.4% (17.2% y/y) following a 20.9% drop. Sales of furniture & home furnishings rose 5.1% (4.4% y/y) after a 15.6% fall. Sporting goods, hobby, musical instrument & book sales grew 4.3% (6.7% y/y) following a 31.3% slump. These series registered the fourth q/q gain in five quarters.

Sales of motor vehicles & parts advanced 8.3% (15.9% y/y) in Q2'25, the largest of six straight q/q increases, on top of a 1.0% rise in Q1'25. Miscellaneous sales including gasoline stations recovered 2.6% (2.3% y/y), up for the second quarter in three, following a 2.3% decline. Food & beverage sales excluding food services rose 0.8% (15.5% y/y), the third q/q rise in four quarters, after a 0.1% easing.

E-commerce sales are goods and services ordered over an internet, mobile device (M-commerce), extranet, Electronic Data Interchange (EDI) network, electronic mail, or other comparable online system. Payment may or may not be made online and sometimes sale & price are negotiated. Total sales estimates are adjusted for seasonal variation, but not for price changes. They are also adjusted for trading-day differences and moving holidays.

Retail e-commerce sales data can be found in Haver's **USECON** database.

- Sales +1.4%, the 14th q/q rise in 15 qtrs.; +5.3% y/y, the lowest since Q2'22.
- Online share of total retail sales up to 16.3%, the highest since Q2'20.
- Nonstore sales rebound, up for the fourth quarter in five.
- Widespread gain in online sales led by bldg. materials & garden equipt. (+34.7% q/q).

U.S. Retail E-Commerce Sales Rise in Q2'25

250819C20.jpg

250819D20.jpg

Retail gasoline prices for all grades, on average, inched up to $3.25 per gallon (-7.1% y/y) last week after falling to $3.24 one week earlier. Prices remained above their low of $3.13 in the week of December 9. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel fell to $3.71 per gallon (+0.7% y/y) in the week of August 18 after easing to $3.75 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil declined to $63.31 per barrel (-19.7% y/y) in the week ended August 15 from $64.71 in the prior week. The drop left prices at the lowest level since the first week of June. Prices remained above a $59.04 low in the second week of May. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $63.96 per barrel. The price of European Brent crude fell to $67.17 per barrel (-18.6% y/y) in the week of August 15, after falling to $68.17 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. The price was $68.18 per gallon yesterday.

Natural gas prices slipped to an average $2.94/mmbtu (+38.0% y/y) in the week ended August 15, after falling to an average $2.99/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $2.96 per mmbtu.

Gasoline demand declined 1.5% y/y in the four weeks ending August 8, following a 2.2% y/y decline in the prior four weeks. Demand for all petroleum products rose 2.9% y/y in the four weeks ending August 8, after a 1.6% y/y increase in the previous four-week period. Crude oil input to refineries rose 4.2% y/y in the four weeks ending August 8, after a 2.9% y/y gain in the prior four weeks.

Gasoline inventories rose 1.8% y/y in the week ending August 8 after a 0.9% y/y in the prior week. Residual fuel oil inventories fell 25.7% y/y in the week of August 8, after a 25.8% y/y fall in the prior week. Crude oil inventories rose 2.8% y/y in the week of August 8 after a 2.7% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories stood at 25.0 days in the week of August 8, unchnged from the prior week. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil held at 25.0 days in the week of August 8, and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

U.S. Energy Prices Are Mixed in Latest Week

Tian Yong Woon

This week, we examine recent developments in US-China trade and assess the broader implications of US trade actions for the BRIC bloc—Brazil, Russia, India, and China. Last week, the US and China extended their tariff truce by 90 days, a move welcomed by equity markets (chart 1). While this pause eased fears of renewed trade tensions, it remains temporary and fragile, with no durable resolution in sight.

As for China’s economy, July data disappointed: retail sales, industrial production, and fixed-asset investment all missed expectations (chart 2). This may signal that tariffs are beginning to bite, as earlier growth drivers—such as some front-loading of imports and one-off consumption boosts like China’s durable-goods subsidy—are fading (chart 3). Newer measures, including loan-interest subsidies, may provide some interim relief. Meanwhile, the property sector remains under heavy strain, with further price and investment declines evidenced in July (chart 4).

In the broader regional context, US trade measures may inadvertently push trading partners closer together, complicating Washington’s bilateral strategy. The BRIC bloc shows tentative signs of greater alignment, though this has yet to appear in data for trade flows (chart 5). China and India, however, are warming toward one another: Foreign Minister Wang Yi’s visit to India this week—focused on the Himalayan border among other issues—suggests an improving dialogue. Separately, discussions at the national level to restart direct flights between the two countries also signal a thaw. Full economic integration remains distant, but the scale of both economies suggests significant potential if relations continue to improve (chart 6).

**The US-China tariff truce**
Last week, the US and China announced a 90-day extension to their mutual tariff truce. Although largely expected, the move still generated further equity market gains (see chart 1). This contrasts sharply with worst-case scenarios earlier this year, when tensions peaked and Washington imposed sweeping tariffs of 145% on Chinese imports — levels that would have severely disrupted global trade and growth if sustained. Instead, both sides agreed to keep additional tariffs at 10% until November 10, allowing more time to pursue a durable trade deal. Still, this is merely a pause rather than progress. 

250819T1.jpg

**The China docket**
In the meantime, China’s latest monthly data releases were watched closely and offered valid reasons for caution despite earlier signs of resilience. More specifically, retail sales, industrial production, and fixed-asset investment (chart 2) all missed expectations, suggesting US tariff and non-tariff measures are beginning to weigh on growth alongside persistent domestic headwinds. Also, China’s unemployment rate inched higher, while property prices continued to decline. If such weakness persists, calls for additional policy support will grow, even though debt-fuelled measures risk merely trading today’s problems for tomorrow’s.

250819T2.jpg

**China retail sales**
Diving deeper into the individual releases, chart 3 highlights the gradual slowdown in China’s retail sales in recent months, with growth easing to 3.7% y/y in July. By product category, the deceleration reflects weaker automobile sales — amid authorities’ clampdown on carmaker price wars — and softer furniture sales, suggesting a one-off boost from the government’s durable-goods subsidy programme may now be fading. Clearer confirmation could come if sales growth of other subsidized goods, such as home appliances, also begin to weaken. Still, retail spending — and broader consumption activity — may gain fresh support from China’s new loan-interest subsidy programme, which covers both consumer borrowing and eligible service-sector business loans.

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**China property prices and investment**
Moving next to China’s beleaguered property market, the sector has shown no meaningful recovery for several years. Prices remain on a downtrend, and repeated investor attempts to call a bottom have proven futile. The latest data offered no relief: property prices continued to decline, while investment in the sector fell 12% y/y year-to-date in July (chart 4). That said, the pace of price declines has slowed sharply compared with last year. Even so, what was once a major engine of China’s growth continues to shrink into a shadow of its former self.

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**The BRIC bloc**
While recent trade measures appear favourable for the US, lowering partner tariffs and modestly raising Washington’s own rates, significant risks remain. Such moves could push US trading partners closer together, undermining the administration’s strategy of leveraging bilateral negotiations. One potential area of alignment is the BRIC bloc — Brazil, Russia, India, and China. Although hard data have yet to show major shifts (see chart 5), recent headlines suggest small steps toward deeper cooperation. That said, Russia remains constrained by heavy US sanctions and pressure, as reflected in trade flows with its closest partners.

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Digging a little further, China and India have recently begun to ease their decades-long frosty ties, partly in response to this year’s US trade tensions. A key sign of improving relations is China’s Foreign Minister Wang Yi’s high-profile visit to India from Monday to Wednesday this week. The visit focused on, among other topics, the disputed Himalayan border — which, if resolved, would mark a major step in restoring bilateral relations — and trade across the border. Other indicators of a warming relationship include ongoing talks to restart direct flights, suspended during the pandemic. Given the sheer size of their populations and economies, as shown in chart 6, a fully developed China-India economic partnership could unlock immense potential. However, the path to meaningful economic integration remains at an early stage, with numerous hurdles still to navigate.

Economy in Brief: September 2009

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IP Trend Turns Higher

Sales Trim Losses As Inventories Are Looking Lean

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US Retail Sales Make Strong Gains...

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Disappointing Retail Sales In New Zealand

Disappointing Retail Sales In New Zealand