Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070815d.jpg" width="353">
Industrial production rose an expected 0.3% following an upwardly revised gain of 0.6% during June.
Factory output surged another 0.6%, bringing the three month change in output to 1.2%, its best gain in about one year.
Consumer goods output grew 0.4% (2.4% y/y) after the upwardly revised 1.0% June jump. Higher output of automotive products, up 2.4% (8.7% y/y), accounted for much of the gain. Production of computers &amp; electronics fell 0.1% (+16.4 y/y) while output of furniture &amp; appliances fell 1.2% (-4.0% y/y). Production of apparel also fell by 1.4% (-4.0% y/y.
Production of business equipment rose 0.9% (3.8% y/y). Output of industrial &amp; other equipment rose 1.0% (1.4% y/y) and information processing &amp; related equipment output increased 0.7% (7.9% y/y) for the second consecutive month.
Capacity utilization rose to 81.9%from 81.8% in June as capacity rose 0.1% (2.1% y/y).
How Accurate Are Real-Time Estimates of Output Trends and Gaps? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/spring2007/watson.pdf">here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070815e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070815f.jpg" width="353"> 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDUSTRIAL PRODUCTION (SA)</th>
<th scope="col">July </th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.3%</td>
<td>0.6%</td>
<td>1.4%</td>
<td>4.0%</td>
<td>3.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>0.6%</td>
<td>0.6%</td>
<td>2.0%</td>
<td>4.7%</td>
<td>3.9%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Mining</td>
<td>0.7%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>2.7%</td>
<td>-1.6%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">Utilities</td>
<td>-2.1%</td>
<td>0.2%</td>
<td>-2.7%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
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Industrial production rose an expected 0.3% following an upwardly revised gain of 0.6% during June. Factory output surged another 0.6%, bringing the three month change in output to 1.2%, its best gain in about one year. Consumer goods [...]

U.S. Industrial Production Up Expected 0.3%

Carol Stone, CBE

Every business day at about 9:30, the New York Federal Reserve Bank's trading desk announces the day's "temporary open market operation". These are routine transactions in which the NY Fed buys securities from the group of "primary [...]

Daily Fed Open Market Operations: The Pattern of Fed Liquidity Provision

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814l.jpg" width="353">
According to Flash Estimates, growth in the Euro Area slowed more than expected in the second quarter to a rate of 0.3% from 0.7% in the first quarter.Consensus estimates suggested a rate of 0.5%. While details of the composition of GDP will not be available until September 3rd, other data suggest that the consumer held up well, but that growth in the manufacturing sector decelerated, as a result, in part, of the rise in the euro. The volume of retail sales increased 0.16% in the second quarter after a 0.05% decline in the first quarter. Manufacturing sales, however, rose only 1.29% in the second quarter after a 2.12% increase in the first quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814m.jpg" width="353">
The European Commission projects a range of economic growth for three quarters ahead within which actual growth is expected to fall. As can be seen in the first chart which shows the actual growth and the range of estimates, the actual for the second quarter fell below the lower limit for the first time since the second quarter of 2003. Moreover, the range is widening, suggesting that the Commission is more uncertain about the future.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814n.jpg" width="353">
Among the Euro Area countries, German GDP fell from 0.5% in the first quarter to 0.3% in the second. For France, comparable figures were also 0.5% and 0.3%. Greece experienced a sharp decline from 3.2% in the first quarter to -0.8% in the second. For the 27 members of the European Union growth in the second quarter was 0.5%. Among the members outside the Euro Area that showed higher rates of growth were the UK at 0.8%, Sweden at 1.0% and Slovakia at 2.4%. Percent changes in GDP for the Euro Area and the European Union are shown in the second chart.
Growth in the Euro Area in the second quarter is now below that of the UK and the US, but is above that of Japan, as can be seen in the third chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;ESTIMATES OF REAL GDP CHANGE</th>
<th scope="col">Q1 08</th>
<th scope="col">Q4 07&nbsp;</th>
<th scope="col">Q3 07&nbsp;</th>
<th scope="col">Q2 07</th>
<th scope="col">Q1 07&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EURO AREA: Actual Q/Q %</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>0.3</td>
<td>0.7</td>
</tr>
<tr>
<td class="firstcol">Forecast Range: High</td>
<td>0.9</td>
<td>0.8</td>
<td>0.8</td>
<td>0.8</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol">Forecast Range: Low</td>
<td>0.2</td>
<td>0.2</td>
<td>0.3</td>
<td>0.4</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol"> EUROPEAN UNION: Actual Q/Q%&nbsp;</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>0.5</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">UNITED KINGDOM:&nbsp; Actual Q/Q%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>0.8</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">JAPAN:&nbsp; Actual Q/Q%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>0.1</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol">UNITED STATES&nbsp;</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>0.8</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">SWEDEN</td>
<td>--</td>
<td>---</td>
<td>--</td>
<td>0.7</td>
<td>1.0</td>
</tr>
<tr>
<td class="firstcol">GREECE</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>-0.8</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol"> SLOVAKIA </td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>2.4</td>
<td>2.4</td>
</tr>
</tbody>
</table>
</body>
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According to Flash Estimates, growth in the Euro Area slowed more than expected in the second quarter to a rate of 0.3% from 0.7% in the first quarter.Consensus estimates suggested a rate of 0.5%. While details of the composition of [...]

European GDP Growth Slows More Than Expected

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814k.jpg" width="353">
3-month inflation shifts much lower.
French inflation trends show France&#146;s contribution to the Euro area&#146;s inflation trends are middle of the road. France is still not in great shape but it is not one of the problem countries on the inflation side. And France has seen its GDP slow unexpectedly in the second quarter. The French stock market remains one of the very weakest in Europe. We are for the first time getting some consistent signs of slowing from Europe. It&#146;s too soon to say if they will last or not.
The trouble for the ECB is going to be sorting out the disparate trends. It will have to deal with its previous hint that it was set to hike rates and compare it to actual current needs. Financial markets events work to put the ECB on hold. And then there is the GDP picture which was not as strong in Q2 as had been expected across the Euro area. The moderation of inflation trends feeds a third development into this mix that also comes out on the side of pushing the ECB to stay its hand. 
This by the way is not a isolated position for the ECB. Japan&#146;s central bank is in a similar fix for all the same reasons. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 France HICP and CPI details
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M %</td>
<td colspan="3">SAAR %</td>
<td>Year/Year</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td> Jul-07</td>
<td> Jun-07</td>
<td> May-07</td>
<td>3-Mo</td>
<td> 6-Mo</td>
<td> 12-Mo</td>
<td> Yr Ago</td>
</tr>
<tr>
<td class="firstcol"> HICP Total</td>
<td>0.0%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.5%</td>
</tr>
<tr>
<td colspan="8">&nbsp;</td>
</tr>
<tr>
<td class="firstcol"> CPI: All Items</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.7%</td>
<td> 1.8%</td>
<td>1.1%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">CPI ex Food &amp; Energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.2%</td>
<td>1.3%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>-0.2%</td>
<td>0.5%</td>
<td>0.1%</td>
<td> 1.9%</td>
<td>0.4%</td>
<td>0.8%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Alcohol</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.4%</td>
<td> 4.5%</td>
<td> 3.4%</td>
<td> 0.6%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Clothing &amp; Shoes</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>-1.4%</td>
<td> 1.2%</td>
<td> 0.2%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Rent &amp; Utilities</td>
<td>0.2%</td>
<td>0.5%</td>
<td>0.0%</td>
<td>2.7%</td>
<td> 3.4%</td>
<td>2.4%</td>
<td>4.8%</td>
</tr>
<tr>
<td class="firstcol">Health Care</td>
<td>0.4%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td> 1.1%</td>
<td>0.3%</td>
<td> 0.4%</td>
<td>-0.2%</td>
</tr>
<tr>
<td class="firstcol">Transport</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.7%</td>
<td>5.0%</td>
<td> 6.1%</td>
<td>1.5%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Communication</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td> -0.1%</td>
<td>-3.8%</td>
<td> -0.6%</td>
<td>-6.2%</td>
</tr>
<tr>
<td class="firstcol">Recreation &amp; Culture</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>-2.0%</td>
<td> -0.9%</td>
<td>-1.6%</td>
<td>-0.9%</td>
</tr>
<tr>
<td class="firstcol">Education</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td> 2.9%</td>
<td> 2.7%</td>
<td>2.4%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>0.5%</td>
<td>0.3%</td>
<td>0.2%</td>
<td> 4.4%</td>
<td> 3.7%</td>
<td> 2.9%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>1.7%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>3.2%</td>
</tr>
<tr>
<td colspan="8">&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>54.5%</td>
<td> 63.6%</td>
<td>45.5%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>3COLSPAN</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
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3-month inflation shifts much lower. French inflation trends show Frances contribution to the Euro areas inflation trends are middle of the road. France is still not in great shape but it is not one of the problem countries on the [...]

French Long-term HICP Trend Moves Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814j.jpg" width="353">
Inflation is slowing on a broad front in the UK in July - a quite unexpected development. Year/year, the Harmonized Index of Consumer Prices (HICP) is now below the 2% ceiling rate and suddenly that BOE inflation letter explaining why inflation had drifted above 3% seems oh so distant. The Retail Price Index (RPI) is still high but the Retail Price Index ex Mortgage Interest Payments (RPIX) tells the tale of sharply lower inflation too. Food costs are sharply lower. So are clothing and footwear, where price fell over three months.
This could be somewhat of a catalytic month for the BOE as well as for the ECB. Not only are we in the midst of financial turmoil at a time that the ECB had pointed strongly to a rate hike, but GDP growth has slowed. Now inflation, the reason for hiking rates is sharply lower, at least in the UK but also in France. Are things changing all that much or is this coincidence? Do you believe in Coincidence?

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK HICP and RPI Inflation
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M % Change</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>1.5%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">RPI: All Items</td>
<td>-0.3%</td>
<td>0.6%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>3.5%</td>
<td>3.8%</td>
<td>3.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">RPIX (ex mortgage interest)</td>
<td>-0.3%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>1.4%</td>
<td>2.3%</td>
<td>2.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">RPI ex seasonal food</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>0.3%</td>
<td>2.5%</td>
<td>3.5%</td>
<td>3.9%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food &amp; Beverages</td>
<td>-0.9%</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.7%</td>
<td>3.7%</td>
<td>3.2%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing &amp; HH Expenditures</td>
<td>-0.5%</td>
<td>1.0%</td>
<td>0.3%</td>
<td>3.1%</td>
<td>4.3%</td>
<td>6.8%</td>
<td>5.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing &amp; Footwear</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>-0.8%</td>
<td>2.8%</td>
<td>0.1%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Leisure Services</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Leisure Goods</td>
<td>-0.1%</td>
<td>-1.4%</td>
<td>0.1%</td>
<td>-5.6%</td>
<td>-4.8%</td>
<td>-3.0%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Motoring Expenditures</td>
<td>-0.4%</td>
<td>0.7%</td>
<td>1.0%</td>
<td>5.2%</td>
<td>3.9%</td>
<td>-0.3%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Fares and Travel Costs</td>
<td>0.0%</td>
<td>0.9%</td>
<td>3.1%</td>
<td>17.3%</td>
<td>10.9%</td>
<td>8.6%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflation is slowing on a broad front in the UK in July - a quite unexpected development. Year/year, the Harmonized Index of Consumer Prices (HICP) is now below the 2% ceiling rate and suddenly that BOE inflation letter explaining why [...]

UK Inflation Turns Sharply Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814f.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales fell 0.9% last week, the third weekly decline in the last four periods.
The average level, thus, so far in August is up just 0.1% from July which rose 0.4% from the June level of sales.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814g.jpg" width="353">
The leading indicator of chain store sales from ICSC-UBS rose 0.5% (1.8% y/y).
The recent weakness in chain store sales came as gasoline prices for regular, on average, fell 2.4% last week to $2.77 per gallon (-7.6% y/y).
The average gas price so far in August is 5.4% lower than in July and prices have fallen 13.9% from their peak during May of $3.22 per gallon.
The market price for regular gasoline in N.Y. harbor fell yesterday to $1.99 (-0.9% y/y), but that was up slightly from the July average price of $1.96.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a>&nbsp;</th>
<th scope="col">08/11/07&nbsp;</th>
<th scope="col">08/04/06&nbsp;</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales&nbsp;</td>
<td>481.3&nbsp;</td>
<td>482.1&nbsp;</td>
<td>2.3%&nbsp;</td>
<td>3.3%&nbsp;</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales fell 0.9% last week, the third weekly decline in the last four periods. The average level, thus, so far in August is up just 0.1% from [...]

Weekly Chain Store Sales Fell Despite Lower Gas Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814c.jpg" width="353">
In June, the U.S. foreign trade deficit narrowed to $59.2B from a revised $59.2B in May. Consensus expectations had been for a deeper deficit of $62.0B.
Total exports jumped 1.5% after also surging 2.6% in May. The gain mostly reflected higher exports of industrial supplies. Exports of non-auto consumer goods fell 1.4% (+9.2% y/y) while capital goods exports rose just 0.2% (5.2% y/y). Exports of advanced technology goods rose a strong 8.5% (NSA, 9.0% y/y).
Exports of services from the U.S. were firm again and rose 0.6% (13.2% y/y) while imports of services rose the same 0.6% (4.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814d.jpg" width="353">
Imports of nonpetroleum products were strong again and increased 1.0% (4.6% y/y) but imports of petroleum products fell 0.2% (-1.1% y/y). Capital goods imports jumped again, in June by 1.6% (7.0% y/y) but imports of nonauto consumer goods fell 0.6% (+5.9% y/y). Imports of advanced technology products surged 8.3% (12.3% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814e.jpg" width="353">
The U.S. trade deficit in goods with China deteriorated to $21.2B from $20.0B in May as imports surged 6.8% (12.8% y/y. U.S. exports to China, however, were also strong and posted a 10.8% (35.7% y/y) jump. <span style="FONT-SIZE: 10pt; FONT-FAMILY: Verdana; mso-fareast-font-family: &#39;Times New Roman&#39;; mso-fareast-language: EN-US; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-family: &#39;Times New Roman&#39;">
Globalization and Capital Markets: Implications for Inflation and the Yield Curve is a speech delivered by Fed Governor Randall S. Kroszner and it can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070516/default.htm"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U.S. Trade Deficit</td>
<td>$58.1B</td>
<td>$59.2B</td>
<td>$64.5B (6/06)</td>
<td>$758.5</td>
<td>$714.4B</td>
<td>$612.1B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>1.5%</td>
<td>2.6%</td>
<td>11.2%</td>
<td>12.7%</td>
<td>10.9%</td>
<td>13.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>0.5%</td>
<td>2.1%</td>
<td>3.8%</td>
<td>10.4%</td>
<td>12.9%</td>
<td>16.8%</td>
</tr>
</tbody>
</table>


</html>

In June, the U.S. foreign trade deficit narrowed to $59.2B from a revised $59.2B in May. Consensus expectations had been for a deeper deficit of $62.0B. Total exports jumped 1.5% after also surging 2.6% in May. The gain mostly [...]

U.S. Trade Deficit Narrowed

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814a.jpg" width="353">
Finished producer prices rose 0.6% last month, twice the Consensus forecast for a 0.3% rise. That followed a 0.2% decline during June. The increase raised the y/y gain in prices to 3.9%, its highest in a year.
The core finished goods PPI increased a modest and expected 0.1%, down from the 0.3% gain in June. The increase was a bit below the average monthly increase of 0.2% so far this year.
Energy prices surged 2.5% as gasoline prices jumped 5.1% (6.4% y/y) and fuel oil prices rose 1.1% (1.6% y/y).Natural gas prices also were strong and posted a 3.2% (9.0% y/y) gain.
Food prices fell 0.1% (+6.2% y/y) following the 0.8% jump during June. Lower prices for meat and pork offset higher costs for dairy products. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814b.jpg" width="353">
Finished consumer goods prices less food &amp; energy rose 0.2% (2.4% y/y). Passenger car prices reversed the strong June gain with a 1.2% decline (+1.1% y/y) and household furniture prices also fell a modest 0.1% (NSA,+1.4% y/y).
Capital equipment prices fell 0.2% (+2.3% y/y) after a 0.1% uptick in June. Prices of light motor trucks fell and costs of heavy trucks were unchanged (6.8% y/y) for the third consecutive month.
Intermediate goods prices were firm again and rose 0.6% after a 0.5% June rise. Food prices were strong with a 0.8% (15.3% y/y) jump. The index excluding food &amp; energy prices rose 0.2% (2.5% y/y). 
The crude materials PPI jumped 1.2% due to the 11.8% rise in crude oil prices (-3.2% y/y). The core crude materials PPI was unchanged as most metal prices fell.
Inflation Dynamics, remarks by Federal Reserve Board Governor Frederic S. Mishkin, are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070323/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.6%</td>
<td>-0.2%&nbsp;</td>
<td>&nbsp; 3.9%&nbsp;</td>
<td>2.9%</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.3%</td>
<td>&nbsp;2.4%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.6%</td>
<td>0.5%</td>
<td>3.9%</td>
<td>6.4%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2%</td>
<td>0.4%</td>
<td>2.5%</td>
<td>6.0%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>1.2%</td>
<td>&nbsp;0.3%&nbsp;</td>
<td>&nbsp;13.2%</td>
<td>1.4%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>&nbsp;8.5%</td>
<td>20.9%</td>
<td>4.9%</td>
<td>&nbsp;26.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

Finished producer prices rose 0.6% last month, twice the Consensus forecast for a 0.3% rise. That followed a 0.2% decline during June. The increase raised the y/y gain in prices to 3.9%, its highest in a year. The core finished goods [...]

U.S. PPI Above Forecasts; Weak Core Prices As Expected

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) improved 0.9% (3.6% y/y) to 106.2 in October after rising 4.7% in September, revised from 3.9%, following a 2.8% increase in August. The index level was the highest since February 2023. The level of home affordability was 18.1% higher than its low of 89.9 in October 2023, but 40.7% below the peak of 179.0 in April 2020.

The rise in October affordability occurred as the average mortgage rate fell to 6.33% from 6.43% in September. The fall in mortgage rates left them above their low of 6.26% in September of last year, though below a 7.70% high in October of 2023. They remained well above a December 2020 low of 2.73%. The median price of an existing single-family home rose 0.7% (2.2% y/y) to $420,600. That price compared to the record $438,600 in June 2025. In October, the principal plus interest payment eased 0.3% (+0.2% y/y) to $2,089 per month, down 9.6% from June’s record high of $2,311, but still well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a slightly lessened 23.5% of income during October, but remained well above a low of 14.0% of income in April 2020.

The change in housing costs in October was accompanied by a 0.5% rise (3.8% y/y) in median family income to $106,478 after falling 0.3% in September. Qualifying income declined 0.3% (+0.2% y/y) to $100,272, after falling for three straight months.

Housing affordability improved m/m in most of the country in October. The index in the Midwest, the country’s most affordable region, rose 1.5% (0.9% y/y) to 134.4. In the South, the index increased 0.7% (5.4% y/y) to 112.1, while the affordability index in the Northeast strengthened 1.1% (-1.4% y/y) to 93.7. Declining, however, was the affordability index in the West, where homes are the least affordable. The index eased 0.3% (+5.3% y/y) to 75.2 in October.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990. It reached an all-time high of 213.3 in January 2013.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Mortgage rates continue to decline.
- Median income strengthens.
- Affordability improves in most of country.

U.S. Housing Affordability Edges Higher in October

Andrew Cates

**The Blue Chip Consensus**
Before turning to the risks that could unsettle the global outlook in 2026, it’s worth noting the backdrop against which those risks are emerging. The first chart shows that forecasters have, if anything, become more optimistic in recent months, raising their 2026 GDP projections across many major economies. The upgrades are most visible in Asia’s tech-focused economies, where the semiconductor and AI upturn is lifting expectations, but the US has also benefited from stronger-than-expected momentum and fading concerns that tariffs would deliver a major growth hit. In short, the starting point for the global outlook has improved—making the downside scenarios explored in the next few charts all the more important to test.

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**Policy divergence**
The second chart highlights one of the central risks to the 2026 outlook: monetary-policy calibration. Even as growth expectations have firmed, forecasters remain convinced that the major central banks still have a little further to go in their easing cycles. For both the Fed and the Bank of England, respondents expect additional rate cuts in early 2026, albeit with growing uncertainty about the exact timing and pace. The broader message is that the heavy lifting on disinflation is now largely done, and what remains are finer calibration risks—where cutting too slowly risks choking momentum, while cutting too aggressively risks undoing progress on inflation. The ECB outlook is far more fragmented. A large share of forecasters sees the next step as a cut—though not necessarily soon—but a meaningful minority lean toward a possible hike. At the opposite pole is the Bank of Japan. Unlike its peers, the BoJ is still expected to tighten policy, reflecting Japan’s firmer growth foundation and a more durable inflation process. This creates a notable US–Japan policy divergence, which has already influenced currency and bond-market behaviour and could become a larger global shock-transmission channel in 2026.

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**Financial market stress**
The third chart highlights another source of downside risk: the widening gap between financial-market calm and real-economy anxiety. The US VIX has spent most of the past year hovering near multi-decade lows, consistent with rich valuations, abundant liquidity and a broadly optimistic macro narrative. Yet measured global economic policy uncertainty remains unusually elevated, reflecting geopolitical fragmentation, shifting trade regimes, and highly uncertain fiscal trajectories. This disconnect matters. Periods in which markets price near-perfection while the policy environment deteriorates have often been precursors to sharp repricing episodes. With valuations stretched and volatility compressed, it would not take much—a policy misstep, a geopolitical shock, or a rapid shift in rate expectations—to trigger a correction big enough to destabilise confidence in 2026.

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**AI expectations**
Against that backdrop, our next chart highlights a more subtle but no less important vulnerability: expectations around AI-driven growth. While AI has undoubtedly been a powerful tailwind for market sentiment—and arguably a key reason why forecasters have nudged up 2026 growth projections—our survey suggests that most respondents believe financial markets are overestimating the likely economic gains. Only around a third think current expectations are broadly accurate; almost nobody believes markets are underestimating AI’s impact. This imbalance matters. When valuations are rich and optimism is heavily front-loaded, any disappointment in AI adoption, productivity gains or investment payoffs could unwind a meaningful chunk of the recent market strength. In other words, the same force lifting the outlook today could become a meaningful downside catalyst in 2026 if reality fails to keep pace with expectation.

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**Trade disruption** 
A further downside risk comes from the latent fragilities in global trade and logistics. The Baltic Dry Index has climbed sharply in recent months, hinting at firmer shipping demand and rising transport costs, even as the Global Supply Chain Pressure Index has edged lower. That combination is telling: headline congestion may not yet be building, but underlying pressures—tight vessel availability, shifting trade routes, selective port bottlenecks and stronger goods flows—are quietly re-accumulating beneath the surface. None of this resembles the acute disruptions of 2021–22, but the risk is that a seemingly contained system can tighten very quickly. For a global economy that remains vulnerable to cost shocks and production delays, any renewed squeeze in trade logistics would add another meaningful downside risk as we look toward 2026.

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**Geopolitical shocks** 
Geopolitical risk has eased from the extremes seen during the early stages of the Israel–Gaza conflict, but the broader backdrop remains far from settled. The global Geopolitical Risk Index is still running well above its pre-pandemic norm, and volatility is now being driven less by any single flashpoint and more by a crowded field of simmering risks. These range from an unstable Russia–Ukraine stalemate and intensifying U.S.–China strategic rivalry to ongoing tensions across the Taiwan Strait, a fragile security environment in the South China Sea, periodic flare-ups in the Caucasus and Sahel, and rising political strain ahead of multiple major elections in 2026. Venezuela’s increasing instability—both domestically and in relation to its border dispute with Guyana—adds another potential source of disruption, particularly for energy markets. While none of these risks is dominating headlines at present, history shows that geopolitical shocks rarely give advance warning. A sudden escalation in any of these theatres could easily unsettle trade flows, energy prices or investor sentiment—another meaningful downside risk as we approach 2026.

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As 2025 draws to a close, the global economy enters 2026 with a surprisingly resilient backdrop: equity markets are still trading near cycle highs, volatility is subdued, and consensus forecasts have been drifting upward in recent months—helped by a robust US economy, firmer momentum across Asia, and optimism that AI-related investment will continue to lift the medium-term outlook (chart 1). Against this relatively constructive starting point, we focus this week on the key downside risks that could challenge the consensus narrative next year: the possibility of monetary-policy miscalibration (chart 2); the gap between elevated policy uncertainty and unusually calm financial markets (chart 3); the risk that financial markets may be overestimating the gains from AI (chart 4); renewed strain in global trade (chart 5); and geopolitical tensions (chart 6). These risks do not dominate the baseline outlook, but they help frame the vulnerabilities that could matter if global conditions deteriorate. Next week, we will turn to the upside risks—the forces that could allow the world economy to outperform again in 2026.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/0Nk11qt4bTvt9yn9hVzycv?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: The Downside Risks

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The U.S. trade deficit in goods and services (BOP basis) narrowed to $52.8 billion in September from $59.3 billion in August, revised from $59.6 billion, according to the U.S. Census Bureau. The Action Economics Forecast Survey expected a deficit of $64.6 billion. The goods deficit fell to $79.0 billion in September from $86.1 billion in August, while the services surplus slipped to $26.2 billion from $26.8 billion in August. The real (inflation-adjusted) trade deficit in goods narrowed to $79.0 (2017$) in September from $83.7 billion in August. For all of Q3’25, the real deficit averaged $87.4 billion versus $87.7 billion in Q2, and thus it should be a modest addition to Q3 economic growth after a 4.8 percentage point addition in Q2.

Exports of goods & services rose 3.0% (5.7% y/y) in September following a 0.2% August slip. Goods exports (Census basis) strengthened 4.9% after a 0.8% slip. Nonauto consumer goods exports surged 19.1%. Industrial supplies & materials exports increased 12.1% while foods, feeds & beverage exports rose 3.4%. “Other” goods exports rose 7.6%. To the downside, capital goods exports excluding autos declined 5.3% while auto & parts exports fell 2.2%. Services exports eased 0.4%. Exports of financial services rose 1.4% while exports of maintenance & service repairs rose 0.8%. Exports of government goods and services rose 1.7%.

Imports of goods & services in September increased 0.6% (-3.7% y/y) after a 5.2% decline. Goods imports rose 0.7% (-5.9% y/y) in September after a 6.6% August decline. Nonauto consumer goods jumped 18.4% while industrial supplies & materials imports were little-changed. Elsewhere, imports fell. Capital goods excluding auto imports slumped 6.0%, auto imports fell 4.1% and food imports declined 1.6%. Total services imports rose 0.3% in September after a 0.3% decline. Maintenance & repair services increased 3.1%, construction service imports rose 1.1%, transport rose 1.5% but travel weakened 1.2%. Imports of government goods & services held steady.

By country, the goods trade deficit with China narrowed to $11.4 billion (SA) in September from $15.4 billion in August. Exports to China rose 1.8% while imports from China weakened 16.1%. The trade deficit with the European Union doubled m/m to $17.8 billion in September. Exports rose 13.2% but imports surged by one-third. The deficit with Japan declined sharply to $3.6 billion in September. Exports increased 7.9% while imports declined 12.7%.

The international trade data can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Foreign trade deficit shrinks to lowest since June 2020.
- Surge in exports is driven by foods, industrial supplies & nonauto consumer goods.
- Minimal import increase is held down by fewer capital goods, autos & foods.
- Services surplus eases.

U.S. Trade Deficit Narrows to Five-Year Low in September

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose 44,000 to 236,000 during the week of December 6, after declining to 192,000 during the week of November 29, revised from 191,000. The four-week moving average of initial claims was 216,750, an increase of 2,000 from the previous week unrevised average of 214,750, which was the lowest level since January 2025.

Federal government employees initially filed 643 (NSA) jobless insurance claims in the week ended November 29, after 1,126 filed in the week ended November 22, revised from 1,125.

Continuing claims for unemployment insurance posted a sharp decline of 99,000 to 1,838,000 in the week ending November 29, from 1,937,000 the prior week, revised from 1.939 million. The four-week moving average decreased by 27,000 to 1,918,000 in the week ended November 29, from 1945,250 the prior week, revised from 1.945 million. The insured unemployment rate stood at 1.2% in the week of November 29, a decrease from 1.3% in the prior week.

Federal government employees continuing benefits fell to 12,732 (NSA) in the week ended November 22, from 17,862 in the week ended November 15, revised from 17,851.

The insured unemployment rate varied greatly across individual states and territories. In the week ended November 22, the highest unemployment rates were in New Jersey (2.18%), Washington (2.23%), Massachusetts (1.95%), Connecticut (1.83%) and Rhode Island (1.82%). The lowest rates were in Florida (0.27%), South Dakota (0.34%), North Carolina (0.39%), Louisiana (0.42%), Alabama (0.44%), Virginia and Tennessee (both 0.46%), and Arkansas and Nebraska (both 0.48%). Rates in other notable states include California (1.74%), New York (1.63%), Pennsylvania (1.46%), Illinois (1.45%), and Texas (1.07%). These state data are not seasonally adjusted.

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

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U.S. Initial Claims for Unemployment Insurance Rose in Latest Week

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Sweden’s inflation rate has developed into a very interesting oddity as headline inflation as measured by the harmonized index of consumer prices (HICP), that is used in Europe, has come to diverge sharply from the Swedish national rate of inflation measured by its national CPI. The HICP inflation rate is 2.2% over the last 12 months; Sweden’s national rate is up by only 0.2%. If we rank each of these two inflation rates on data back to 2001, the rank of the HICP is in its 72.2 percentile while the rank of the national CPI is in only its 19.4 percentile, the lower one-fifth of its historic range of national inflation rates. These two rankings occur over the same periods and so there's nothing about the periodicity that's responsible for this; there's simply very different performance over the recent span.

**About measuring inflation**
The HICP was adopted in Europe once the monetary union was formed and the countries of Europe were not able to get together to decide how to treat housing costs, which are important element in the CPI. They had entered into CPIs in different countries in different ways at that point. In the United States, inflation statistics are often criticized because of the way the housing component fits into them. Housing has such a large weight in the U.S. inflation measure. U.S. housing costs consider the cost of running the house in terms of taxes and utility costs; they look at the rental equivalent values, and they also have an owner imputed rent for people who live in their own homes. Of course, owner equivalent rent is a made-up number; it's completely imputed. Because a lot of European mortgages are short-term and they reprice when the central bank changes its rate, it’s very important to be careful how interest rates are treated in the housing cost indexes in Europe. The central bank did not want to be in a position where it would be raising interest rates to fight inflation and causing inflation to be higher because they were raising the mortgage interest rates on homes and causing the cost of housing to go up. For this reason, the HICP measures do not include housing costs. As we can see in the Swedish details for this month, housing and fuel costs are down 3.1% year-over-year. If we look at the ranking of housing costs for year-over-year growth, we see that they rank in the lower 6.4 percentile and are one of the most important factors in driving the national CPI lower and, of course, that metric is absent from the HICP.

**Inflation is always rife with controversy**: All of this is simply just another way to point out that inflation, while we measure it and talk about it, it's a controversial subject. How we measure it does matter. However, for monetary policy purposes, if we construct a measure that is reasonable and if we follow it consistently over the years, it should give us good signals and a good way to measure inflation and engage monetary policy. Yet, very clearly, if there are two competing gauges, it could become a real problem to jump from one to the other because they track different circumstances.

**The current state of Swedish inflation**: Swedish inflation in November fell by 0.3% month-to-month after rising by 0.5% in October and falling by 0.1% in September. The diffusion, or breadth, of inflation acceleration was only 33.3% in November. It jumped up to 55.6% in October, but it had been lower in September at 33%. Looking at Swedish inflation over 12-month, 6-month, and 3-month periods, the HICP goes from 2.2% over 12 months to an annualized pace of 5.7% over 6 months and then back down to 0.5% over 3 months. The national CPI has the same sort of topography but different growth rates with the CPI up by only 0.2% over 12 months, accelerating to 1.5% over 6 months and then declining at a -0.9% annual rate over 3 months. Inflation diffusion over 3 months in the national index is only 11.1%, over 6 months it jumps up to 66.7%, and over 12 months it's at 44.4% which is below 50% marking inflation as having more deceleration than acceleration.

**Controlled inflation**: On balance, Swedish inflation appears to be under control using either method. The ranking for inflation by category shows high inflation for food & nonalcoholic beverages, education, other goods & services, and medical care. However, inflation is below its median pace and bears low rankings for clothing & footwear, housing, fuel & lighting, recreation & culture, and transportation. Inflation is always somewhat mixed across sectors. That’s another thing that makes it hard to pin down exactly what inflation is, because people who consume different baskets of goods are going to experience different inflation rates. However, Sweden appears to have its inflation situation under control whichever metric you look at. The chart makes it clear that after its spike during COVID, inflation has come back down to a reasonable long-term pace that appears to be close to something that the central bank would find acceptable. The recent rise in HICP inflation seems to be unwinding and year-over-pace is down to a moderate 2.2%.

Economy in Brief: August 2007

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