Carol Stone, CBE

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115h.jpg" align="left" border="0" height="265" width="353">
The Kazakhstani economy is growing rapidly, benefiting from
strong oil revenues. New data on trade through September indicate a
sizable surplus, owing much to oil and gas exports. Further, separate
data on fixed capital investment show continuing strong growth in
infrastructure spending and other capital projects.
The summary trade balance was reported about 10 days ago, with
a surplus in September of $1.6 billion, up from $1.1 billion in August,
but smaller than the $2.4 billion a year ago. The factor in the smaller
surplus this year than last is a reduction in the value of oil exports
from $3.1 billion in September 2006 to $2.6 billion this September,
according to the detail data published today. Even so, other exports
gained noticeably, and total exports were only very little different,
$4.41 billion this September compared with $4.50 billion last year.
The slack was taken up by sizable gains in various metals and
metal products. What the Kazakhs refer to as ferro-alloys and flat
ferrous metals, along with lead and precious metals, all contributed.
Rising world prices for steel scrap and lead, among others, are no
doubt responsible. And while oil exports were down in the latest month,
they remain generally quite large, bringing sizable quantities of
dollars into the country. Note in the table below and the second graph,
the uncanny match between the value of oil exports and total imports:
oil revenue is very nearly covering Kazakhstan's demand for outside
products.
This favorable natural resource trade situation is fueling (if
you will) a prolonged building boom. Monthly data on "fixed capital
investment" show sustained growth, running through October at 19%
year-on-year. This is "slower" than in 2004-2006, but it remains
vigorous. Of KZT245 million per month so far this year, about 30% has
been in the oil and gas industry, a quarter in "real estate, renting
and business activity" and about an eighth in transportation and
communication infrastructure. By type of investment, just over half is
in construction projects and just under a third is in machinery and
tools.
Data on Kazakhstan are contained in Haver's EMERGECW
database.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115i.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115j.jpg" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Kazakhstan</th>
<th scope="col">Oct 2007</th>
<th scope="col">Sept 2007</th>
<th scope="col">Aug 2007</th>
<th scope="col">Year Ago</th>
<th scope="col" colspan="3">Monthly Averages</th>
</tr>
<tr class="odd">
<th scope="col" colspan="5"></th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Trade Balance, Mil.$</td>
<td>--</td>
<td>1,597</td>
<td>1,096</td>
<td>2,361</td>
<td>1,214</td>
<td>852</td>
<td>609</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>--</td>
<td>4,412</td>
<td>3,864</td>
<td>4,495</td>
<td>3,188</td>
<td>2,311</td>
<td>1,674</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Oil
&amp; Gas</td>
<td>--</td>
<td>2,563</td>
<td>2,401</td>
<td>3,094</td>
<td>1,968</td>
<td>1,450</td>
<td>951</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Other</td>
<td>--</td>
<td>1,849</td>
<td>1,463</td>
<td>1,401</td>
<td>1,220</td>
<td>861</td>
<td>723</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>--</td>
<td>2,815</td>
<td>2,769</td>
<td>2,134</td>
<td>1,973</td>
<td>1,460</td>
<td>1,065</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Investment, 
Mo Avg YTD, Mil.KZT</td>
<td>245.3</td>
<td>237.3</td>
<td>223.0</td>
<td>206.8</td>
<td>234.2</td>
<td>183.7</td>
<td>127.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>18.8%</td>
<td>18.5%</td>
<td>16.9%</td>
<td>27.9%</td>
<td>27.4%</td>
<td>44.1%</td>
<td>21.6%</td>
</tr>
</tbody>
</table>
</body></html>

The Kazakhstani economy is growing rapidly, benefiting from strong oil revenues. New data on trade through September indicate a sizable surplus, owing much to oil and gas exports. Further, separate data on fixed capital investment [...]

Kazakhstan's Oil and Metals Exports Bring Revenue for Investment Spending

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115l.jpg" align="left" border="0" height="265" width="353">
The EMU region shows accelerations in overall inflation as
well as in core inflation (see table below). The goods sector (a sector
that includes energy) shows inflation is steadily accelerating and
services show the opposite, steady price deceleration. From the stand
point of inflation this offset is good news. From the stand point of
growth it may not be&#8230;
The weakness in services prices is suggestive of a domestic
population besieged by rising goods prices (&#8230;some of them of inelastic
demand such as food and energy) robbing spending from the services
component of expenditures where relatively more of the discretionary
funds may be spent. We will want to watch to see if the EMU service
sectors reflect a growing weakness that would confirm that such an
effect is in train.
The bottom of the table includes core inflation readings
across main EMU countries and all of them show that their inflation
acceleration is in train or above the ECB ceiling rate of 2%... or both.
With this report a more detailed look behind the &#8216;seemingly
benign&#8217; core rate of inflation of 2.1% looks a lot grimmer. With the
euro rising, and the ECB warning of spreading price pressures, it puts
the EMU region and the ECB in a tough spot. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Trends in HICP </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EMU-13</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.0%</td>
<td> 3.4%</td>
<td> 2.7%</td>
<td> 2.6%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.2%</td>
<td> 3.0%</td>
<td> 2.2%</td>
<td> 2.1%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>0.8%</td>
<td>1.0%</td>
<td>0.0%</td>
<td> 7.6%</td>
<td>2.2%</td>
<td> 2.6%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>-1.5%</td>
<td>1.8%</td>
<td> 2.5%</td>
<td>2.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8"> HICP</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td> 3.1%</td>
<td>2.7%</td>
<td> 2.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.3%</td>
<td> 2.6%</td>
<td> 2.3%</td>
<td> 2.1%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.7%</td>
<td>0.3%</td>
<td>0.2%</td>
<td> 4.7%</td>
<td> 3.3%</td>
<td> 2.3%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.7%</td>
<td>0.4%</td>
<td>0.0%</td>
<td> 4.3%</td>
<td> 3.7%</td>
<td> 3.7%</td>
<td>2.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8"> Core: xFE&amp;A</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.4%</td>
<td> 2.4%</td>
<td> 2.2%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.3%</td>
<td> 2.7%</td>
<td> 1.9%</td>
<td> 1.7%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.2%</td>
<td> 4.3%</td>
<td> 2.7%</td>
<td> 2.1%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.7%</td>
<td>0.2%</td>
<td>0.3%</td>
<td> 4.8%</td>
<td> 3.5%</td>
<td> 3.1%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
</body></html>

The EMU region shows accelerations in overall inflation as well as in core inflation (see table below). The goods sector (a sector that includes energy) shows inflation is steadily accelerating and services show the opposite, steady [...]

EMU ‘Core’ Inflation Trends Are Mixed…But Still Poor

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115k.jpg" align="left" border="0" height="265" width="353">
The percentile readings for Japan&#8217;s tertiary and
manufacturing/mining indexes remain elevated in the top 10% of their
respective ranges. In the case of the services industries their index
seems to show them still on trend with a bump lower in October. In
short, in September the drop does not seem to be anything to worry
about, especially on the heels of a solid gain in August. The MFG
series shows a slump that was probably aggravated by Japan&#8217;s
earthquake. The acceleration out of that slump pushes the index up
sharply and so the current setback comes at a time that the strength in
the short term trend is probably overstated. Even so the pull back in
September is a minor one. The moving averages show the Mining/MFG index
still going higher while the service sector shows the trend for 3-Month
and 6-Months has gone flat. That sector will be the one to watch. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col">Japan Industry Surveys </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="grey3">
<td class="firstcol"></td>
<td>Sep-2007</td>
<td>Aug-2007</td>
<td>Jul-2007</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>110.3</td>
<td>111.9</td>
<td>108.1</td>
<td>110.1</td>
<td>108.9</td>
<td>108.5</td>
<td>111.9</td>
<td>87.7</td>
<td>93.4%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>109.4</td>
<td>111.2</td>
<td>109.9</td>
<td>110.2</td>
<td>110.2</td>
<td>109.9</td>
<td>111.2</td>
<td>91.0</td>
<td>91.1%</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
</body></html>

The percentile readings for Japan’s tertiary and manufacturing/mining indexes remain elevated in the top 10% of their respective ranges. In the case of the services industries their index seems to show them still on trend with a bump [...]

Japan’s Tertiary Sector Echoes Weakness in MFG and Mining

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115f.jpg" width="353">
The November Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector recovered just a piece of its October decline. The rise to 8.2 followed a sharp October decline to 6.8 from 10.9 in September.
The index is a diffusion index for each component or series. It reflects the increase in activity reported less the decrease.
During the last ten years there has been a 59% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 42% correlation with q/q growth in real GDP.
The new orders index improved very slightly as a meaningful gain in new orders was offset by a sharp rise in orders which had decreased. The employment index fell sharply as the number of firms reporting an increase fell sharply and the number of firms showing a decrease rose. During the last ten years there has been a 75% correlation between the employment index and the three-month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115g.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index slipped as the number of firms reporting an increase fell and the number reporting a decrease rose. During the last ten years there has been a 76% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell sharply to its lowest level since December of last year. Expectations for new orders plummeted as did expectations for the number of employees.
The latest Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/econ/spf/index.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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">November</th>
<th scope="col">October &nbsp;</th>
<th scope="col">Nov. &#145;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>8.2</td>
<td>6.8</td>
<td>5.4&nbsp;</td>
<td>8.1</td>
<td>11.5</td>
<td>28.1</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>37.7&nbsp;</td>
<td>&nbsp;40.3</td>
<td>&nbsp;25.2</td>
<td>36.6</td>
<td>40.1</td>
<td>51.2</td>
</tr>
</tbody>
</table>
</body>
</html>

The November Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector recovered just a piece of its October decline. The rise to 8.2 followed a sharp October decline to 6.8 from 10.9 in [...]

Philadelphia Fed Index Recovered Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115e.jpg" width="353">
Initial claims for unemployment insurance jumped 20,000 last week to 339,000 from 319,000 during the week prior. The latest was the highest level in four weeks and the prior week&#39;s figure was upwardly revised. A claims level of 320,000 had been expected.
The four week moving average of initial claims was stable at 330,000 (4.3% y/y).There were no special factors indicated as having influenced the figures.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance fell 7,000 after a slight decline during the prior week which was revised up slightly.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment was again stable at 1.9%.
By state and versus last week, large increases in claims were logged in California, New Jersey, South Carolina, Illinois, Georgia, North Carolina and Michigan. The construction industry and the manufacturing industry were two of the most sighted for layoffs.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/10/07 </th>
<th scope="col">11/03/07 </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">Initial Claims</td>
<td>&nbsp;339</td>
<td>319</td>
<td>7.6%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,568</td>
<td>5.2%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance jumped 20,000 last week to 339,000 from 319,000 during the week prior. The latest was the highest level in four weeks and the prior week's figure was upwardly revised. A claims level of [...]

U.S. Initial Unemployment Insurance Claims Jump

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115a.jpg" width="353">
The consumer price index (CPI-U) rose an expected 0.3% last month and matched the prior month&#39;s swift increase. Rising to 3.5%, the y/y rise also was the quickest in just over one year.
Core consumer price inflation held stable at an expected 0.2% for the sixth month in the last seven. The y/y increase of 2.1% also was stable although the change over the last three months dipped to 2.1% (AR) from 2.5% where it has been since July.
Core goods prices dipped just slightly for the third straight month as apparel prices showed no change (-1.2% y/y). New &amp; used motor vehicle prices also fell for the second straight month (-1.1% y/y) and prices of household furnishings &amp; operation fell for the sixth month in the last seven (-0.9% y/y).Tobacco prices provided lift to the core goods price measure with a 0.2% (7.6% y/y) rise.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115b.jpg" width="353">
Core services prices rose 0.2% (3.2% y/y) but the gains have been decelerating since June, mostly because of slower gains in shelter prices. They rose 0.1% (3.3% y/y) but the three month change fell to 2.4%, half the rate of increase a year ago. The owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.2% (2.8% y/y). Over the last three months, however, most of the deceleration in shelter prices has been due to prices for lodging away from home. Public transportation prices rose an accelerated 1.2% (2.6% y/y) while medical care services prices also rose an accelerated 0.6% (5.9% y/y). Education service prices rose 0.8% (5.3% y/y) but communication prices fell slightly (-0.4% y/y).
Food &amp; beverage prices again increased 0.3% (4.4% y/y). That y/y increase is double the rate of last December. Prices for fruits &amp; vegetable rose 0.7% (0.8% y/y) but prices for meats, poultry &amp; fish rose 0.2% (5.6% y/y). Prices of dairy products rose a diminished 0.2% (2.8% y/y) after four straight months of double digit gain.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071115c.jpg" width="353">
Energy prices were firm last month. The 1.4% gain was led by a 1.3% (5.0% y/y) rise in natural gas &amp; electricity prices. Gasoline prices also jumped 1.4% (2.4% y/y) but the weekly data indicates a 9.2% m/m gain for November.
The chained CPI, which adjusts for shifts in the mix of consumer purchases rose 0.2% (3.0% y/y) but the core measure rose 0.2%, 1.8% y/y.
What&#39;s Really Happening in Housing Markets from the Federal Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/research/Commentary/2007/07.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y&nbsp;</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&nbsp;</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>3.5%&nbsp;</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.1%&nbsp;</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods less Food &amp; Energy</td>
<td>-0.0%</td>
<td>-0.0%</td>
<td>-0.0%</td>
<td>-0.6%&nbsp;</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.2%&nbsp;</td>
<td>3.4%</td>
<td>2.8%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>1.4%</td>
<td>0.3%</td>
<td>-3.2%</td>
<td>14.5%&nbsp;</td>
<td>11.1%</td>
<td>16.9%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food &amp; Beverages</td>
<td>0.3%</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.4%&nbsp;</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>


</html>

The consumer price index (CPI-U) rose an expected 0.3% last month and matched the prior month's swift increase. Rising to 3.5%, the y/y rise also was the quickest in just over one year. Core consumer price inflation held stable at an [...]

U.S. CPI Rise of 0.3% As-expected, 0.2% Core Also In Line

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071114h.jpg" width="353">
This past spring, as disruptions in the residential mortgage market became more severe, the Federal Reserve&#39;s Division of Monetary Affairs revised some of the relevant questions on its quarterly Senior Loan Officer Opinion Survey. Rather than inquiring about mortgage demand and lending policies in general, they broke the category down into three, &quot;prime&quot;, &quot;subprime&quot; and &quot;nontraditional&quot;. While this modification is more descriptive of banks&#39; current situations, it gave no basis for comparison of current practice with previous periods.
So last week, following the release of the Q4 survey data, a number of Haver clients called the Client Hotline, asking if there wasn&#39;t something we could do with the information. Carol Stone here at Haver devised a method for re-combining the three new questions into an overall mortgage item.
On the lending policy aspect, banks report whether they have &quot;tightened&quot; lending standards &quot;considerably&quot; or &quot;somewhat&quot; or &quot;eased considerably&quot; or &quot;somewhat&quot; or left their lending policy &quot;basically unchanged&quot;. We simply added the responses together for each loan type and took that total as a percentage of the total responses. This ignores the response &quot;do not offer&quot; for each one, so the answers we&#39;ve used cover only banks that are active lenders in each category.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071114i.jpg" width="353">
The results show a dramatic policy shift. Through nearly all of 2006, banks were easing their lending approval criteria, at least in a modest way. They switched toward tightening in Q4 and then moved much more aggressively in the new year. The old &quot;total&quot; mortgage series shows a net tightening of 16.4% in the January survey; the Haver calculations show that doubling by April to 32.7% and reaching 50% in the latest poll. The actual measure here is a &quot;net&quot;, that is, those tightening less those easing, but in the last three quarters, no one has eased lending standards. So the latest responses show 50% tightening and 50% &quot;basically unchanged&quot;. In the table below, we show the original Federal Reserve series in regular typeface, and the Haver figures in italics.
Demand for home mortgages -- at least as reported by the responding banks -- is weakening, although the recent performance here is no worse than last year. In fact, Q3 and Q4 of 2006 show the biggest negatives, -58.5% and -60.4%, respectively. During 2007, the weighted total of the new series moderated during the spring and early summer, but the latest survey shows renewed erosion to -48.5%. These demand figures reflect not only overall consumer demand for home purchase and/or other mortgage credit, but also the competitive mix of lending institutions. The moderation of banks&#39; demand experience during part of this year could indicate a relative turn toward banks as mortgage companies and others pulled back more severely from the market.
We were cautioned by Federal Reserve analysts about making these combination series, and we, in turn, need to pass that caution to you as you use them. These are rough guides to the direction and degree of changes in bank mortgage lending standards and loan demand. But they cannot be numerically precise. The reason is that the three types of loans, prime, subprime and nontraditional, are not completely separate from each other. Prime loans include some nontraditional loans, as do subprime loans. Other nontraditional loans are classified by the lenders as a distinct category, neither prime nor subprime. So there is an indeterminate amount of double-counting in our simple summation of the total survey responses. Nonetheless, the resulting series look like what we&#39;d expect: greatly tightening lending policies and weakening loan demand. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Senior Loan Officers Survey</th>
<th scope="col">Oct 2007</th>
<th scope="col">July 2007</th>
<th scope="col">Apr 2007</th>
<th scope="col">Jan 2007</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 Mortgages: Haver Series: Net Tightening</td>
<td>50.0</td>
<td>30.8</td>
<td>32.7</td>
<td>16.4</td>
<td>-4.2</td>
<td>-3.4</td>
<td>-3.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Prime</td>
<td>40.8</td>
<td>14.3</td>
<td>15.1</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nontraditional</td>
<td>60.0</td>
<td>40.5</td>
<td>45.5</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Subprime</td>
<td>55.5</td>
<td>56.3</td>
<td>56.3</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Haver Mortgage Series: &nbsp; Net Demand</td>
<td>-48.5</td>
<td>-19.4</td>
<td>-17.7</td>
<td>-37.0</td>
<td>-46.5</td>
<td>-11.9</td>
<td>-19.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Prime</td>
<td>-51.0</td>
<td>-10.0</td>
<td>-18.9</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nontraditional</td>
<td>-45.0</td>
<td>-21.3</td>
<td>-15.9</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Subprime</td>
<td>-50.0</td>
<td>-43.8</td>
<td>-18.8</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

This past spring, as disruptions in the residential mortgage market became more severe, the Federal Reserve's Division of Monetary Affairs revised some of the relevant questions on its quarterly Senior Loan Officer Opinion Survey. [...]

Fed's Loan Officer Survey Shows Drastic Tightening of Mortgage Lending, Weakening of Banks' Mortgage Demand

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

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

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

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Sandy Batten

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Total retail sales slumped 0.9% m/m (+3.3% y/y) in May following a downwardly revised 0.1% monthly decline in April (previously +0.1% m/m). The May decline was led by a 3.5% m/m (+2.5% y/y) drop in motor vehicle and parts sales and a 2.0% m/m (-6.9% y/y) price-related decline in sales at gasoline stations. This was the fourth consecutive monthly decline in gasoline sales. Sales excluding autos fell 0.3% m/m (+3.5% y/y) in May after a downwardly revised unchanged reading in April (previously +0.1% m/m). The Action Economics Forecast Survey looked for total sales to fall 0.6% m/m in May and for sales ex autos to rise 0.2% m/m. Sales excluding autos and gasoline slipped 0.1% m/m in May after a 0.1% m/m increase in April.

On a more positive note, sales in the retail control group, which excludes autos, building materials, gasoline and food services, rebounded 0.4% m/m (5.0% y/y) in May after an upwardly revised 0.1% m/m decline in April (previously -0.2% m/m). These sales are used in the construction of personal consumption expenditures in the NIPA accounts. While these sales slowed in April and May from a relatively strong February and March, the April/May average is still 2.9% at an annual rate above the Q1 average, providing a solid foundation for Q2 PCE.

By category, in addition to declines in auto and gasoline sales, building material and garden equipment sales slumped 2.7% m/m, their first monthly decline in three months. Sales at food service and drinking places declined 0.9% m/m, their first monthly decline in three months. Sales at electronics and appliance stores fell 0.6% m/m, their first decline in four months. In contrast, sales at furniture stores continued to rise, increasing 1.2% m/m, their fourth consecutive monthly gain. Sales at sporting goods, etc. stores rose 1.3% m/m but failed to offset a 3.0% m/m decline in April. Sales at nonstore retailers rose 0.9% m/m in May for their fourth consecutive monthly gain. Miscellaneous store sales jumped 2.9% m/m.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economic Forecast Survey in **AS1REPNA**.

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- Sales fell a more-than-expected 0.9% m/m, led by a 3.5% decline in motor vehicle sales and a 2.0% drop in gasoline store sales.
- Sales excluding autos unexpectedly fell 0.3% m/m.
- In contrast, sales in the control group (used to estimate PCE) rebounded 0.4% m/m.

U.S. Retail Sales Fell More than Expected in May 2025

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Import prices were unchanged during May after rising 0.1% in April, and falling 0.4% in March, according to the Bureau of Labor Statistics. A 0.3% decline had been expected in the Action Economics Forecast Survey. The year-on-year increase picked up to 0.2% but remained below the recent high of 2.2% in December. Export prices fell 0.9% during May after an unrevised 0.1% April gain. A 0.2% decline had been expected. The y/y rise eased to 1.7% from 1.9% in April and was the slowest gain since November.

The steady import price index in May included a 4.0% drop (-15.8% y/y) in imported fuel prices, the third consecutive month of sharp decline. The decline in imported fuel costs reflected a 9.0% fall (+88.4% y/y) in natural gas, a 2.7% drop (-18.8% y/y) in fuel oil costs, a 3.7% decline (-17.4% y/y) in petroleum & petroleum products and a 5.4% drop (-17.1% y/y) in crude oil prices. Nonfuel import prices fell 0.2% (+7.7% y/y) in May following a 17% April increase. Import prices for nonfuel industrial supplies & materials rose 1.3% (5.4% y/y) and capital goods rose 0.2% (1.1% y/y), but foods, feeds & beverages prices declined 0.3% (+6.9% y/y). Import prices for automotive vehicles & parts edged 0.1% higher (1.1% y/y) and consumer goods excluding autos increased 0.2% (-0.7% y/y) after rising 0.3% in April.

The May decline in export prices reflected a 1.0% (1.7% y/y) drop in nonagricultural prices following a 0.1% dip. Petroleum & petroleum product prices fell 3.8% (-11.4% y/y). Industrial supplies & materials export prices dropped 2.9% (+1.0% y/y) in May, down for the third straight month. In contrast, agricultural export prices rose 0.2% (1.8%) following a 0.4% gain in April. The cost of capital goods rose 0.4% (1.9% y/y) after two straight 0.3% increases. Prices of consumer goods excluding autos rose 0.2% (1.4% y/y) after a 0.7% rise, while automotive vehicles & parts prices rose 0.2% (2.7% y/y) following a 0.9% April gain. Foods, feeds & beverages prices rose 0.3% (3.1% y/y) after increasing 0.4% in April.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Sharp decline in imported fuel costs is offset by increases in other products.
- Export price decline reflects lower petroleum prices.

U.S. Import Prices Hold Steady in May While Export Prices Decline

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Total business inventories were unchanged in April from March (+2.2% y/y) after having inched up 0.1% m/m in March. The Action Economics Forecast Survey had anticipated an unchanged reading. Manufacturing inventories edged down 0.1% m/m (+0.9% y/y) following five consecutive monthly gains. Retail inventories were essentially unchanged (-0.03% m/m) after having declined in three of the four previous months. In contrast, wholesale inventories rose 0.2% m/m (2.3% y/y) in April for their fourth consecutive monthly gain.

Drilling down into retail inventories, auto inventories declined 0.8% m/m in April for their sixth consecutive monthly fall. Retail inventories excluding autos increased 0.3% m/m for their fourth consecutive monthly gain. General merchandise store inventories fell 0.3% m/m, their second decline in the past three months. Inventories increased in all other major retail categories, led by a 1.0% m/m increase in food and beverage store inventories. Inventories at building materials and garden equipment stores rose 0.8% m/m following two consecutive monthly declines. Furniture store inventories increased 0.4% m/m, their third monthly increase in the past four months.

Total business sales slipped 0.1% m/m (+3.8% y/y) in April, their first monthly decline in three months. Wholesale sales edged up 0.1% (6.0% y/y), their third consecutive monthly rise. Factory sales fell 0.3% m/m (+0.6% y/y) on top of a 0.2% monthly decline in March. Retail sales decreased 0.2% m/m (+4.7% y/y) in April though in a separate report also released today, retail sales slumped 0.9% m/m in May, led by declines in auto and gasoline sales.

With the little change in both sales and inventories in April, the inventory/sales (I/S) ratio was unchanged after having fallen in four of the five previous months. The 1.38 reading in April tied the reading in the previous month as the lowest one since September 2023. The I/S ratios for retailers and wholesalers were also unchanged in April from March while the manufacturing I/S ratio increased 0.6% m/m.

The manufacturing and trade data are in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Total inventories were unchanged in April from March.
- Wholesale inventories rose for the fourth consecutive month while retail and factory inventories slipped.
- Sales edged down 0.1% m/m, the first monthly decline in three months, with declines in both factory and retail sales.
- With little change in both sales and inventories, the inventories/sales ratio was unchanged in April following two consecutive monthly declines.

U.S. Business Inventories Unchanged in April as Sales Slipped

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The National Association for Business Economics expects that following a 2.8% gain in 2024, real GDP growth will slow to 1.3% this year, revised from 1.9% in the June survey and 1.4% in 2026, revised from 2.0%. Growth from Q4-to-Q4 is expected to slow to 0.7% in 2025 from 2.5% in 2024, then rise a minimally changed 1.9% next year. Quarterly GDP is expected to grow 0.6% in Q3’25 and 0.9% in Q4. In the first two quarters of 2026, real growth of 1.6% followed by 1.8% is expected, followed by 2.0% in both Q3’26 and Q4’26.

Real growth in personal consumption expenditures was reduced. Expected PCE growth in 2025 was shaved to 2.3% from 2.8%, and reduced to 1.4% from 2.8% in 2026. The projection for business fixed investment growth was little-changed at 1.6% this year followed by 0.9% in 2026. An expected 0.5% gain in residential fixed investment this year has been reduced from 1.1%, followed by 0.9% growth in 2026, reduced substantially from 2.4%. Government spending growth of 1.3% this year compares to 1.7% projected earlier, and 0.5% growth in 2026 lessened from 0.8%.

The net export deficit is expected to widen to $1.204 trillion in 2025, revised from $1.118, then narrow to $1.085 trillion in 2026, revised from $1.150 trillion expected earlier. Exports should increase 1.1% this year, revised from 2.3% expected earlier, then 1.6% in 2026, revised from 2.0%. Imports are projected to rise 4.7% in 2025, revised from 4.0%, then fall 0.9% in 2026, down sharply from up 1.7% as expected earlier. Inventory accumulation should rise this year to little-revised $55.0 from $39 billion in 2024, then ease to $40.0 billion in 2026, revised from $52.0 billion expected earlier.

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Housing starts are expected to steady at 1.36 million, then rise to 1.39 million in 2026, revised from 1.40 million. They have been trending lower since the 2021 peak of 1.60 million. Light vehicle sales should ease to 15.5 million units, revised from 16.0. then improve to 15.5 million next year, revised from 16.2 million. The average gain in payroll employment should soften to 91 million per month in the current year, revised from 115,000, then increase to 99,000 in 2026, revised from 125,000. Payrolls increased 216,000 in 2023. The unemployment rate in 2025 has been nudged up to 4.4% from 4.3% projected earlier. The jobless rate is now expected to rise to 4.7% in 2026, revised from 4.3%.

Inflation pressures are expected to eventually abate. After falling in 2024 to 2.7% (Q4/Q4), the increase in the CPI is forecast to first rise to 3.4% this year, revised from 3.0%, then fall to 2.6% in 2026, revised from 2.5% a 2.7%. These increases compare to a 7.1% rise in 2022. Price inflation, as measured by the PCE chain price index, is expected to rise to 3.1% in 2025, revised from 2.3%, then fall to an unrevised 2.3% in 2026. It hit 6.0% in 2022. The gain in the chain PCE price index excluding food & energy is projected to rise to 3.1% this year, revised from 2.8%, then fall to 2.4% in 2026. The index rose to its high of 5.2% in 2022. The projected cost of crude oil of $65 per barrel compares to $70 projected earlier. The $68 per barrel at the end of next year compares to $66 expected earlier, and $70 per barrel at the end of 2024.

Long-term interest rates are expected to ease. The forecast of 4.19% at the end of this year compares to 4.23% expected earlier, with 4.00% forecast at the end of next year compared to 4.06% previously projected. The Fed is expected to continue its easing of monetary policy. The Federal funds rate is forecast to decline to 3.88% at the end of 2025 from 4.37% at the end of 2024, then fall to an unrevised 3.38% by the end of 2026. After-tax corporate profits are predicted to rise 2.1% this year, revised from 2.7%, and a minimally-changed 3.3% next year.

The figures from the latest NABE report can be found in Haver's **SURVEYS** database.

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- Consumer spend growth is reduced.
- Business investment growth unchanged.
- Price inflation is forecast to pick up, then moderate.

NABE Forecasts Sharply Reduced Growth for 2025 & 2026

Winnie Tapasanun

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The Empire State Manufacturing Index of General Business Conditions decreased to -16.0 in June, down from -9.2 in May and -8.1 in April, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of -6.0 for June had been expected in the Action Economics Forecast Survey. The unexpected decrease in the June index indicated that the business activity in New York State contracted for the fifth time in six months and to the lowest level since March; it was also down from -7.7 in June 2024. The percentage of respondents reporting an increase in general business conditions was 16.9% in June, down from 28.3% in May; the percentage reporting a decrease was 32.9%, down from May’s 37.5%. The latest survey was conducted between June 2 and June 9.

The headline index reflects the answer to a single question concerning the state of economic activity. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index dropped to 48.6 in June, down from 51.1 in May and 49.3 in April, indicating contraction for the third month in four and to the lowest level since October. It was up from 48.5 in June 2024 and a low of 42.5 in January 2024; however, registering below 50, the breakeven point between expansion and contraction. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

In the latest survey, the new orders index dropped to -14.2 in June after a 15.8-point jump to 7.0 in May, indicating new orders contracted for the third time in four months and to the lowest level since March; nevertheless, it was an improvement from a low of -35.0 in January 2024. The shipments index slid to a three-month-low -7.2 in June following a 6.4-point rise to 3.5 in May, but it was up from a low of -22.7 in April 2024. The unfilled orders index decreased to -8.3 in June after a 0.7-point increase to 4.8 in May, indicating unfilled orders contracted this month following two successive months of expansion; the index reached a low of -24.2 in January 2024. The inventories index fell to 0.9 in June after a 2.6-point decline to 4.8 in May, suggesting that inventories expanded at the slowest pace in eight straight months of expansion. Meanwhile, the delivery times index increased to 1.8 in June, the highest reading since February, from 1.0 in May, with 14.7% of respondents reporting higher delivery times and 12.8% of respondents reporting lower delivery times.

On the labor front, the number of employees index rebounded to a positive 4.7 in June after a 2.5-point decline to -5.1 in May, showing employment expanded for the first time since January and at the highest level since December 2022. The index was up from a low of -9.7 in December 2023. A higher 14.6% of respondents reported an increase in employment in June while a lessened 9.9% reported a decline. The average workweek index increased to -1.5 in June, the highest reading since February, from -3.4 in May; however, having remained in negative territory for the seventh consecutive month.

Inflation indicators were mixed this month. The prices paid index dropped to 46.8 in June, the lowest level since March, following an 8.2-point rise to 59.0 in May. The index was up from its recent low of 21.1 in December and a low of 16.7 in December 2023 but significantly down from a high of 86.4 in April 2022. A 49.5% of respondents reported higher prices paid in June while only 2.8% reported lower prices paid. The prices received index rose to 26.6 in June following a 5.8-point drop to 22.9 in May. The index was up from its recent low of 4.2 in December and a low of 3.9 in July 2023 but well below a peak of 56.1 in March 2022. An increased 29.4% of respondents reported higher prices received in June while a lessened 2.8% reported lower prices received.

Firms grew optimistic about the future business outlook in the latest survey. The index for future business conditions jumped to 21.2 in June, the highest reading since February, from -2.0 in May and a near-record-low -7.4 in April, with an increased 38.4% of respondents expecting business conditions to improve in the next six months. Future new orders (26.1 vs. -2.7) and shipments (23.0 vs. -3.4) expanded in June after contracting in May. Growth in employment (10.4 vs. 11.6) weakened slightly in June vs. May but still showed continued expansion. Capital spending plans remained soft, with expectations for capital spending falling to -7.3 in June, the lowest reading since May 2020, from -6.7 in May. Expected prices paid fell to 59.6 in June, the lowest level since March, from 66.7 in May, while expected prices received rebounded to 41.3 from May’s five-month-low 35.2.

The headline index reflects the answer to only one question concerning general business conditions and is not calculated from the components. The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- June General Business Conditions Index down 6.8 pts. to -16.0.
- Negative numbers for new orders (-14.2), shipments (-7.2), and unfilled orders (-8.3), but positive readings for employment (4.7, highest since Dec. ’22) and inventories (0.9).
- Current prices paid drops 12.2 pts. to a three-month-low 46.8.
- Firms are optimistic about the future business outlook, w/ Future Business Conditions Index up to a four-month-high 21.2 and future prices paid down to a three-month-low 59.6.

Economy in Brief: November 2007

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