Carol Stone, CBE

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Nonfarm business sector productivity advanced at a 6.6% (SAAR) pace in Q4'21 following its drop at a 5.0% rate in Q3. A 3.5% increase in Q4 had been expected in the Action Economics Forecast Survey. The actual Q4 amount was 2.0% above Q4'2020, and for all of 2021, productivity gained 1.9% after a rise of 2.4% in 2020.

Nonfarm business output surged at a 9.2% annual rate in Q4, following Q3's modest 2.0% increase. The Q4 amount was 7.0% above a year ago. For all of 2021, output expanded 7.4%, rebounding from the 4.4% drop in 2020. Hours worked increased at a 2.4% annual rate in Q4 (4.9% y/y), less than the 7.3% pace in Q3; for all of 2021, they gained 5.4% after dropping by 6.6% in 2020.

Compensation per hour rose at a 6.9% annual rate in Q4 (5.1% y/y), following Q3's 3.9% rate of increase. For all of 2021, it was up 5.2% from 2020, when it grew 7.0%.

In Q4, the advances in compensation and in output per hour combined to yield a very modest 0.3% annualized increase in unit labor costs (3.1% y/y); that followed a notably stronger 9.3% advance in Q3. The Q4 amount was close to the Action Economic forecast consensus of a 1.0% pace of advance. The overall increase in unit labor costs for 2021 was 3.3%, less than the 4.5% in 2020.

In the manufacturing sector, productivity edged downward at a 0.8% annual rate in Q4 (1.0% y/y), following Q3's 2.6% rate of decline, that was revised from a 1.0% rate of decline reported before. For all of 2021, manufacturing productivity gained 3.1% after 2020's marginal 0.1% increase. Output itself rose at a 4.8% annual rate in Q4 (4.4% y/y) after Q3's 4.1% increase. For all of 2021 it was up 6.5%, reversing 2020's 6.5% decrease. Hours worked in manufacturing increased at a 5.6% annual rate in Q4 (3.4% y/y) after 6.9% in Q3; the 2021 total was up 3.3% after a 6.6% drop in 2020.

Factory sector compensation gained 3.4% in Q4 (4.2% y/y), somewhat stronger than the 2.7% in Q3. For the year, it gained 4.5%, following 6.8% in 2020. Unit labor costs rose at a 4.2% rate in Q4 (3.2% y/y), following 5.5% in Q3. The annual amount increased 1.4%, markedly slower than the 6.6% advance in 2020.

Compensation and labor costs figures are available in Haver's **USECON** database. The expectations figure is in the **AS1REPNA** database.

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- Nonfarm productivity advances at strong 6.6% annual rate in Q4.
- Compensation also strong, yet again.
- Gains in productivity and unit labor costs almost exactly offsetting.

U.S. Productivity Rebounds in Q4'21, Holding Down Unit Labor Costs

Kathleen Stephansen, CBE

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Total factory orders declined 0.4% m/m (13.3% y/y) in December, following a 1.8% m/m (15.8% y/y) rise in November, revised up from an initial rise of 1.6% m/m (15.5% y/y). The December drop was the first monthly one since April of last year. The Action Economics Forecast Survey expected a 0.3% m/m decline. Much of the decline reflected a drop in transportation orders. Orders excluding transportation rose a modest 0.1% m/m (13.0% y/y), down from the 0.8% m/m (15.1% y/y) rise in November.

Durable goods orders dropped 0.7% m/m (13.0% y/y) during December, up from a previously published decline of 0.9% m/m (12.7% y/y) and following two consecutive monthly increases. November orders rose 3.2% m/m (15.5% y/y). Transportation equipment orders declined 3.7% m/m (14.9% y/y), revised from an initially published drop of 3.9% and following a rise of 8.2% m/m in November. Orders for computers and electronic products also declined 2.7% m/m (5.0% y/y) during December, following a 4.2% m/m rise in November. Other components posted small increases, notably primary metals orders, rising 2.1% m/m (22.9% y/y) following a slight 0.1% m/m retrenchment in November.

New orders for nondurable goods declined 0.2% m/m (13.7% y/y) in December, following a 0.5% m/m (16.1% y/y) rise in November.

Total shipments rose 0.4% m/m (11.3% y/y) in December, revised slightly up from the previously published increase of 0.3%. This follows a rise of 0.7% m/m (13.0% y/y) in November. Excluding transportation shipments, shipments increased 0.2% m/m (13.3% y/y), following a 0.5% m/m (14.8% y/y) gain in November. Shipments of durable goods rose 1.0% m/m (9.0% y/y) in December, following a 0.8% m/m (10.0% y/y) rise in November. Transportation equipment, up three consecutive months, led the overall increase, up 1.2% m/m (1.0% y/y), following a 1.4% m/m in November. Nondurable goods shipments declined 0.2% m/m (13.7% y/y), after a 0.5% m/m rise in November. Petroleum and coal products, down following seven consecutive monthly increases, drove the decrease with a 2.1% m/m (43.5% y/y) drop.

Unfilled orders increased rose 0.5% m/m (7.4% y/y) in December, after a 0.8% m/m (6.6% y/y) rise in November. They are up 11 consecutive months. Excluding transportation, unfilled orders rose 0.8% m/m (15.0% y/y), following a 0.9% m/m (15.4% y/y) rise in November. Gains were widespread, led by increases in transportation (0.3% m/m), in fabricated metals (0.8% m/m) and electric equipment and appliances (1.3% m/m).

Inventories of manufactured goods were up 18 of the last 19 months, posting a rise of 0.3% m/m (8.9% y/y) in December, following a 0.8% m/m (9.1% y/y) in November. Durable goods inventories rose 0.8% while nondurable goods inventories dropped 0.4% in December, following rises of 0.8% in both durable and nondurable goods inventories during November.

The factory sector data are available in Haver's **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- New orders for manufacturing goods dropped in December following seven consecutive monthly gains.
- Shipments were up 19 of the last twenty months.
- Both unfilled orders and inventories rose again during December.

U.S. Factory Orders Posted a Modest Decline in December

Tom Moeller

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The ISM Index of Services Activity weakened significantly during January to 59.9 from 62.3 in December, revised from 62.0. Earlier figures also were revised. The series peaked at 68.4 in November. The Action Economics Forecast Survey expected 60.0 for January. Haver Analytics constructs a composite index combining the services index and the manufacturing reading released on Tuesday. This index fell to 59.6 in January from 61.9 in December. These series date back to July 1997.

In the latest services survey, the business activity reading weakened to 59.9 from 68.3 in December. It was the lowest point since May 2020. The new orders index also fell to 61.7 from 62.1 in December. A greatly lessened 27.9% (NSA) of respondents reported more orders while a reduced 13.5% reported a decline. The employment measure fell to 52.3, the lowest level since June 2021. A greatly reduced 18.5% of respondents indicated higher employment and a moderately reduced 18.5% reported it lower. The percentage indicating that employment held steady rose sharply to 63.0% of respondents. The supplier delivery index (NSA) rose to 65.7 last month after falling sharply to 63.9 in December from 75.7 in November. A greatly increased 4.6% of respondents reported faster delivery speeds while a fairly steady 36.1% reported slower speeds.

The prices index eased to 82.3 after improving to a record 83.9 in December. An increased 63.1% (NSA) of respondents reported price increases versus 57.4% in December, while 1.7% reported price declines. A lessened 35.2% reported stable prices.

The export orders series fell sharply to 45.9, its lowest point since May 2020. The imports index weakened to 51.1 in January and reversed most of its December increase to 55.5. The order backlog measure plummeted to 57.4, a nine-month low, while the inventory change index rose sharply to 47.5 from 38.3. These series are not seasonally adjusted and are not included in the nonmanufacturing composite total.

**3,2,1...Liftoff. What Does "Liftoff" Really Mean in Fed Policy?** from the Federal Reserve Bank of St. Louis is available [here](https://www.stlouisfed.org/open-vault/2022/feb/what-liftoff-means-in-fed-policy).

The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Component declines are widespread.
- Price index weakens.
- Composite factory & services series declines.

U.S. ISM Services Index Continues Lower in January

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Initial unemployment insurance claims fell to 238,000 in the week ended January 29 (-71.6% y/y) from 261,000 in the prior week, revised from 260,000. The Action Economics Forecast Survey expected 245,000 claims for the latest week. The 4-week moving average of claims rose to 255,000, the highest level since the second week of November.

Initial claims for the federal Pandemic Unemployment Assistance (PUA) program, which expired on September 6, 2020, are no longer included in this report. This program provided benefits to individuals who were not eligible for regular state unemployment insurance benefits, such as the self-employed.

In the week ended January 22, seasonally adjusted continued weeks claimed for regular state unemployment insurance fell to 1.628 million (-66.0% y/y) from 1.672 million in the prior week. The latest is the smallest since April 1973.

The insured unemployment rate held steady at 1.2% in the week ended January 22. The record low for the series of 1.1% occurred in April 2019.

Continued claims for both the PUA program and for Pandemic Emergency Unemployment Compensation (a program for those unemployed who had exhausted their state benefits) are no longer included in this report as both programs have expired.

In the week ended January 15, the not seasonally adjusted total number of continuing weeks claimed in all programs declined to 2.068 million from 2.141 million in the previous week.

The state insured rates of unemployment in regular programs vary widely. In the week ending January 15, the highest insured unemployment rates were in Alaska (2.96%), New Jersey (2.58%), California (2.54%), Minnesota (2.51%) and Illinois (2.25%). The lowest rates were in Virginia (0.21%), Alabama (0.29%), North Carolina (0.36%), Arizona (0.47%) and New Hampshire (0.51%). Other state insured rates of unemployment in regular programs include Pennsylvania (1.77%), Ohio (1.19%), Texas (0.94%) and Florida (0.56%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims going back to 1967 are contained in Haver's **WEEKLY** database, and they are summarized monthly in **USECON**. Data for individual states are in **REGIONW**. The expectations figure is from the Action Economics Forecast Survey and is in the **AS1REPNA** database.

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- Initial claims fall to four-week low.
- Continued claims decline again.
- Insured unemployment rate holds steady.

U.S. Initial Claims for Unemployment Insurance Decline

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The ADP National Employment Report indicated that nonfarm private sector payrolls declined 301,000 during January (+4.7% y/y) following a 776,000 December increase, revised from 807,000. It was the first monthly decline since December 2020. A 210,000 January rise had been expected in the Action Economics Forecast Survey. The three-month average gain fell to 324,000. November payrolls increased 496,000, revised from 505,000.

ADP indicated "The labor market recovery took a step back at the start of 2022 due to the effect of the Omicron variant and its significant, though likely temporary, impact to job growth."

Small-sized payrolls were severely impacted last month, falling 144,000 (+4.5% y/y) after rising 192,000 in December. Large-sized payrolls declined 98,000 (+4.1% y/y) after increasing 378,000 in December. Medium-sized payrolls declined 59,000 last month (+6.3% y/y) following a 206,000 December gain.

Within industry sectors, private services employment led the decline last month with a 274,000 drop (+4.9% y/y) after rising 645,000 in December. Leisure & hospitality jobs weakened 154,000 in January (+16.7% y/y) which reversed most of the 239,000 December increase. The number of trade, transportation & utilities jobs fell 62,000 (+3.0% y/y) and reversed half of December's rise. The number of education & health services jobs fell 15,000 (+3.2% y/y) after rising 81,000 in December. Employment in financial services eased 9,000 (+1.5% y/y) after a 23,000 December increase. The number of information sector jobs fell in January by 8,000 (+1.7% y/y), the first decline in six months. Professional & business services jobs slipped 3,000 (+3.7% y/y) after triple-digit gains in both November and December.

Employment amongst goods-producing firms eased 27,000 (+3.8% y/y) last month following a 131,000 December rise. The number of factory sector jobs fell 21,000 last month (+2.9% y/y) after increasing 69,000 in December. Construction sector payrolls fell 10,000 in January (+4.8% y/y) after sharp increases in each of the prior four months. Employment in the natural resource & mining sector rose 4,000 last month (9.8% y/y) after rising 2,000 in December.

The Automatic Data Processing Research Institute survey covers 411,000 companies and includes about one-fifth of U.S. private payroll employment. The data are processed by Moody's Analytics Inc., then calibrated and aligned with the BLS establishment survey data. The ADP data cover private sector employment only.

The ADP National Employment Report data can be found in Haver's **USECON** database. Historical figures date back to 2001 for private employment and the industry breakdown, and 2005 for the business size breakout. The expectation figure is available in Haver's **AS1REPNA** database.

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* **Omicron-related job loss is widespread.**
* **Leisure & hospitality sector is notably hard hit.**
* **Construction & factory sectors suffer significantly.**

U.S. ADP Nonfarm Private Payrolls Unexpectedly Decline in January

Sandy Batten

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The Mortgage Bankers Association's Loan Applications Index rebounded in the week ended January 28, rising 12.0% w/w (-37.0% y/y) and more than making up for the 7.1% weekly decline in the previous week. The rebound was led by an 18.4% w/w (-50.4% y/y) jump in loans to refinance following four consecutive weekly declines. With mortgage interest rates continuing to rise, borrowers are likely attempting to secure a refinance loan before rates go even higher. Purchase applications increased 4.0% w/w (-6.7% y/y) after having fallen 1.8% w/w in the previous week.

The share of applications for refinancing increased to 57.3% in the week ended January 28 from 55.8% in the previous week. The adjustable-rate mortgage (ARM) share of activity edged up to 4.5%, the highest since the week of March 20, 2020, from 4.4% in the prior week.

The effective interest rate on a 30-year mortgage rose for the sixth consecutive week to 3.89% in the week ended January 28, its highest since the week of March 20, 2020, from 3.85% in the previous week. The effective rate on a 15-year mortgage edged up one basis point to 3.11% and the rate on a Jumbo 30-year mortgage rose two basis points to 3.68% in the previous week. The interest rate on a 5-year adjustable-rate mortgage fell 8 basis points to 3.22%.

Applications for fixed-rate loans increased 11.8% w/w (-38.5% y/y), more than reversing a 7.6% w/w decline in the previous week. Applications for adjustable-rate mortgages jumped 14.6% w/w (+29.6% y/y) on top of a 7.2% w/w weekly gain in the previous week. ARM applications are up 53.6% over the past three weeks.

The average size of a mortgage loan roe 0.7% w/w (10.0% y/y) to $365,300 in the week ended January 28 from $362,700 in the previous week. The average size of a loan for purchase rose 1.8% w/w (+10.7% y/y) to a new record $441,100 on top of a 3.6% jump in the previous week. The average size of a refinanced loan gained 0.7% w/w (+1.0% y/y) to $308,700 in the most recent week from $306,700 in the previous week.

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

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- Total applications rebounded with largest weekly gain since July 2021.
- Led by 18.4% w/w jump in refinancing, following four consecutive weekly declines.
- 30-year mortgage interest rate rose further to highest since March 2020.

U.S. Mortgage Applications Rebounded

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The value of construction put-in-place rose 0.2% (9.0% y/y) during December following a 0.6% November gain, revised from 0.4%. A 0.7% December rise had been expected in the Action Economics Forecast Survey. During all of 2021, the value of construction rose 8.2%, the strongest increase since 2015.

Private construction increased 0.7% (12.7% y/y) in December after a 0.8% November gain. Residential construction strengthened 1.1% (15.0% y/y) after a 0.7% November rise. Single-family building increased 2.1% (16.3% y/y), about the same as in November. Multi-family building rose 0.4% (9.1% y/y) and reversed November's 0.3% decline. Home improvement expenditures eased 0.1% (+15.2% y/y) in December after declining 0.8% in November.

Nonresidential private construction eased slightly (+9.1% y/y) in December after firm gains in each of the prior five months. Educational construction rose 0.8% (1.7% y/y) following four consecutive months of strong increase. Office building rose 0.7% (4.6% y/y) about the same as in November. Power building improved 0.1% (4.9% y/y) after holding steady in November. Transportation spending was little changed (-1.9% y/y) following a 5.4% surge. To the downside, communication construction fell 0.4% (-0.2% y/y) after a 0.1% rise and heath care construction fell 0.5% (+6.6% y/y) after a 0.2% increase. Manufacturing construction weakened 1.9% (+30.4% y/y) following four months of strong increase.

The value of public construction fell 1.6% (-2.9% y/y) in December after holding steady in November. Health care building declined 4.7% (+7.9% y/y) following a 2.3% increase. Power construction fell 0.7% (+47.7% y/y) following two months of strong increase. Residential construction declined 1.2% (-3.4% y/y) and added to November's 3.2% decline. Spending on educational buildings weakened 1.4% (-8.5% y/y) after rising 0.4% in November. Transportation building fell 3.0% (-6.3% y/y) after weakening 0.5% in November. Spending on highways and streets edged 0.1% higher (0.9% y/y) after falling 0.6% in November.

The construction spending figures, some of which date back to 1946, can be found in Haver's **USECON** database. The expectations reading is in the **AS1REPNA** database.

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- Private construction increases steadily.
- Residential building strengthens, but nonresidential is little changed.
- Public sector construction weakens.

U.S. Construction Spending Inches Up in December

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The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity declined to 57.6 during January from 58.8 in December, revised from 58.7. Earlier figures were slightly revised. A level of 57.9 had been expected in the Action Economics Forecast Survey. During the last 15 years, there has been a 42% correlation between the composite index and the quarterly change in real GDP.

The new orders index weakened to 57.9 in January from 61.0 in December. The level was down from a high of 67.4 in December 2020. Twenty-five percent (NSA) of respondents reported higher new orders versus 37.0% a year ago. The production index fell to 57.8 from 59.4 in December. It was the lowest level since June 2020. The supplier delivery series slipped to 64.6 last month from 64.9, indicating quicker product delivery speeds. The inventories index eased to 53.2 from 54.6 in December.

The employment index rose to 54.5 in January from 53.9 in December. It was the highest level since March 2021. An increased 19.2% (NSA) of respondents reported more hiring versus 13.9% in January of last year while 15.1% reported a decline in jobs, up from 13.8% twelve months earlier.

The prices paid index improved to 76.1 in January after falling sharply during the prior two months. The index remained well below the June 2021 high of 92.1. Fifty-nine percent (NSA) of respondents reported higher prices versus 64.3% last year while 6.5% reported price declines after none did last January.

In other ISM series not included in the composite, the order backlog figure fell sharply to 56.4 (NSA) in January and remained well below the high of 70.6 in May of last year. The new export measure was stable at 53.7 but remained down from a November 2020 high of 57.8. The imports index rose to 55.1 in January from 53.8 in December.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver's **AS1REPNA** database.

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- Index falls to lowest level since November 2020.
- New orders & production decline sharply.
- Prices paid strengthen.

ISM Manufacturing Index Declines in January

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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The Housing Market Index, compiled by the National Association of Home Builders/Wells Fargo, eased 3.0% (-17.9% y/y) to 32 in August, reversing the 3.1% July rise to 33. It remained below the break-even point of 50, where it’s been since May of last year. The index remains below a July 2023 high of 56 and a November 2020 peak of 90.

The rate on a 30-year fixed rate mortgage averaged 6.61% in the first two weeks of August versus 6.72% during all of July. It fell to 6.58% last week and remained below the high of 7.79% in the last week of October 2023, according to Freddie Mac.

The single-family sales measure declined 2.8% (-20.5% y/y) this month to 35, after rising 2.9% in July. The prospective sales in six months measure held steady (-12.2% y/y) at 43, after rising 7.5% in July. The traffic of prospective buyers’ index rose 10.0% (-12.0% y/y) to 22 in August, after declining 4.8% in July.

Housing weakness centered in the Northeast this month with the index declining 18.8% (-15.2% y/y) to 39, after rising 9.1% in July. It was the lowest level since January 2023.  In the West, the index rose 4.0% (-29.7% y/y) to 26, its highest level in three months. The index for the Midwest held steady (+13.2% y/y) at 43, and matched the highest level in four months. The index in the South also held steady at 29 (-25.6% y/y), after falling in each month of this year.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low." The diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. The regional indexes run back to December 2004.

These data are included in Haver's **SURVEYS** database.

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- Overall reading matches lowest level since December 2022.
- Current sales slip, expectations steady, while traffic improves.
- Lower Northeast reading accounts for overall index decline.

U.S. Home Builders Index Edges Lower in August

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Consumers remain in a spending mood. Total retail sales increased 0.5% (3.9% y/y) during July after rising 0.9% in June, revised from 0.6%, and falling 0.8% in May, revised from down 0.9%. The overall rise matched expectations in the Action Economics Forecast Survey. Sales excluding autos rose an expected 0.3% last month (3.7% y/y) following a 0.8% June gain, revised from 0.5%, and a 0.1% dip during May, revised from -0.2%.

Sales in the retail control group, which excludes autos, building materials, gasoline and food services, rose 0.5% (4.8% y/y) last month after increasing 0.8% in June, revised from 0.5%, and 0.3% in May, revised from 0.2%. These sales are used in the construction of personal consumption expenditures in the NIPA accounts. These sales rose 3.9% (AR) last quarter following a 3.7% Q1 rise.

Light vehicle sales increased 1.6% (4.7% y/y) in July after rising 1.4% in June, following a 3.8% decline in May. This compares to a 7.6% (6.0% y/y) rise in unit sales of motor vehicles last month which followed declines in each of the prior three months. Gasoline service station sales eased 0.7% (-2.9% y/y) during July after a 0.6% rise during June. Gasoline prices fell 1.2% (-9.8% y/y) last month after holding steady in June. Sales of building materials & garden equipment declined 1.0% (-2.6% y/y) after a 1.3% rise during June.

Elsewhere, sales were mixed last month. Furniture & home furnishings sales increased 1.4% (5.1% y/y) after rising 0.1% in June. Nonstore retail sales rose 0.8% (8.0% y/y) after increasing 0.9% in June. Sporting goods & hobby shop sales increased 0.8% (2.3% y/y) following a 0.7% decline. Apparel store sales increased 0.7% (5.0% y/y) during July following a 1.1% gain. General merchandise store sales rose 0.4% (2.3% y/y) after they moved 0.5% higher in June, and department store sales improved 0.9% (-0.8% y/y) after falling 0.6% in June.

Working lower, miscellaneous store sales fell 1.7% (+10.6% y/y) during July after strengthening 2.7% in June. Electronics & appliance store sales eased 0.6% (-2.3% y/y) last month after two consecutive months of moderate decline.

In the nondiscretionary sales sector, food & beverage store sales rose 0.5% (2.5% y/y) last month following a 0.8% rise in June. Health & personal care store sales also rose 0.4% (5.6% y/y) last month after strengthening 1.0% in June.

Restaurant & drinking establishment sales fell 0.4% (+5.6% y/y) in July after rising 0.6% in June.

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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- Strong vehicle sales pace the increase.
- Nonauto sales are mixed. 
- Sales in the retail control group (used to estimate PCE) increase.

U.S. Retail Sales Post Solid Increase in July; June Gain Revised Up

Winnie Tapasanun

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Industrial production (IP) dipped 0.1% m/m in July after upwardly revised increases of 0.4% in June (+0.3% initially) and 0.1% in May (0.0% previously), data from the Federal Reserve Board showed. A 0.0% m/m for July had been expected in the Action Economics Forecast Survey. The year-on-year rate of increase accelerated to 1.4% in July from 0.7% in June; it was well above -0.2% y/y in July 2024. The July IP index was at 104.0, marginally down from 104.1 in June (the highest since September 2018) and 2.5% above a low of 101.5 in January 2024.

By **industry groups**, manufacturing production was virtually unchanged (+1.4% y/y) in July following rises of 0.3% in June (+0.1% initially) and 0.2% in May (+0.3% previously). Durable goods production grew 0.3% (2.7% y/y) in July, the second m/m gain in three months, following a 0.1% downtick in June. Within durables, the following categories rose m/m in July, including output increases of 1.7% (8.9% y/y) in aerospace & miscellaneous transportation equipment, 1.3% (-1.7% y/y) in miscellaneous durables goods, 1.0% (-2.0% y/y) in electrical equipment, appliances & components, 1.0% (-0.2% y/y) in furniture & related products, 0.7% (1.7% y/y) in wood products, 0.6% (-1.3% y/y) in nonmetallic mineral products, 0.2% (-0.3% y/y) in fabricated metal products, and 0.1% (5.6% y/y) in computer & electronic products. Notably, aircraft & parts production climbed 1.1% (11.4% y/y) in July, the ninth straight m/m rise, on top of a 2.3% gain in June. To the downside, the following durable goods categories fell for the third time in four months in July, including machinery (-0.3%; +0.9% y/y), motor vehicles & parts (-0.3%; +8.3% y/y), and primary metals (-0.3%; +4.0% y/y).

Nondurable goods production fell 0.4% (+0.6% y/y) in July, down for the third month in four, following a 0.7% rebound in June, reflecting m/m output falls of all nondurable goods categories. These included output declines of 2.1% (-4.7% y/y) in textiles & product mills, 1.7% (-5.5% y/y) in apparel & leather goods, 0.8% (-3.1% y/y) in plastics & rubber products, 0.5% (0.0% y/y) in paper, 0.5% (+0.7% y/y) in petroleum & coal products, 0.4% (+2.5% y/y) in chemicals, 0.2% (+0.3% y/y) in food, beverages & tobacco, and 0.1% (-1.3% y/y) in printing & related support activities.

Mining activity slid 0.4% (+1.9% y/y) in July, the third m/m slide in four months, after an unrevised 0.3% decrease in June. Utilities output declined 0.2% (+0.8% y/y), down for the second month in three, following a downwardly revised 1.8% June gain (+2.8% initially), with a 0.3% decrease (+1.6% y/y) in electric utilities output and a 0.5% rebound (-5.3% y/y) in natural gas utilities output.

By **market groups**, materials production fell 0.3% (+1.8% y/y) in July, the first m/m fall since March, after a 0.5% advance in June. Construction supplies production declined 0.2% (+2.0% y/y) following a 0.3% June increase. To the upside, business equipment output rose 0.5% (3.8% y/y) in July, the ninth consecutive m/m rise, after a 0.1% uptick in June. Consumer goods output edged up 0.1% (0.6% y/y) after a 0.3% June rebound, reflecting increases of 0.1% (2.5% y/y) in durable consumer goods and 0.1% (0.1% y/y) in nondurable consumer goods.

In **special classifications**, factory output of selected high-tech industries rose 1.4% (14.0% y/y) in July on top of an upwardly revised 0.9% gain in June (+0.5% initially), posting the fourth successive m/m rise and the seventh in eight months. Meanwhile, manufacturing production excluding selected high-tech industries dipped 0.1% (+1.1% y/y) in July, the first m/m easing since April, following a 0.3% increase in June; manufacturing production excluding selected high-tech and motor vehicles & parts slipped 0.1% (+0.6% y/y), the third m/m decline in four months, following a 0.5% June rebound.

Capacity utilization fell to 77.5% in July from a three-month-high 77.7% in June (77.6% previously). The Action Economics Forecast Survey forecasted 77.6%. The July reading was 2.1 percentage points below its long-run (1972–2024) average. Manufacturing capacity utilization dipped to 76.8% in July from an unrevised 76.9% in June; the July rate was 1.4 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- July IP -0.1% (+1.4% y/y), led by a 0.4% decline in mining activity.
- Mfg. IP unchanged, w/ durables up 0.3% and nondurables down 0.4%.
- Utilities output -0.2%, the second m/m fall in three months.
- Key categories in market groups post mixed results.
- Capacity utilization down 0.2%pt. to 77.5%; mfg. capacity utilization down 0.1%pt. to 76.8%.

U.S. Industrial Production Eases in July

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The Empire State Manufacturing Index of General Business Conditions unexpectedly advanced more than 6 points to 11.9 in August after having jumped nearly 22 points to 5.5 in July, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. This is the highest reading since November 2024 and indicates a pickup in the pace of economic activity in New York State. A reading of -1.0 for August had been expected by the Action Economics Forecast Survey. The percentage of respondents reporting an increase in general business conditions rose to 34.7% in August from 32.4% in July while the percentage reporting a decrease fell to 22.8% in August, the lowest reading since February, from 26.9% in July. The August survey was conducted between August 4 and August 11.

The headline index just reflects the answer to a single question concerning the state of economic activity and is not calculated from the components. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index slipped to 54.3 in August from 54.7 in July, still well above the critical 50 level that separates expansion from contraction but indicating that the components were not quite as strong as the headline index in August. The calculated index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

The August increase was led by a more than 13-point increase in the new orders index, to 15.4 from 2.0. Thirty-six percent of respondents reported an increase in orders, up slightly from 35% in July. However, only 20.4% reported a decline in orders, down markedly from 32.9% in July and a recent high of 40.2% in March. The shipments index was little changed in August but remained at a solid 12.2. Inventories reversed course sharply, falling to -6.4, the first negative reading since last August, from 15.6 in July. Employment also slowed with the index falling to 4.4 from 9.2 in July.

Indications of supply-chain disruptions continued to emerge. Delivery times lengthened markedly with the index jumping to 17.4 in August, its highest reading since May 2022, from an already elevated 8.3 in July. Twenty percent of respondents reported an increase in delivery times, up from nearly 15% in July, while only 2.8% reported a shortening versus 6.4% in July. Moreover, the supply availability index remained in negative territory at -5.5 versus -11.0 in July.

Inflation indexes softened a bit in August but remained elevated. The prices paid index edged down to 54.1 from 56.0 in July while the prices received index slid to 22.9 from 25.7 in July. Both remain significantly elevated relative to the beginning of the year.

Firm optimism about the future (the next six months) soured a bit in August. The index for future general business conditions fell eight points to 16.0, suggesting that businesses expect activity to increase in the months ahead, but firms were less optimistic than they were last month. New orders and shipments were expected to increase. Two-thirds of respondents expect input prices to pick up further over the next six months. Of some concern, capital spending plans were soft with the expectations index plunging to -0.9 in August from 9.2 in July.

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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- The highest reading since November 2024.
- The August rise was led by stronger new orders and continued gains in shipments.
- More evidence of nascent supply-chain problems.
- Outlook six months ahead faded slightly.

FRBNY Empire State Manufacturing Index Unexpectedly Advances in August

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Import prices unexpectedly increased 0.4% m/m (-0.2% y/y) in July after declines of 0.1% m/m in June and 0.4% m/m in May, according to the Bureau of Labor Statistics. An unchanged reading had been expected by the Action Economics Forecast Survey. Export prices edged up 0.1% m/m (2.2% y/y) in July following a 0.5% monthly gain in June. The Action Economic Forecast Survey had also looked for an unchanged reading.

For imports, prices for imported fuel advanced 2.7% m/m in July following an increase of 0.8% m/m in June and a decrease of 5.0% m/m in May. The July increase was the largest monthly advance since the index rose 3.0% m/m in January 2025. Higher prices for imported petroleum and natural gas drove the July increase, advancing 2.4% m/m and 4.7% m/m, respectively. Imported fuel prices fell 12.1% y/y in July 2025 with imported petroleum prices down 13.7% y/y while imported natural gas prices soared 62.2% y/y.

Apart from imported fuel, prices for nonfuel imports advanced 0.3% m/m percent in July, following a decrease of 0.3% m/m in June. Higher prices for nonfuel industrial supplies and materials (1.0% m/m), consumer goods (0.4% m/m), and capital goods (0.1% m/m) more than offset lower prices for automotive vehicles (-0.2% m/m) and foods, feeds, and beverages (-0.1% m/m). Nonfuel import prices increased 0.9% y/y in July and have not declined on an over-the-year basis since a 0.6% decrease in February 2024. Higher prices for nonfuel industrial supplies and materials; capital goods; and foods, feeds, and beverages contributed to the year-over-year advance.

Higher prices for nonagricultural exports drove the July increase in overall export prices. The price index for agricultural exports was unchanged in July following a 0.8% m/m increase in June. Higher prices for meat (1.1% m/m) and vegetables (3.4% m/m) lower prices for corn (-1.9% m/m) and animal feeds (-1.6% m/m). The price index for agricultural exports increased 3.4% y/y in July, the largest 12-month rise since a 5.3% y/y advance in January 2023. Nonagricultural export prices ticked up 0.1% m/m in July, after rising 0.5% m/m in June and falling 0.8% m/m in May. Higher prices for automotive vehicles (0.7% m/m), capital goods (0.2% m/m), and consumer goods (0.2% m/m) more than offset lower prices for nonagricultural industrial supplies and materials (-0.1% m/m). Prices for nonagricultural exports increased 2.0% y/y in July. Higher prices for nonagricultural industrial supplies and materials, capital goods, and automotive vehicles drove the year-over-year advance.

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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- Import prices rose 0.4% m/m in July against expectations of no change after declines in both May and June.
- Higher prices for imported petroleum and natural gas drove the July rebound. 
- Export prices ticked up 0.1% m/m, largely reflecting higher prices for nonagricultural exports.

U.S. Import Prices Rebounded in July

Economy in Brief: 2022

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