Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060712a.jpg" width="353">
The U.S. foreign trade deficit in May again deepened less than expected. The deficit of $63.8B compared to a little revised April gap of $63.3B and Consensus expectations for $64.9B.
During the first five months of 2006 the foreign trade deficit averaged $63.6B versus a $56.4B deficit averaged during the first five months of 2005.
Total exports in May jumped 2.4% after a little revised April slip. A strong 5.2% pop in nonauto consumer goods exports (10.9% y/y) more than recovered the prior month&#39;s decline. Capital goods exports also were strong and posted a 2.4% (15.3% y/y) surge following three months of sideways movement. Exports of advanced technology products rose 0.9% (NSA, 16.6% y/y) while exports of industrial supplies &amp; materials rose 3.4% (16.5% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060712b.jpg" width="353">
Imports rose 1.9% during May as petroleum imports surged 16.9% (49.8% y/y). Adjusted for a higher prices, including an 8.7% (43.4% y/y) spike in crude oil to $61.74 per bbl., constant dollar petroleum imports surged 8.2% (3.3% y/y). Crude oil prices fell in June but have since risen to record highs.
Imports of capital goods increased 0.5% (10.9% y/y) reflecting a 6.3% rise in imports of advanced technology products (NSA, 8.8% y/y) and a 0.1% (+3.9% y/y) slip in imports of nonauto consumer goods.
The US deficit in goods trade with China deepened to $17.7B ($201.6B for 2005) but the trade deficit with Japan improved to $7.1B ($82.7B in 2005). The trade deficit with the Asian NICs more than doubled to $1.7B ($15.9B in 2005) and the deficit with the European Union deepened to $10.8B ($122.4B in 2005).
The Mid-Session Review of the U.S. Government Budget for FY 2007 is available <a href="http://www.whitehouse.gov/omb/budget/fy2007/pdf/07msr.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE03/@EE03.HTM">Foreign Trade</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Trade Deficit</td>
<td>$63.8B</td>
<td>$63.3B</td>
<td>$56.6B (5/05)</td>
<td>$716.7B</td>
<td>$611.3B</td>
<td>$494.9B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>2.4%</td>
<td>-0.0%</td>
<td>12.6%</td>
<td>10.7%</td>
<td>13.4%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>1.8%</td>
<td>0.8%</td>
<td>12.7%</td>
<td>13.0%</td>
<td>16.7%</td>
<td>8.3%</td>
</tr>
</tbody>
</table>
Mortgage Applications Up, Rates Stable 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 12, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060712c.jpg" width="353">
The total number of mortgage applications added 1.0% last week to the prior week&#39;s 5.9% gain. The rise lifted applications early in July 2.5% above the June average which fell 1.5% from May.
Purchase applications increased 2.6% and raised the early July level 4.8% above the June average which fell 0.8% from May.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060712d.jpg" width="353">
Applications to refinance fell 1.6% and the latest level was 1.4% below the June average. Refis during all of June fell 3.1% from the May average.
The effective interest rate on a conventional 30-year mortgage was stable w/w at 7.02% but the rate on 15-year financing ticked higher to 6.70%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">07/07/06</th>
<th scope="col">06/30/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>566.8</td>
<td>561.0</td>
<td>-28.4%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>425.0</td>
<td>414.2</td>
<td>-13.1%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,400.5</td>
<td>1,423.9</td>
<td>-45.2%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
UK Labor Market Data Show Rising Unemployment But Stable Employment & Firm Wages 
by <a href="/comment/Stone.html">Carol Stone</a> July 12, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060712e.jpg" width="353">
In the April accounting period for the UK labor force survey (3-month average, March through May) employment gave up some of its prior periods&#39; gains. It had done nicely for the five month-to-month readings beginning in November, rising a total of 173,000 through March. But the April period saw employment fall by 38,000. This brought the 3-month change, the gauge used by UK&#39;s Office of National Statistics (ONS), down to 59,000 from 131,000 in March.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060712f.jpg" width="353">
These moves leave the employment picture somewhat ambiguous. Unemployment, though, has a clearer picture. It is rising. The number unemployed is up 223,000, or 15.6%, from a year ago. The unemployment rate rose in April to 5.4%, its highest since the same level in September 2000. Similarly, claimants for unemployment benefits, which are published on a single-month basis and were issued today for June, increased 93,300 over a year ago to 956,600. This is the largest number since January 2002. However, the monthly increases have tapered a bit in the last couple of months, so perhaps the greatest erosion has past.
The number of job vacancies has stabilized. They totaled 603,000 in June, up from 583,900 in May. A 3-month moving average of these available jobs has hovered in a range of 593,000 to 603,000 since last October after falling sharply from a peak of 650,500 in December 2004.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060712g.jpg" width="353">
Finally, workers&#39; earnings recovered from a period of softness in late 2005, reaching a 12-month growth rate of 4.4% in April, from a recent low of 3.5% in January. Then for May, they slowed a bit to 4.1%.
These conditions in the UK labor market have a cloudy cast. The unemployment data seem to be cause for discomfort, with a rising rate and rising unemployment insurance claims. But employment and wages performed well over the winter into the spring and the number of job vacancies is holding steady. Thus, while the jobs data don&#39;t look vigorous, they are holding up but unemployment is tending higher. A very mixed view.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Jun 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">Mar 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment &nbsp; (3Mo Avg, SA, Thous)</td>
<td>--</td>
<td>--</td>
<td>28,899</td>
<td>28,937</td>
<td>28,676</td>
<td>28,743</td>
<td>28,465</td>
<td>28,183</td>
</tr>
<tr>
<td class="firstcol">Chg from 1 &amp; 3 Months Ago</td>
<td>--</td>
<td>--</td>
<td>-38/59</td>
<td>+41/131</td>
<td>+19(MoAvg)&nbsp;</td>
<td>1.0%</td>
<td>1.0%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate &nbsp; (3Mo Avg, SA, %)</td>
<td>--</td>
<td>--</td>
<td>5.4%</td>
<td>5.3%</td>
<td>4.7%</td>
<td>4.8%</td>
<td>4.8%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Claimant Count &nbsp; (Monthly, Thous)</td>
<td>956.6</td>
<td>950.7</td>
<td>945.1</td>
<td>937.8</td>
<td>863.3</td>
<td>861.1</td>
<td>853.6</td>
<td>933.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Vacancies (Monthly, Thous)</td>
<td>603.0</td>
<td>583.9</td>
<td>604.9</td>
<td>589.9</td>
<td>615.3</td>
<td>618.5</td>
<td>631.9</td>
<td>581.9</td>
</tr>
<tr>
<td class="firstcol">Average Earnings Index inc Bonus (Headline Rate*)</td>
<td>--</td>
<td>4.1%</td>
<td>4.4%</td>
<td>4.2%</td>
<td>4.0%</td>
<td>4.1%</td>
<td>4.3%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
</body>
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The U.S. foreign trade deficit in May again deepened less than expected. The deficit of $63.8B compared to a little revised April gap of $63.3B and Consensus expectations for $64.9B. During the first five months of 2006 the foreign [...]

U.S. Int'l Trade Deficit Deepened Less Than Expected

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711f.jpg" width="353">
Consumer sentiment among Japanese households with two or more persons declined to 47.2 from 49.8 in May according to the Cabinet Office&#39;s diffusion index. The decline was greater than expected and resulted in the lowest value of the index so far this year. To illustrate the weakening of consumer confidence, we have plotted the index of consumer confidence and its year over year increase in the first chart. (Since the monthly data are available only from Jan 2004, there are only two and a half years of data.) The year over year percentage change in the diffusion index is an indicator of the trend in the diffusion index. In recent months the year over year percentage change has declined from a peak of almost 6% in March to 1.3% in June. The erosion of consumer confidence contrasts with strengthening of confidence in the business community. (See the commentary by Carol Stone on July 3rd, reporting on the June Tankan Survey.)<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711g.jpg" width="353">
In spite of the recent trend, sentiment among Japanese consumers has improved over the period of the survey. The biggest improvement is seen in consumers&#39; attitude toward employment prospects. The index for this component has risen to 51.7 in June, 2000 from 45.6 in June, 2004. The other components--Overall Livelihood and Income Growth have shown more moderate gains but the Willingness to Buy component, while slightly above June 2004, is at 48.8, almost a full point below the 49.7 of June 2005.
Price expectations of consumers in all Households in June show substantial increases in the numbers expecting prices to rise. 23.5% expect prices to rise between 2 and 5% in the next year, almost double the percent that expected such increases in June, 2004. Current price expectations are shown in the following table compared with those for June 2005 and 2004. As an indication of the shift in consumers&#39; concern from one of deflation to one of inflation, we show, in the second chard, the decline in the percent of consumers expecting prices to stay the same or decline by two percent with the rise of those consumers expecting price to rise by less than two percent. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J806/@J806.HTM">Japan: Consumer Confidence: &nbsp; Two Person Households</a></th>
<th scope="col">Jun&nbsp; 06</th>
<th scope="col">Jun 05</th>
<th scope="col">Jun 04</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;Confidence Index&nbsp;</td>
<td>47.2</td>
<td>46.6</td>
<td>44.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Overall Livelihood</td>
<td>44.8</td>
<td>45.0</td>
<td>43.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Income Growth</td>
<td>43.3</td>
<td>43.2</td>
<td>41.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Employment</td>
<td>51.7</td>
<td>48.3</td>
<td>45.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Willingness to Buy Durable Goods</td>
<td>48.8</td>
<td>49.7</td>
<td>48.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Price Expectations: All Households</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;No Change&nbsp;</td>
<td>24.1</td>
<td>40.3</td>
<td>35.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Up by Less than 2%</td>
<td>33.5</td>
<td>27.3</td>
<td>27.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Up between 2 and 5%</td>
<td>23.7</td>
<td>12.2</td>
<td>17.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Down between 2 and 5%&nbsp;</td>
<td>1.0</td>
<td>1.3</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Down by less than 2%&nbsp;</td>
<td>3.4</td>
<td>6.5</td>
<td>5.7</td>
</tr>
</tbody>
</table>
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Consumer sentiment among Japanese households with two or more persons declined to 47.2 from 49.8 in May according to the Cabinet Office's diffusion index. The decline was greater than expected and resulted in the lowest value of the [...]

Japanese Consumer Sentiment Wavers: Price Expectations Suggest that Concern over Inflation Is Replacing that over [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711a.jpg" width="353">
Retail gasoline prices rose another four cents last week to an average $2.97 per gallon (27.7% y/y).
Demand for motor gasoline was quite strong during June. According to the Oil and Gas Journal&#39;s estimates, demand rose 5.6% from the May average and rose 6.5% from June of 2005. The US Dept. of Energy&#39;s figures peg demand up as well but to a lesser degree
Yesterday, in spot market trading the price for a gallon of regular unleaded gasoline fell seven cents to $2.13. 
In 2005 petroleum companies began eliminating MTBE from reformulated gasoline (RFG) and have replaced it with ethanol. The last remaining markets for MTBE RFG are in the final stages of switching to RBOB (Reformulated Blendstock for Oxygenate Blending). As a consequence, prices for RFG in the Haver databases are being discontinued and new regular and premium RBOB prices are being added.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711c.jpg" width="353">
The New York Mercantile Exchange introduced a RBOB futures contract in January and traders are gradually migrating to the new RBOB contracts. RFG contracts will end with the January 2007 contract. While these changes are important, two-thirds of all gasoline consumed in the US is still conventional and not impacted by these changes.
The domestic spot price for a barrel of West Texas Intermediate fell for the third straight day on Monday. Nevertheless, at $73.63 per bbl. the price was nearly 4% higher than last month&#39;s average.
What the Fifth District&#39;s only major oil refinery explains about high gas prices in the wake of Hurricanes Katrina and Rita from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/region_focus/winter_2006/feature4.cfm"> here</a>.



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Retail gasoline prices rose another four cents last week to an average $2.97 per gallon (27.7% y/y). Demand for motor gasoline was quite strong during June. According to the Oil and Gas Journal's estimates, demand rose 5.6% from the [...]

Gasoline Prices Up With Demand

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS indicated that chain store sales ticked 0.2% higher during the opening week of July following two consecutive weeks of decline.
As a result, sales began the month 0.4% below the June average which fell 0.4% from May. During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto 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.
The leading indicator of chain store sales from ICSC-UBS rose 0.4% (-2.1% y/y) following two consecutive weeks of 0.3% decline.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">07/08/06</th>
<th scope="col">07/01/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>469.2</td>
<td>468.3</td>
<td>3.0%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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The International Council of Shopping Centers (ICSC)-UBS indicated that chain store sales ticked 0.2% higher during the opening week of July following two consecutive weeks of decline. As a result, sales began the month 0.4% below the [...]

Chain Store Sales Rose Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711d.jpg" width="353">
Small business optimism in June fell another 1.8%, according to the National Federation of Independent Business (NFIB). It was the fourth m/m decline this year.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
Respondents expecting the economy to improve rose slightly m/m but remained near the lowest level since early 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711e.jpg" width="353">
The percentage of firms planning to increase employment slipped back to the lowest level since 2003. The number of firms currently with one or more job openings remained stable but off from the April high. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percent planning to raise capital expenditures fell moderately to a new low (27%) since 2003..The percentage of firms planning to raise average selling prices slipped to 29%. The percentage of firms actually raising prices also fell m/m to 23% but remained up versus a 22% average last year. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>96.7</td>
<td>98.5</td>
<td>-4.1%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
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Small business optimism in June fell another 1.8%, according to the National Federation of Independent Business (NFIB). It was the fourth m/m decline this year. During the last ten years there has been a 70% correlation between the [...]

Small Business Optimism Continued Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711d.jpg" width="353">
Small business optimism in June fell another 1.8%, according to the National Federation of Independent Business (NFIB). It was the fourth m/m decline this year.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
Respondents expecting the economy to improve rose slightly m/m but remained near the lowest level since early 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711e.jpg" width="353">
The percentage of firms planning to increase employment slipped back to the lowest level since 2003. The number of firms currently with one or more job openings remained stable but off from the April high. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percent planning to raise capital expenditures fell moderately to a new low (27%) since 2003..The percentage of firms planning to raise average selling prices slipped to 29%. The percentage of firms actually raising prices also fell m/m to 23% but remained up versus a 22% average last year. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>96.7</td>
<td>98.5</td>
<td>-4.1%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
</tr>
</tbody>
</table>
Chain Store Sales Rose Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 11, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS indicated that chain store sales ticked 0.2% higher during the opening week of July following two consecutive weeks of decline.
As a result, sales began the month 0.4% below the June average which fell 0.4% from May. During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto 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.
The leading indicator of chain store sales from ICSC-UBS rose 0.4% (-2.1% y/y) following two consecutive weeks of 0.3% decline.

<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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">07/08/06</th>
<th scope="col">07/01/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>469.2</td>
<td>468.3</td>
<td>3.0%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Gasoline Prices Up With Demand 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 11, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711a.jpg" width="353">
Retail gasoline prices rose another four cents last week to an average $2.97 per gallon (27.7% y/y).
Demand for motor gasoline was quite strong during June. According to the Oil and Gas Journal&#39;s estimates, demand rose 5.6% from the May average and rose 6.5% from June of 2005. The US Dept. of Energy&#39;s figures peg demand up as well but to a lesser degree
Yesterday, in spot market trading the price for a gallon of regular unleaded gasoline fell seven cents to $2.13. 
In 2005 petroleum companies began eliminating MTBE from reformulated gasoline (RFG) and have replaced it with ethanol. The last remaining markets for MTBE RFG are in the final stages of switching to RBOB (Reformulated Blendstock for Oxygenate Blending). As a consequence, prices for RFG in the Haver databases are being discontinued and new regular and premium RBOB prices are being added.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711c.jpg" width="353">
The New York Mercantile Exchange introduced a RBOB futures contract in January and traders are gradually migrating to the new RBOB contracts. RFG contracts will end with the January 2007 contract. While these changes are important, two-thirds of all gasoline consumed in the US is still conventional and not impacted by these changes.
The domestic spot price for a barrel of West Texas Intermediate fell for the third straight day on Monday. Nevertheless, at $73.63 per bbl. the price was nearly 4% higher than last month&#39;s average.
What the Fifth District&#39;s only major oil refinery explains about high gas prices in the wake of Hurricanes Katrina and Rita from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/region_focus/winter_2006/feature4.cfm"> here</a>.

  Japanese Consumer Sentiment Wavers:  Price Expectations Suggest that Concern over Inflation Is Replacing that over Deflation  
by <a href="/comment/Curley.html">Louise Curley</a> July 11, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711f.jpg" width="353">
Consumer sentiment among Japanese households with two or more persons declined to 47.2 from 49.8 in May according to the Cabinet Office&#39;s diffusion index. The decline was greater than expected and resulted in the lowest value of the index so far this year. To illustrate the weakening of consumer confidence, we have plotted the index of consumer confidence and its year over year increase in the first chart. (Since the monthly data are available only from Jan 2004, there are only two and a half years of data.) The year over year percentage change in the diffusion index is an indicator of the trend in the diffusion index. In recent months the year over year percentage change has declined from a peak of almost 6% in March to 1.3% in June. The erosion of consumer confidence contrasts with strengthening of confidence in the business community. (See the commentary by Carol Stone on July 3rd, reporting on the June Tankan Survey.)<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060711g.jpg" width="353">
In spite of the recent trend, sentiment among Japanese consumers has improved over the period of the survey. The biggest improvement is seen in consumers&#39; attitude toward employment prospects. The index for this component has risen to 51.7 in June, 2000 from 45.6 in June, 2004. The other components--Overall Livelihood and Income Growth have shown more moderate gains but the Willingness to Buy component, while slightly above June 2004, is at 48.8, almost a full point below the 49.7 of June 2005.
Price expectations of consumers in all Households in June show substantial increases in the numbers expecting prices to rise. 23.5% expect prices to rise between 2 and 5% in the next year, almost double the percent that expected such increases in June, 2004. Current price expectations are shown in the following table compared with those for June 2005 and 2004. As an indication of the shift in consumers&#39; concern from one of deflation to one of inflation, we show, in the second chard, the decline in the percent of consumers expecting prices to stay the same or decline by two percent with the rise of those consumers expecting price to rise by less than two percent. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J806/@J806.HTM">Japan: Consumer Confidence: &nbsp; Two Person Households</a></th>
<th scope="col">Jun&nbsp; 06</th>
<th scope="col">Jun 05</th>
<th scope="col">Jun 04</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;Confidence Index&nbsp;</td>
<td>47.2</td>
<td>46.6</td>
<td>44.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Overall Livelihood</td>
<td>44.8</td>
<td>45.0</td>
<td>43.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Income Growth</td>
<td>43.3</td>
<td>43.2</td>
<td>41.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Employment</td>
<td>51.7</td>
<td>48.3</td>
<td>45.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Willingness to Buy Durable Goods</td>
<td>48.8</td>
<td>49.7</td>
<td>48.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Price Expectations: All Households</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;No Change&nbsp;</td>
<td>24.1</td>
<td>40.3</td>
<td>35.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Up by Less than 2%</td>
<td>33.5</td>
<td>27.3</td>
<td>27.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Up between 2 and 5%</td>
<td>23.7</td>
<td>12.2</td>
<td>17.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Down between 2 and 5%&nbsp;</td>
<td>1.0</td>
<td>1.3</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Down by less than 2%&nbsp;</td>
<td>3.4</td>
<td>6.5</td>
<td>5.7</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060710c.jpg" width="353">
Four counties--France, Greece, Sweden and Turkey--released industrial production data for May this morning. France and Sweden are more highly developed in an economic sense than Greece and Turkey.
In France, where industrial production is only slightly higher than it was in 2000, industrial production rose from 101.7 in April to 103.7 in May. While Sweden showed a smaller increase from 111.8 in April to 112.7 in May, the level of production in Sweden is almost 13% above its 2000 level. The stronger trend in Sweden&#39;s industrial production compared with that of France is shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060710d.jpg" width="353">
Industrial production trends in Greece and Turkey show similar trends with Greece showing little growth since 2000 and Turkey, substantial growth. (The reported data for Turkey are based on 1997=100. We have adjusted these data to 2000=100) by changing the index base in the advanced function menu.) Production in Greece increased 4.7% in May from April, but was only 2.5% above May of 2005. Production in Turkey increased only 0.9% in May from April, but was 9.0% above May, 2005. Industrial production data for Greece and Turkey are shown in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production (2000=100)</th>
<th scope="col">May&nbsp; 06</th>
<th scope="col">Apr 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">France&nbsp;</td>
<td>103.7</td>
<td>101.7</td>
<td>101.0</td>
<td>1.96</td>
<td>2.67</td>
<td>101.8</td>
<td>101.6</td>
<td>99.6</td>
</tr>
<tr>
<td class="firstcol">Sweden</td>
<td>112.7</td>
<td>111.8</td>
<td>106.3</td>
<td>0.81</td>
<td>6.02</td>
<td>107.9</td>
<td>106.2</td>
<td>103.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece</td>
<td>100.2</td>
<td>95.6</td>
<td>99.7</td>
<td>4.77</td>
<td>0.49</td>
<td>99.4</td>
<td>100.5</td>
<td>99.3</td>
</tr>
<tr>
<td class="firstcol">Turkey</td>
<td>135.7</td>
<td>134.4</td>
<td>124.4</td>
<td>0.94</td>
<td>9.01</td>
<td>125.7</td>
<td>119.3</td>
<td>108.7</td>
</tr>
</tbody>
</table>
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Four counties--France, Greece, Sweden and Turkey--released industrial production data for May this morning. France and Sweden are more highly developed in an economic sense than Greece and Turkey. In France, where industrial [...]

May Industrial Production Up Sharply in France and Greece, Less So in Sweden and Turkey, but the Latter Two Show [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060710a.jpg" width="353">
The Leading Index of the major 7 OECD economies slipped 0.1% during May and reversed a downwardly revised 0.1% gain the prior month. It was the first decline in the index since April of last year and it lowered the index&#39;s six month growth rate to 2.6%, the slowest since November.
During the last ten years there has been a 64% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven OECD countries.
A 0.6% decline in the U.S. leaders followed a 0.1% April dip and dropped the six month growth rate to 2.3%, its lowest since October. Consumer sentiment slipped and interest rate spreads remained quite negative. The correlation between the leaders&#39; growth rate and real GDP growth has been a high 73% during the last ten years.
The Canadian leaders fell 0.9%. This fourth consecutive down month dropped the index&#39;s six month growth rate to -1.9%, the worst in year. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The leading index for the European Union (15 countries) improved another 0.4%, about its monthly rate of advance since last Summer. The gain lifted the index&#39;s six month growth rate to 5.0%, the best in two years. During the last ten years there has been a 59% correlation between the change in the leading index and the quarterly change in the European Union GDP volume index.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060710b.jpg" width="353">
The German leading index rose 0.6% after an upwardly revised 0.7% April increase. The six month growth rate, consequently, held at a firm 8.0%. During the last ten years there has been a 32% correlation between the change in the German leading index and the quarterly change in GDP volume.
The Italian leading index jumped 0.6%, the third strong monthly increase this year. It lifted the series&#39; six month growth rate to 2.7% as the future tendency of production and new orders rose while consumer confidence was less negative.
A 0.1% increase in the leaders in France left the series&#39; six month growth rate stable at a moderate, but improved, 2.8%.
The UK leaders ticked up 0.1% in May after a downwardly revised no change in April. The six month growth rate slipped to a modest 1.4% as consumer confidence fell.
The leading index in Japan gained 0.2% but April&#39;s previously reported sharp increase was revised down to 0.1%. The index&#39;s six month growth rate held at a moderate 1.7%. The leaders&#39; correlation with Japan&#39;s real economic growth has been a meaningful 40% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/document/35/0,2340,en_2825_293564_37075875_1_1_1_1,00.html">here</a>.
Rising health costs put pressure on public finances, finds OECD can be found <a href="http://www.oecd.org/document/37/0,2340,en_2649_201185_36986213_1_1_1_1,00.html"> 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/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Leading Index&nbsp;</td>
<td>105.27</td>
<td>105.42</td>
<td>3.2%</td>
<td>102.85</td>
<td>102.38</td>
<td>97.99</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>2.6%</td>
<td>3.4%</td>
<td>&nbsp;</td>
<td>0.7%</td>
<td>3.5%</td>
<td>2.6%</td>
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The Leading Index of the major 7 OECD economies slipped 0.1% during May and reversed a downwardly revised 0.1% gain the prior month. It was the first decline in the index since April of last year and it lowered the index's six month [...]

OECD Leaders Slip, North America Down

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

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

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Andrew Cates

**The US labour market**
The latest data highlight a growing sense of fragility in the US labour market. The unemployment rate, while still relatively low by historical standards, has been edging higher through the course of this year. More telling, however, is the signal from this week’s consumer confidence survey from Conference Board and specifically the labour market differential — the gap between the share of consumers saying jobs are plentiful versus those saying jobs are hard to get. That balance has narrowed sharply, moving back toward levels historically associated with softer labour demand and rising unemployment.

250828Z1.jpg

**Goods and services inflation** 
Haver’s breakdown of goods and services CPI inflation in the advanced economies highlights where fresh risks are emerging. Goods inflation, which had been receding sharply after the pandemic supply shocks, has recently shown signs of firming again. Some of this probably reflects the impact of US tariff policies, which are raising import costs and putting renewed upward pressure on traded goods prices. While services inflation remains the more stubborn component in most advanced economies, the risk is that tariffs could reintroduce stickiness into goods prices, slowing the overall disinflation process.

250828Z2.jpg

**China, Europe and US trade policy**
A consequence of US tariff policies has been a sharp contraction in Chinese exports to the US market, with much of the surplus redirected elsewhere. Europe in particular has recorded near double-digit import growth in recent months, raising concerns that Beijing is deflecting its industrial overcapacity problem rather than resolving it, effectively transferring the pressure onto trading partners. China’s authorities, however, have begun to push back, introducing measures to curb excess supply and rein in so-called “involution,” including clampdowns on price wars across several industries.

250828Z3.jpg

**China’s excess capacity and Europe**
A closer look at Europe–China trade shows that electric vehicles remain a key flashpoint. Import volumes from China have continued to rise even as per-unit prices fall sharply from a year ago —evidence suggesting that industrial overcapacity persists, with low-cost Chinese EVs increasingly challenging European automakers. The surge has carried on despite EU tariffs of up to 45% on battery EVs, as Chinese producers have adapted by pushing plug-in hybrids and expanding onshore production in Europe to bypass duties and defend market share.

250828Z4.jpg

**Wage growth in the US and Europe** 
Turning back to inflation dynamics, the UK stands out for its persistent wage pressures. While posted wage growth has cooled across the US and euro area, the UK measure has remained elevated at around 6% year-on-year, well above pre-pandemic norms. This stickiness reflects a still-tight labour market in key service sectors, even as broader activity has slowed and unemployment has edged higher. For the Bank of England, it underscores the dilemma: headline inflation is easing, but underlying pay growth risks keeping services inflation uncomfortably high, complicating the timing and scale of policy easing.

250828Z5.jpg

**The UK economy**
The UK’s net international investment position has deteriorated noticeably in recent years, with both direct investment and portfolio flows showing persistent weakness. The latest data underline how net FDI has turned increasingly negative, while the portfolio investment balance has also eroded, leaving the UK more reliant on volatile short-term funding sources. This deterioration comes against a backdrop of heightened investor unease about the riskiness of UK debt markets, where elevated gilt yields and rising debt-servicing costs have amplified concerns over fiscal sustainability. Taken together, these trends underscore the vulnerability of the UK’s external position at a time when global capital is arguably proving more selective and risk sensitive.

250828Z6.jpg

Global markets have continued to rally into late summer, buoyed by AI optimism, dovish signals from central bankers at Jackson Hole, and expectations of easier policy ahead. Yet beneath the surface, risks to the world economy are accumulating. In the US, labour market indicators point to softening conditions (chart 1), while tariff-driven pressures are beginning to push goods prices higher (chart 2). Global trade flows are being reshaped by US policy, with China’s excess capacity increasingly diverted toward Europe, most visibly through surging exports of electric vehicles (EVs) (charts 3 and 4). At the same time, wage growth remains stubbornly elevated in the UK, complicating disinflation (chart 5), while concerns are mounting over the country’s external vulnerabilities as net FDI and portfolio positions weaken against the backdrop of jittery debt markets (chart 6). Together, these dynamics highlight the tension between buoyant market performance and a global economy still grappling with structural fragilities.

Charts of the Week: Riskbusters

250828N8.jpg

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Real GDP grew 3.3% (SAAR) during the second quarter of 2025, revised from a 3.0% gain reported initially. The increase followed an unrevised 0.5% decline in Q1. A 3.1% rise had been expected in the Action Economics Forecast Survey. Growth during the last four quarters of 2.1% compared to 2.0% y/y in Q1, and remained below its most recent high of 3.2% in Q4 2023.

After-tax corporate profits without IVA & CCA adjustment increased 1.4% (7.0% y/y) last quarter after easing 0.8% in Q1. Before-tax earnings with IVA & CCA rose 1.7% (4.3% y/y) after falling 2.3% in Q1. Financial sector earnings rose 1.4% (15.3% y/y) after rising 2.3% in Q1. Nonfinancial corporate profits rose 2.2% (2.5% y/y) after falling 2.5% in Q1. Earnings from abroad eased 0.7% (-0.4% y/y) following a 7.3% Q1 decline.

Foreign trade balance improvement added 4.95 percentage points to growth last quarter after subtracting 4.61 percentage points in Q1. Imports fell 29.8% (+1.3% y/y) after surging 38.0% in Q1. Exports declined 1.3% (+2.0% y/y) after improving 0.4% in Q1. Inventories subtracted 3.29 percentage points from growth after adding 2.59 percentage point to Q1 growth.

Real final sales to domestic purchasers grew 1.6% (2.4% y/y), revised from 1.1%, in Q2 after rising 1.5% in Q1. Personal consumption expenditures rose 1.6% (2.4% y/y), revised from 1.4%, following a 0.5% gain. Durable goods spending rose 2.6% (4.6% y/y) after falling 3.7% in Q1. Motor vehicle purchases strengthened 11.7% (6.7% y/y) after declining 11.2% in Q1. Spending on home furnishings & appliances weakened 2.1% (+3.5% y/y) following a 1.5% rise. Recreational goods & vehicle outlays fell 3.5% (+4.3% y/y) last quarter after a 0.4% Q1 gain.

Nondurable goods outlays in constant dollars rose 2.3% (3.0% y/y) following 2.1% growth in Q1. Apparel spending increased 5.4% (4.8% y/y) following a 7.0% rise. Food & beverage buying gained 0.3% (1.5% y/y) after a 1.0% increase. Gasoline & fuel oil purchases weakened 1.4% (+0.9% y/y) after gaining 3.6% in Q1.

Real spending on services increased 1.2% (1.9% y/y) after a 0.6% gain. Outlays on housing & utilities eased 0.4% (+1.1% y/y) after rising 2.9% in Q1. Health care expenditures rose 4.2% (4.8% y/y) after a 3.1% increase. Transportation outlays declined 2.9% (-0.6% y/y) after a 1.4% rise, while recreation spending rose 3.6% (0.7% y/y) following a 5.1% decline. Restaurant & hotel expenditures increased 5.1% (1.9% y/y) after falling 1.8%. Financial services expenditures rose 1.9% (2.3% y/y) following a 0.1% Q1 increase.

Business fixed investment in constant dollars increased 5.7% last quarter (4.2% y/y), revised from 1.9%, following a 10.3% surge in Q1. Expenditures on structures declined 8.9% (-3.4% y/y), after falling 2.4% in Q1. Expenditures on producers’ durable equipment increased 7.4% (7.7% y/y), revised from 4.8%, after surging 23.7% in Q1. Outlays on information processing equipment rose 10.1% (20.1% y/y), revised from 5.5%, after soaring 72.8% during Q1. Industrial equipment investment rose 6.7% (4.0% y/y) after a 4.7% rise. Transportation equipment investment surged 20.4% (6.8% y/y) after a 6.9% gain. Intellectual property product spending rose 12.8% last quarter (5.2% y/y) following a 6.0% rise.

Residential structures investment in real terms declined a little-revised 4.7% (-1.3% y/y), the fourth decline in the last five quarters.

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Government spending eased 0.2%, revised from up 0.5% in Q2 (+1.8% y/y) after a 0.6% decline. Federal government expenditures declined 4.7% (+0.7% y/y) after falling 4.6% in Q1. National defense expenditures increased 1.4% (3.0% y/y) after declining 7.1% in Q1. State & local government spending rose 2.6% (2.5% y/y) following a 2.0% rise.

The GDP chain price index rose an unrevised and expected 2.0% last quarter (2.5% y/y) after increasing 3.8% in Q1. The PCE chain price index increased 2.0% (2.4% y/y) following a 3.7% rise. The PCE price index excluding food and energy rose 2.5% (2.7% y/y) after increasing 3.5% in Q1. The business fixed investment price index edged 0.5% lower (+1.1% y/y) after a 0.4% rise. The residential price index rose 1.1% (2.6% y/y) after a 4.1% rise while the government price index increased 3.3% (3.1% y/y) following a 4.6% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Business investment strengthens & consumer spending firms.
- U.S. business earnings reverse Q1 decline.
- Increase in price index is unrevised, remaining roughly half of Q1’s gain.

U.S. GDP Q2’25 Growth Revised Up; Profits Improve

Sandy Batten

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The Kansas City Fed manufacturing composite index was unchanged at 1 in August from July. This was the second consecutive month that the index has been positive, indicating the manufacturing in the KC Fed district continue to inch up in August. Prior to the positive reading in July, the index had been negative for 22 consecutive months. The index’s most recent high was 31 reached in both April 2021 and October 2021. The durable manufacturing sector was mostly flat in August, while nondurable manufacturing activity declined slightly driven by printing activities and paper and chemical manufacturing. 

The August survey was open for a six-day period from August 20-25, 2025 and included 103 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The ISM-adjusted index calculated by Haver Analytics rose to 51.1 (NSA) in August from 50.2 in July. This was the fifth reading above the critical 50 level that separates expansion from contraction in the past six months, a further indication of expanding manufacturing activity.

For the major component indexes, the production index was 0 in August, but this was up from -3 in July. The new orders index rose to 5 in August, its highest reading since May 2022, from 2 in July. The shipments index increased to 6 in August from 3 in July. The employment index was 0 in August, but this was up from -11 in July. Also, the average workweek index rebounded to 3 in August after having been in negative territory for the previous four months. Supplier delivery times were unchanged at 7 in August. The elevation of this index since April may indicate some incipient supply-chain disruptions from higher tariffs. In contrast, raw materials inventories fell to -7 in August from 8 in July.

On the inflation front, the prices paid for raw materials index remained elevated but fell to 43 in August from 47 in July and a local high of 51 in June. Forty-four percent of respondents reported an increase in raw materials prices in August, down from 48% in July and 53% in June, while only 4% reported a decrease, down from 5% in July and 6% in June. The prices received for finished products index increased to 21 in August from 18 in July. This index has fluctuated in a range between 17 and 21 for the past four months.

Expectations for future activity remained positive, with the composite index rising to 11 from 8, as firms anticipate an improvement in production and new orders. While expectations have been trending up over the past several months, they remain depressed relative to the recent high reading of 17 last December. Capital expenditures expectations remained in negative territory in August for the second consecutive month but edged up to -3 from -4 in July.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Data for the Kansas City Fed Survey can be found in Haver’s **SURVEYS** database.

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- Index remained (though barely) in positive territory for the second consecutive month, indicating that manufacturing activity was inching up.
- Prior to last month, the index had been negative for 22 consecutive months.
- Positive readings across most key components.

FRB Kansas City Manufacturing Index Unchanged in August

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The Pending Home Sales Index weakened 0.4% in July (+0.7% y/y) to 71.7 after falling an unrevised 0.8% in June and rising an unrevised 1.8% in May, according to the National Association of Realtors (NAR). The Index remained 42.7% below its most recent peak of 125.1 in October 2021. The index is a forward-looking measure of home sales based on contract signings.

The fall in pending home sales occurred as the average rate on a 30-year mortgage rose to 6.72% in July after holding steady m/m at 6.82% in June. These rates remained well above a low of 5.22% in August 2022 and more than double a record-low 2.68% in December 2020.

Pending home sales were mixed last month in the four major regions of the country. Sales in the Midwest declined 4.0% (+1.3% y/y) in July after easing 0.8% in June. Sales in the Northeast fell 0.6% both m/m and y/y, after holding steady in June. In the South, sales eased 0.1% (+1.8% y/y) following a 0.6% June decline, but sales in the West increased 3.7% (-1.9% y/y), reversing a 3.9% June drop.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Decline adds to June weakness.
- Regional changes are mixed.


U.S. Pending Home Sales Decline in July

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined to 229,000 during the week of August 23, after rising to 234,000 in the week of August 16, revised from 235,000. The Action Economics Forecast Survey expected 230,000 initial claims for last week. The four-week moving average of initial claims increased to 228,500 from 226,000, revised from 226,250. It was the highest level since the second week of July.

In the week ended August 16, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – decreased by 7,000 to 1.954 million from 1.961 million in the prior week, revised down by 11,000 from 1.972 million. The four-week moving average rose to 1.956 million in the week ending August 16, the highest level in six weeks, and up from 1.952 million in the prior week, revised from 1.955 million.

In the week ending August 16, the insured rate of unemployment (the number of beneficiaries as a percent of covered employment) was 1.3% for the twelfth consecutive week.

The insured unemployment rate varied greatly across individual states and territories. In the week ended August 9, the highest unemployment rates were in New Jersey (2.75%), Rhode Island (2.58%), Massachusetts (2.18%), Minnesota (2.17%), California (2.11%), Washington (2.08%), District of Columbia (2.04%), and Puerto Rico (2.02%). The lowest were in South Dakota (0.28%), Florida (0.42%), and Alabama and North Carolina (both 0.47%). Rates in other notable states include Pennsylvania (1.92%), New York (1.73%), Illinois (1.72%), and Texas (1.24%). 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. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims declined in latest week after a surge in the prior week.
- Continuing claims declined.
- Insured unemployment rate holds steady.

Economy in Brief: July 2006

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