Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041108a.jpg" width="353">
The 0.1% decline in the September Index of Leading Indicators for the Major Seven OECD Countries left the series at the same level it reached in February and the monthly gyration around that level has been minimal. The six-month growth rate fell to 1.2% from 7.8% during the period.
Weakness in the leaders for the United States has been most notable this year, though positive economic growth still is suggested. Six-month growth in the US leaders fell to 1.1% versus 11.6% in January as a result of lower business &amp; consumer sentiment and a tighter yield curve. The leading index in Japan also weakened with six-month growth falling to 0.4% from 3.5% in January.
The leading index growth rate for the European Union fell to 2.7% from 6.2% in January. Growth in the German leaders fell to 3.1% in September versus 8.3% in January. The French leading index growth rate remained relatively firm decelerating only to 5.1% versus 8.2% at the start of the year. Leaders in Italy stabilized during the last two months after earlier declines but six-month growth in the series nevertheless went negative at -0.2% versus +2.1% in January. The UK leaders also stabilized in August &amp; September and the six month growth rate returned to positive territory at 0.5%.
In Canada the leaders went negative for the first time since June 2003. The -1.1% growth rate was due mostly to the factors that pulled the US index down.
Visit the OECD at this <a href="http://www.oecd.org/home/">website</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/OECDMEI/OECDMEI.HTM"> OECD Main Economic Indicators</a></th>
<th scope="col"> Sept</th>
<th scope="col"> Aug</th>
<th scope="col"> 6-Mth Chg</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">OECD Major Seven - Leading Index (Trend Restored)</td>
<td>102.3</td>
<td>102.4</td>
<td>1.2%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>-3.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; European Union</td>
<td>106.1</td>
<td>105.7</td>
<td>2.7%</td>
<td>2.3%</td>
<td>3.5%</td>
<td>-2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Japan</td>
<td>98.1</td>
<td>97.9</td>
<td>0.4%</td>
<td>1.8%</td>
<td>0.3%</td>
<td>-4.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; United States</td>
<td>102.6</td>
<td>103.1</td>
<td>1.1%</td>
<td>3.8%</td>
<td>2.0%</td>
<td>-3.3%</td>
</tr>
</tbody>
</table>
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The 0.1% decline in the September Index of Leading Indicators for the Major Seven OECD Countries left the series at the same level it reached in February and the monthly gyration around that level has been minimal. The six-month [...]

OECD Leaders Continued Sideways

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041105c.jpg" width="353">
Employment in Canada, measured by the Statistics Canada labor force survey, showed a second consecutive monthly advance in October, up 34,300 after September&#39;s 43,200 increase. The number of workers had been basically flat across the summer. The 12-month trend is running just below 2%, similar to the expansion during 2003 and 2002.
By industry, the October employment gain was more than accounted for by a 45,000 increase in the trade sector. The number of construction workers also increased and has been on a notable uptrend for about the last six years. Workers in the finance sector decreased in October, but they too have been on a sustained, marked uptrend; this began in early 2002. Manufacturing employment has maintained an oscillating pattern for about five years.
Canada&#39;s unemployment rate was unchanged at 7.1% in October, extending a gentle downward drift from a recent peak of 8.0% in August 2003. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041105d.jpg" width="353">
Labor force participation in Canada has been largely rangebound over the last two years, with the rate for young people (ages 15-24) virtually flat at about 67%, and that for middle-range workers (ages 25-55) edging down slightly to 86.3% in October. However, older workers appear to be staying active longer. The participation rate for workers over 55 reached 30.8% in October, up 0.6 percentage point in the last 12 months and up 7.2 points since its low in October 1996. <a name="content"> </a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Monthly Amounts in Thousands</th>
<th scope="col">Oct &nbsp;2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Aug &nbsp;2004</th>
<th scope="col">Year Ago</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>16,111</td>
<td>16,076</td>
<td>16,033</td>
<td>1.9%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo Change</td>
<td>+34</td>
<td>+43</td>
<td>-7</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods-Producing</td>
<td>4,044</td>
<td>4,039</td>
<td>4,060</td>
<td>1.4%</td>
<td>1.1%</td>
<td>2.1%</td>
<td>-0.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo Change</td>
<td>+5</td>
<td>-21</td>
<td>-7</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Service-Producing</td>
<td>12,067</td>
<td>12,037</td>
<td>11,973</td>
<td>2.0%</td>
<td>2.5%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo Change</td>
<td>+30</td>
<td>+64</td>
<td>-0</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>7.1%</td>
<td>7.1%</td>
<td>7.2%</td>
<td>7.6%</td>
<td>7.6%</td>
<td>7.6%</td>
<td>7.2%</td>
</tr>
</tbody>
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Employment in Canada, measured by the Statistics Canada labor force survey, showed a second consecutive monthly advance in October, up 34,300 after September's 43,200 increase. The number of workers had been basically flat across the [...]

Employment Gains in Canada, Too; Unemployment Rate Stays Flat

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041105a.jpg" width="353">
Nonfarm payrolls grew 337,000 last month following upwardly revised gains of 139,000 and 198,000 during the prior two months. Consensus expectations had been for a 175,000 job rise in October.
Construction sector jobs grew 71,000 (3.9% y/y).
Hiring in private service producing industries also was quite strong, up 231,000 (1.8% y/y) following an upwardly revised September increase of 99,000. Hiring in professional &amp; business services rose 97,000 (3.7% y/y) with temporary help services jobs up 47,600 (11.5% y/y). Jobs in the financial sector rose another 17,000 m/m (1.3% y/y) and education &amp; health services jobs rose 62,000 (2.2% y/y). Government payrolls grew 41,000 (0.7% y/y).
Factory sector payrolls fell for the second consecutive month, down 5,000 (+0.3% y/y). Weakness was broad based across industries.
The index of aggregate hours worked (employment times hours worked) rose 0.3% (2.4% y/y) following an upwardly revised 0.4% gain in September. The index began the fourth quarter 2.0% (AR) above the prior quarter after 3.1% growth in 3Q.
Average hourly earnings rose 0.3% (2.6% y/y) after a downwardly revised 0.1% gain in September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041105b.jpg" width="353">
The unemployment rate from the separate household survey rose to 5.5% as a 298,000 (1.2% y/y) gain in employment lagged labor force growth of 367,000 (0.7% y/y). The labor force participation rate was unchanged at 65.9%. <a name="content"> </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/@EB/@EB01/@EB01.HTM"> Employment</a></th>
<th scope="col"> Oct</th>
<th scope="col">Sept</th>
<th scope="col"> Aug</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>337,000</td>
<td>139,000</td>
<td>198,000</td>
<td>1.6%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Reported last month</td>
<td></td>
<td> 96,000</td>
<td> 128,000</td>
<td> 1.3%</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-5,000</td>
<td>-14,000</td>
<td>14,000</td>
<td>0.3%</td>
<td>-4.8%</td>
<td>-7.2%</td>
<td>-4.8%</td>
</tr>
<tr>
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
<td>34.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.6%</td>
<td>2.7%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>5.5%</td>
<td>5.4%</td>
<td>5.4%</td>
<td>6.0%</td>
<td>6.0%</td>
<td>5.8%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm payrolls grew 337,000 last month following upwardly revised gains of 139,000 and 198,000 during the prior two months. Consensus expectations had been for a 175,000 job rise in October. Construction sector jobs grew 71,000 [...]

U.S. Job Growth Strong, Revisions Positive

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041104a.jpg" width="353">
Consumer inflation in Chile remains quite mild. Through October, for which data were published this morning, the total CPI was up just 1.9% from October 2003, and the rate excluding food and energy was a mere 0.9%. These rates are actually &quot;high&quot; compared with earlier this year and late in 2003, when year-on-year comparisons showed modest deflation. Food, clothing and home furnishings all show declining prices, though the pace of decline has recently moderated. By inference, energy seems to be the main source of price increase. Housing and transportation costs are erratic, so a trend is hard to characterize. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041104b.jpg" width="353">
At the same time, wholesale prices in Chile have been very strong, with October&#39;s level nearly 9% above a year ago. Chile&#39;s industry is dominated by commodity production, particularly copper, and copper prices have exploded. On London metals markets, the spot price averaged $3,010.96/metric ton in October, up a whopping 57% from October 2003. This is apparently demand-driven. It is a accompanied in Chile by rising output; mining production overall was 12.7% higher in the third quarter than a year ago and exports of copper, valued in US$, were up 104% in the second quarter and 88% in the third from the year- earlier amounts. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Changes</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sep 2004</th>
<th scope="col">Aug 2004</th>
<th scope="col">Year/Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">CPI (SA)</td>
<td>0.2</td>
<td>-0.3</td>
<td>0.2</td>
<td>1.9</td>
<td>2.8</td>
<td>2.5</td>
<td>3.6</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI ex Food &amp; Energy (SA)</td>
<td>-0.2</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.9</td>
<td>2.3</td>
<td>2.6</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">WPI (SA)</td>
<td>2.4</td>
<td>-2.3</td>
<td>0.5</td>
<td>8.9</td>
<td>6.6</td>
<td>6.8</td>
<td>7.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Copper*</td>
<td>3.9</td>
<td>1.9</td>
<td>1.3</td>
<td>56.9</td>
<td>14.1</td>
<td>-1.3</td>
<td>-12.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer inflation in Chile remains quite mild. Through October, for which data were published this morning, the total CPI was up just 1.9% from October 2003, and the rate excluding food and energy was a mere 0.9%. These rates are [...]

Consumer Prices Quiescent in Chile, but Wholesale Prices Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041104f.jpg" width="353">
Last week, initial claims for unemployment insurance again reversed the prior period&#39;s change with a 19,000 decline to 332,000.The Consensus expectation had been for 340,000 claims.
Back and forth weekly gyrations of this order were the rule during October and the average level of initial claims for the month settled at 341,000, down slightly from 344,000 in September.
During the last ten years there has been a (negative) 73% correlation between the level of initial claims and the m/m change in payroll employment.
Continuing claims for unemployment insurance dropped 20,000 and reversed most of the prior week&#39;s gain.
The insured rate of unemployment remained at 2.2% for the fourth week.

<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"> 10/30/04</th>
<th scope="col"> 10/23/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>332</td>
<td>351</td>
<td>-9.0%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,800</td>
<td>-19.1%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
</tr>
</tbody>
</table>
</body>
</html>

Last week, initial claims for unemployment insurance again reversed the prior period's change with a 19,000 decline to 332,000.The Consensus expectation had been for 340,000 claims. Back and forth weekly gyrations of this order were [...]

Initial Jobless Insurance Claims Down

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

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

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Sandy Batten

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The NFIB Small Business Optimism Index fell 2 points (-2.0% m/m, +8.0% y/y) to 98.8 in September from 100.8 in August, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the first monthly decline in three months. Market expectations were for a smaller decline to 100.5. Still, the index remained above the survey’s 52-year average. Five of the indexes 10 components fell in September while two increased and three were unchanged. A decline in those expecting better business conditions in the next six months and an increase in reports of excess inventory contributed most to the drop in the Optimism Index in September. The Uncertainty Index rose 7 points from August to 100 in September, the fourth-highest reading in over 51 years.

The quality of labor and taxes were tied as the single most important problem that small firms face in this survey. However, inflation rebounded 3 points to 14%, and 64% of small business owners reported that supply chain disruptions were affecting their business to some degree, up 10 points from August.

The sample continues to think that, on balance, the economy will improve over the next six months. However, that view was held by a smaller share of respondents with the net balance falling 11 points to 23% in September from 34% in August and 36% in July. Firms were also less optimistic about their sales outlook with the net balance expecting higher sales in six months falling to 8% in September from 12% in August. A net negative 7% of respondents viewed current inventory stocks as “too low” in September, down 7 points from August. This was the largest monthly decline in the survey’s history.

A net 11% of respondents thought that now was a good time to expand their business, down from 14% in August and the lowest reading since May. Plans to increase capital expenditures were unchanged at a net 21%, still low by historical standards.

Labor market indicators were a little mixed. The percentage of respondents reporting few or no qualified applicants for openings jumped to 50% in September from 43% in August. This tied the June reading as the highest since last September. Moreover, wages gains increased. The net balance of respondents who have increased wages over the past three months rose for the second consecutive months to 31%. By contrast, the net balance of respondents with positions that they were not able to fill was unchanged at 32%, its lowest reading since December 2020. And the net balance of respondents expecting to increase wages over the coming three months slipped to 19 from 20 in August.

Inflation concerns re-intensified in September. The net balance of respondents who have raised selling prices increased to 24% in September from 21% in August, while the net balance planning to raise prices jumped to 31% from 26%. Also, the percentage considering inflation to be the single most important problem increased to 14% from 11%.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

**Understanding the Fed’s Balance Sheet** is the title of today’s speech by Fed Chair Jerome H. Powell and it can be found [here](https://www.federalreserve.gov/newsevents/speech/powell20251014a.htm).

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- First decline in three months.
- Uncertainty rose to the fourth highest levels in series history,
- Percentage expecting economy to improve fell for the third time in the past four months.
- Percentage reporting supply chain disruptions jumped 10 points in September.
- This survey was conducted in September. Whatever impact the federal government shutdown will have will appear in the October survey.

U.S. Small Business Optimism Fell in September

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The National Association for Business Economics expects that following 2.8% growth in 2024, real GDP growth will slow to 1.8% this year, revised from 1.3% in the June survey, and 1.7% in 2026, revised from 1.4%. Growth from Q4-to-Q4 is expected to slow to 1.3% in 2025 from 2.4% in 2024, then improve to an 1.9% next year. Quarterly GDP is expected to grow 1.0% in Q4’25, 1.5% in Q1’26, by 1.9% in Q2 then by 2.0% in both Q3’26 and Q4’26.

Expected real growth in personal consumption expenditures in 2025 was lessened to 2.0% from 2.3%, and raised to 1.6% from 1.4% in 2026. The projection for business fixed investment growth was increased to 3.8% this year from 1.9%, followed by 1.7% growth in 2026, revised from 0.9%. An expected 1.6% decline in residential fixed investment this year was reduced from +0.5%, followed by 0.4% growth in 2026, which was little revised. Government spending growth of 1.3% this year was unchanged, and 0.9% growth in 2026 was little changed from the 0.5% improvement expected earlier.

The net export deficit is expected to widen to $1.113 trillion in 2025, revised from $1.204, then narrow to $1.024 trillion in 2026, revised from $1.085 trillion expected earlier. Exports should increase 0.9% this year, revised from 1.1% expected earlier, then 1.1% in 2026, revised from 1.6%. Imports are projected to rise 2.8% in 2025, revised from 1.1%, then fall 1.2% in 2026, down sharply from +1.6% as expected earlier. Inventory accumulation should ease this year to $40 billion, revised from $55.0 billion, down from $43.5 billion in 2024, then slow to $34.0 billion in 2026, revised from $40.0 billion in 2026 expected earlier.

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Housing starts are expected to ease to 1.35 million this year, revised from 1.36 million, then hold steady at 1.35 million in 2026 in 2026, revised from 1.39 million. They have been trending lower since the 2021 peak of 1.60 million. Light vehicle sales should stabilize this year at 16.0 million units, revised from 15.5 million, then ease to an unrevised 15.5 million next year. The average gain in payroll employment should weaken to 62,000 per month in the current year, revised from 91,000, then rise to 74,000 in 2026, revised from 99,000. The unemployment rate expectation in 2025 has been reduced to 4.2% from 4.4% projected earlier, but is now expected to rise to 4.5% in 2026, revised from 4.7%.

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 3.0% this year, revised from 3.4%, then stabilize at an unrevised 2.6% in 2026. 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 3.0% in 2025, revised from 3.1%, then fall to 2.5% in 2026, revised from 2.3%. It hit 6.0% in 2022. The gain in the chain PCE price index excluding food & energy is projected to rise to an unrevised 3.1% this year, then fall to 2.5% in 2026, revised from 2.4%. The index rose to its high of 5.2% in 2022. The projected cost of crude oil of $64 per barrel at the end of this year is little changed from the last projection. The $64 per barrel at the end of next year compares to $68 expected earlier versus $70 per barrel at the end of 2024.

Interest rates on a 10-year Treasury note are expected to ease. The forecast of 4.14% for the ten year Treasury note at the end of this year compares to 4.19% expected earlier, and with 4.08% at the end of next year, compared to 4.00% previously projected. The Fed is expected to continue its easing of monetary policy. The Federal funds rate is forecast to be 3.87% at the end of 2025 versus 4.38% at the end of 2024, then fall to 3.13%, revised from 3.38%, by the end of 2026. After-tax corporate profits are predicted to rise 3.9% this year, revised from 2.1%, and 2.9% next year, revised from 3.3%.

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

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- Consumer spending growth increased.
- Business investment growth also increased.
- Price inflation expectations reduced.


NABE GDP Forecasts In 2025 & 2026 Are Raised

Tian Yong Woon

This week, we highlight recent developments in China and Japan, alongside movements in gold and their relevance to Asia. Investors remained broadly unfazed after China’s “super golden week” holidays, with equities buoyed by AI optimism despite recent weak economic data (chart 1). US President Trump’s Friday threats of additional 100% tariffs, however, dented sentiment, with the escalation underscoring China’s delicate external environment. This week’s trade figures show a continued divergence, with exports to Asia still growing while those to the US slumped further (chart 2), amid a backdrop of subdued domestic inflation. Attention is also on the IMF’s upcoming economic forecasts for China. Past projections, including the IMF’s July WEO and the World Bank’s recent report, suggest sub-5% growth, though late-year stimulus has sometimes lifted growth above expectations (chart 3).

In Japan, Sanae Takaichi’s victory in the LDP leadership race positions her to become the country’s first female Prime Minister. Yet, the exit of long-time coalition partner Komeito has left much uncertain. Nonetheless, markets have priced in Takaichi’s pro-growth stance, with a weaker yen and rallying equities (chart 4), though rising inflation (chart 5) may constrain policy ambitions. As for gold, the precious metal continues to attract attention, with prices surpassing $4,000 per ounce. The rally has strengthened Asian currencies that are usually correlated with the precious metal, such as the Thai baht. A slower-moving but significant driver of the gold rally remains the accumulation of reserves by major Asian central banks, including China and India (chart 6), likely reflecting efforts to diversify away from the US dollar.

**China**
China has just come out of its “super golden week”, an eight-day stretch of consecutive holidays from October 1st to 8th, resulting from the overlap of the National Day and Mid-Autumn Festival breaks. This extended holiday period was closely watched for a potential spike in domestic tourism, retail spending, and broader growth momentum. Preliminary data show that key retail and catering firms recorded a 2.7% y/y increase in sales, a notable slowdown from the 6.3% growth seen during the Labour Day break earlier this year. This suggests that consumer spending was more restrained during the recent holiday period. Given Beijing’s increasing emphasis on consumption-led growth over traditional drivers such as exports and investment, the health of Chinese consumers has become an ever more critical barometer of the economy. Nonetheless, following the reopening of financial markets after the holidays, equity market enthusiasm — buoyed in part by AI optimism — initially appeared undimmed, despite a weaker run of economic data (chart 1).

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With that said, Chinese equity markets experienced a more recent dent in sentiment following US President Trump’s Friday threat to impose an additional 100% tariff on imports from China. The announcement also included new export controls on critical software, effective November 1st. President Trump cited recent Chinese actions — including sweeping curbs on exports of rare earths and critical minerals — as justification for the move. The flare-up in tensions, however, appeared to ease over the weekend after the US signalled openness to a potential deal on Sunday. These events serve as a reminder that external headwinds for China persist. The latest trade data show a continued divergence, with overall exports rising on stronger trade with Asia, while exports to the US continued to slump. Meanwhile, inflation in China remains subdued (chart 2), reflecting weak domestic demand and persistent oversupply.

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This prolonged lack of inflation has prompted calls from IMF Chief Kristalina Georgieva for a fiscal package aimed at boosting private consumption and reflating the economy. Her remarks come ahead of the IMF’s updated World Economic Outlook, due for release on Tuesday, October 14th. Even before this October update, the IMF (via its July WEO update) and the World Bank (via its October East Asia and Pacific Economic Update) had revised their China GDP forecasts. Both institutions raised their projections for the year from about 4% to 4.8%. Barring the IMF’s forecast update this week, these prior projections suggest that China is unlikely to hit its 5% growth target this year. That said, it is worth noting that China has previously defied expectations of missing its growth target, thanks to late-year stimulus measures that can lift economic growth.

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**Japan**
Following Prime Minister Ishiba’s resignation announcement, Sanae Takaichi won the ruling Liberal Democratic Party’s (LDP) leadership race, positioning her to become Japan’s first female Prime Minister. A slim risk remains, however, that this may not occur. Attention now turns to an extraordinary parliamentary session, expected from October 20th, to formally elect the country’s next leader. Much remains in flux — from the composition of Japan’s new cabinet to the shape of its ruling coalition — amid competing policy priorities among potential partners. The latest uncertainty stems from the withdrawal of Komeito, the LDP’s coalition partner for 26 years, leaving the structure and direction of the government less certain. Nonetheless, markets have already begun pricing in potential shifts under Takaichi’s leadership. The yen has weakened sharply, while Japanese equities have rallied (chart 4), reflecting expectations that she will continue the late former Prime Minister Shinzo Abe’s “Abenomics” strategy of fiscal stimulus, loose monetary policy, and structural reform.

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Eyes are also on the shape and scope of a potential supplementary budget that Takaichi may introduce to advance her policy agenda. This could include support grants for local governments and the abolition of fuel levies on gasoline and diesel, among other measures, although delays in forming a cabinet could slow progress. Externally, investors are watching Takaichi’s early engagements with major world leaders, given her stated openness to revisiting the US–Japan trade agreement, even as Japan’s relationship with China continues to evolve. Meanwhile, assessments of the Bank of Japan’s policy path are also likely to shift. Markets may perceive greater resistance to additional tightening if fiscal and monetary policies are aligned to further stimulate growth. However, the desire to maintain loose policy for longer could face constraints if inflation resumes its upward trend following the implementation of more accommodative measures (chart 5).

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**Gold**
Turning to gold, the recent US government shutdown left policymakers and investors largely in the dark due to the absence of key data releases such as nonfarm payrolls. The disruption has also pushed gold prices to record highs, surging past $4,000 per ounce, with multiple implications for Asia. For instance, the Thai baht–gold correlation has driven the currency to appreciate sharply. This poses a challenge for Thai policymakers, as a stronger domestic currency weighs on tourism and exports, two of Thailand’s key growth drivers. More broadly, another factor underpinning gold’s gradual price appreciation over time has been central bank buying. Major central banks, including those of China and India, have been steadily expanding their gold reserves in recent years (chart 6). This trend is likely motivated by a desire to reduce reliance on US Treasuries, among other strategic considerations. Looking ahead, this trend of central bank accumulation is expected to continue, providing ongoing support for gold prices.

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Asia

Economic Letter from Asia: Gotta be Golden

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) increased 2.7% (1.4% y/y) during August to 100.5 after increasing 2.9% in July, revised from 4.0% and falling 2.1% in June. The index was at the highest level in four months, but remained 4.1% below the recent high of 104.8 in September of last year. The level of home affordability was 11.8% higher than its low of 89.9 in October 2023, but the latest level was 43.9% below the high of 179.0 in April 2020.

The rise in affordability in August occurred as the median price of an existing single-family home fell 1.0% (+1.9% y/y) to $427,800, and mortgage rates fell to 6.67% after declining to 6.80% in July. The price compared to the record $432,900 in June 2024. The fall in mortgage rates left them above their a 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%. In August, the principal & interest payment fell 2.3% (+2.9% y/y) to $2,202 per month, down 4.7% 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 lessened 24.9% of income during August, down from 25.5% in July and a high of 26.3% in June, but increased from a low of 14.0% of income in April 2020.

The decline in housing costs in August was accompanied by a rise in median family income, up 0.3% (4.4% y/y) to $106,243 after rising 0.3% in July. Qualifying income declined 2.3% (+2.9% y/y) to $105,696 after falling 2.5% during July. 

Housing affordability improved m/m across the country in August. The index rose in the Midwest, the country’s most affordable region, by 2.6% (-1.1% y/y) to 125.2.  In the South, the index increased 3.0% (3.3% y/y) to 107.5, while the affordability index in the Northeast improved 1.9% (-3.5% y/y) to 84.7. In the West, where homes are the least affordable, the index improved 1.5% (2.7% y/y) to 72.9 in August.

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**.

**The Economic Outlook and Monetary Policy** from Fed Governor Michael S. Barr is available [here](https://www.federalreserve.gov/newsevents/speech/barr20251009a.htm).

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- Home prices & mortgage rates decline for second straight month.
- Median income continues to edge higher.
- Affordability increases across country.

U.S. Housing Affordability Increases in August

Robert Brusca

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Manufacturing trends in the European Monetary System in August were mixed. Among the 13 countries reporting early industrial production data, six reported output declines.

Looking at the three most recent months of data, June, July, and August, there are four countries that are showing growing weakness month-to-month for each of those three months. Those are Austria, Belgium, France, and Greece. Only two countries are showing steady acceleration over the span; those are Ireland and Portugal.

Looking at sequential data, growth over 12 months, six months and three months, progressive weakening is seen in four countries Germany, Spain, Ireland, and Portugal that compares to acceleration in Belgium, France, and the Netherlands. In terms of Monetary Union nonmember countries, Sweden is showing persistent acceleration while Norway is showing persistent but very moderate deceleration.

These data are rife with contradictions as no accelerating/decelerating trend sequentially persists over the next three months in the same direction. The European Monetary Union is clearly in a period of transition in terms of growth and conditions have been weak and are not yet breaking out to the upside. What this tells us is that a period of acceleration has not yet stepped up and weakness, even deceleration has lingered. Quarter-to-date data show us that there are output declines in most of these economies with only five EMU Members showing output growing in the quarter-to-date period.

This continues to be part of an extended period in which industrial output has been extremely weak: we can support that with the numbers. Looking at these 13 members, we assess the ratio of industrial production today compared to where it was in January of 2020 before COVID struck and before the Russian invasion of Ukraine. This comparison goes back 5 1/2 years; Germany, France, Italy, Spain, Luxembourg, and Portugal all have levels of output today in terms of manufacturing output that are lower than they were in January 2020. This is a very long period to go without having output recover to its level in January 2020.

Separately the table ranks countries on growth rates, This ranking is a ranking of output growth on 12-months rates over data since 2007. On that basis, seven of the countries in the table have year-over-year growth rates below the median growth that they had during this period back to 2007. That's slightly over half of the monetary union countries in the table that are reporting growth rates below their median for this extended period of 20 years, much of it delivering very weak growth.

Hope springs eternal, for a manufacturing rebound. Central banks right now are trying to run relatively accommodative policies and are tolerating some inflation overshooting to do that; however, it doesn't appear to have been enough to excite any acceleration in manufacturing output. Europe continues to be challenged in terms of manufacturing growth. There is really nothing in these data that make us optimistic that conditions are getting better.

Economy in Brief: November 2004

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