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DLXVG3

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HaverView

[Matlab](http://matlab.com) by The MathWorks lets you access, visualize, and analyze historic time-series data to identify patterns or uncover complex relationships. From within a single environment you can:

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MATLAB

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Stata

[SAS](https://www.sas.com) provides an integrated environment for predictive and descriptive modeling, data mining, text analytics, forecasting, optimization, simulation, experimental design and more. From predictive analytics to model deployment and process optimization, SAS provides a range of techniques and processes for the collection, classification, analysis and interpretation of data to reveal patterns, anomalies, key variables and relationships, leading ultimately to new insights and better answers faster.

[SASEHAVR](http://support.sas.com/documentation/cdl/en/etsug/67525/HTML/default/viewer.htm#etsug_sasehavr_gettingstarted01.htm) is a seamless interface between Haver and SAS data processing that enables SAS users to read economic and financial time series data that reside in a Haver Analytics DLX (Data Link Express) database. [SASEHAVR](http://support.sas.com/documentation/cdl/en/etsug/67525/HTML/default/viewer.htm#etsug_sasehavr_gettingstarted01.htm) requires both SAS/ETS and Base SAS Software.

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[RATS (Regression Analysis of Time Series) Econometric Software](https://estima.com) by Estima is a leading econometrics and time-series analysis software package. It provides ability to do linear and non-linear least squares, forecasting, SUR and ARIMA models and in addition, supports advanced techniques such as GMM, ARCH and GARCH models, state space models, and more.

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RATS

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Estimating, evaluating, and forecasting ARIMA models

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Estimating and forecasting with vector error correction models

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Teaches econometrics and forecasting at the University of Colorado Denver. He has over 15 years of econometric experience in both the private and public sector.

Daniel L. Jerrett, Ph.D.

Abdel M. Zellou, Ph.D.

Bootcamp and Econometric Tools 1 & 2

Econometrics Training: Applied Time Series in R

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Haver partners with SmartMacro Labs to offer a two week immersive online course introducing participants to the power of the Python programming language. This applied hands-on training develops statistical economics skills with a concentration on economics and finance.

Gain proficiency in building modern time-series models in Python through real-world applications. Designed for professionals in both the public and private sector, the course does not require prior experience, assuming only that participants have a basic understanding of regression and statistical concepts.

Proficiency working in Jupyter notebooks and the Python environment

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Remote Training: Applied Time Series in Python

Sharp drop in China demand for oil helping to limit impact of Middle East conflict on the price

Robert Brusca

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Inflation in Italy rose 0.1% in July after being flat in June and rising 0.3% in May. The core HICP was not quite so lucky, rising 0.3% in July after declining 0.2% in June and rising 0.4% in May. The domestic inflation data from Italy show the headline rising 0.1% in July, flat in June, and rising 0.4% in May. The Italian core on its domestic measure rose 0.3% in July, was flat in June, and rose 0.3% in May.

HICP inflation has gotten unruly in Italy, rising 2.9% over 12 months, accelerating to a 5.2% annual rate over six months but then rising by only 1.6% at an annual rate over three months. Core inflation remains much better behaved but has seen some increasing pressure, rising 1.5% over 12 months, posting a 1.4% annual rate over six months, and rising at a 2% annual rate over three months.

The domestic measures of inflation show the headline is quite similar to the HICP headline, rising 2.9% over 12 months, accelerating to a 5.7% annual rate over six months, and posting a 2% annual rate over three months. The Italian core rate, however, accelerates steadily from 1.6% over 12 months to 2.2% annualized over six months and to 2.4% annualized over three months. It's not a terrible ramping up, but it is an acceleration; it takes the Italian core to a level above what the ECB projects as its target for the euro area as a whole.

Inflation diffusion in Italy over three months, six months, and 12 months is relatively well behaved at 53.8% over 12 months and over six months. There's a modest tendency to have more acceleration than deceleration; however, over three months the diffusion measure falls to 46.2%, indicating net deceleration. The net deceleration over three months is reassuring, with moderate three-month inflation rates having been posted on the various metrics cited above. However, even the slight acceleration tendencies are a little more disturbing, with the high headline inflation posted over six months and uncomfortably high near a 3% pace over 12 months.

On a quarter-to-date basis, inflation in the third quarter is off to a slow start, at 1.2% for the HICP and 1.4% for the domestic measure. Both the HICP and the domestic measures show core inflation higher at 1.8% for the HICP and at a 2.4% annual rate for the domestic metric.

The inflation problem in Italy isn't simply something that comes because of oil. Year-over-year, the headline for the HICP and the domestic measure are both under 2% in the quarter to date (QTD). But both measures are running at or above 2% in most of the sequential developments of inflation from 12 months to six months to three months. Core inflation is showing pressure for both the HICP and domestic measures sequentially as well as QTD. The Italian inflation report for July by itself is not so good as the monthly headline is well-behaved, but the cores are uncomfortable in both the HICP and domestic measures. Inflation clearly is not dead. It remains something to keep an eye on even in Italy where inflation trends had been better behaved.

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Italy

Italian Inflation Gets Prickly

Sandy Batten

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Existing home sales fell 1.7% m/m (+0.7% y/y) to 4.06 million units at an annual rate in July after a downwardly revised 1.4% monthly decline in June (previously -2.4% m/m), according to the National Association of Realtors (NAR). The July level of sales was the lowest in three months. The Action Economics Forecast Survey expected a 1.0% m/m decline in July. The interest rate on the 30-year fixed-rate mortgage continued its ascent in July, rising to 6.89% from 6.78% in June. This rate has risen 59 basis points since its recent low in February, a rise that continues to restrain home sales. The sales figures are based on closings of sales contracts signed over the past couple of months.

Sales of existing single-family homes fell 1.9% m/m (+0.8% y/y) in July on top of a 1.6% monthly decline in June. Sales of condos and co-ops were unchanged in July from June and also unchanged from a year ago.

Regionally, monthly sales increased in the Northeast (2.0% m/m, the third consecutive monthly increase), were unchanged in the West, and declined in the Midwest (-2.0% m/m) and South (-3.1% m/m). Year-over-year sales rose in the Midwest (2.1% y/y) and West (1.4% y/y) and were unchanged in the Northeast and South.

The nationwide median sales price fell 2.0% m/m NSA (+2.0% y/y) to $434,100 in July. After trending down during 2025, the y/y rate of advance of the median price has trended up slightly so far in 2026. The median sales prices of single-family home declined 1.9% m/m NSA (+1.9% y/y) in July while the median price of a condo/co-op fell 2.7% m/m NSA (+2.2% y/y). Regionally, the median sales price declined in all four major regions in July from June but rose from a year ago in each region.

There were 1.54 million homes NSA available for sale at the end of July, down 1.9% from June and 0.6% from a year ago. At the current selling pace, this level amounted to 4.6 months of unsold inventory, unchanged from both last month and July 2025.

The Fixed Rate Mortgage Housing Affordability Index edged up to 103.3 in July from 101.8 in June but is still well below the recent peak of 116.5 reached in January. Housing affordability slipped slightly in the Northeast but rose in the Midwest, South and West in July from June. The affordability index measures whether a median income family income qualifies for an 80% mortgage on a median-priced single-family home. Rising values above 100 indicate that more buyers can afford this mortgage.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- Total sales fell 1.7% m/m to 4.06 million units at an annual rate in July after a 1.4% monthly decline in June but were up 0.7% from a year ago.
- Monthly sales increased in the Northeast, held steady in the West, and declined in the Midwest and South.
- Year-over-year sales rose in the Midwest and West and were unchanged in the Northeast and South.
- The median sales price fell 2.0% m/m NSA in July but rose 2.0% from a year ago.

U.S. Existing Home Sales Fell Again in July

Winnie Tapasanun

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The NFIB Small Business Optimism Index rose to 99.8 in July after a 2.1-point rebound to 97.4 in June, according to the Small Business Economic Trends survey from the National Federation of Independent Business, indicating small business sentiment improved to the highest level since August 2025. The index was above its 52-year average of 98.0 for the first time since February and above a low of 88.5 in March 2024, albeit below 100.3 in July 2025 and a peak of 105.1 in December 2024. Eight of the 10 index components rose, while two fell. The NFIB Small Business Uncertainty Index improved to 91 in July following a two-point decline to 89 in June, remaining well above its historical average of 68. The index was up from its recent low of 84 in December 2025 and a low of 65 in November 2023, while below its record high of 110 in October 2024.

The outlook for business conditions in the next six months remained positive for the 21st straight month in the latest survey. The net balance of respondents expecting the economy to improve increased to 15% in July, a five-month high, following a 10-point recovery to 13% in June; these readings were far below a high of 52% in December 2024 but significantly above a record low of -61% in June 2022. Expected real sales declined to a net 7% in July from a five-month high of 9% in June; the latest figure was below a high of 22% in December 2024 but above a low of -18% in August 2024. A net -4% of respondents reported higher nominal sales in the past three months, unchanged from June; the latest result remained above a low of -20% in October 2024 but below the recent positive reading of 1% in February and a peak of 9% in June 2021.

Plans to expand the business advanced to 12% in July, a five-month high, from 8% in June; the latest figure was down from a high of 20% in December 2024 but up from a low of 2% in March 2023. Plans to make capital outlays rose to 25% in July, the highest reading since December 2024, from 20% in June; these numbers were still below a high of 28% in November 2024 and a peak of 31% in October 2021. Expected credit conditions edged up to -4% in July from -5% in June; this result was slightly below a high of -2% in December 2024 but above a low of -11% in November 2023. Meanwhile, a net -2% of respondents viewed current inventory stocks as “too low” in July, down from 0% in June (matching the highest reading since August 2025); the positive reading of 1% was recorded in May 2025.

On the labor front, 51% of respondents reported that qualified workers to fill job openings were hard to find in July, unchanged from June and registering the highest level since September 2024. These numbers were above a low of 43% in August 2025 but below a high of 56% in August 2024 and a peak of 62% in September 2021. A net 20% planned to increase employment in July, up from 11% in June and matching the highest level since October 2022; it remained above a low of 11% in March 2024 but below a peak of 32% in August 2021. Notably, 36% reported positions not able to be filled in July, up from 32% in June and matching the highest reading since June 2025; these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The measure increased to -16% in July following a five-point decline to -20% in June. These readings were below the most recent high of -14% in February and a high of -5% in June 2021 but above a low of -37% in August 2024.

On the pricing front, actual and expected selling prices remained at an inflationary level, indicating continued inflationary pressures, albeit at slower rising paces. The net percent of firms raising their average selling prices fell to a still-elevated 31% in July, the lowest level since April and the first m/m decline since February, after a two-point increase to 38% in June. The latest reading was up from a low of 20% in August 2024 but well below a peak of 66% in March 2022. The percentage planning to raise prices eased to 28% in July, a three-month low, following a two-point decline to 32% in June; these readings remained above a low of 21% in April 2023.

Wage inflation remained relatively high in the July survey. A net 31% of respondents raised compensation during the last three months, up from 28% in June and equaling May’s reading. It was above a low of 26% in November 2025 but below a high of 46% in February 2023 and a peak of 50% in January 2022. A net 19% of firms planned to raise worker compensation in the next three months, up from 17% in June and registering the highest level since February; this remained below highs of 28% in November 2024, 30% in November 2023, and 32% in October 2022.

Labor quality was cited as the single most important problem facing small businesses, as reported by 27% of NFIB members in July, up from 19% in June and matching the highest since October 2025. Taxes ranked second as the next most important problem, as reported by 16% of respondents in July, down from 19% in June and May and representing the lowest since November 2025. Inflation also remained a key challenge for small businesses, as reported by 14% of respondents in July, matching the lowest since March, compared to 21% in May (the highest since October 2024); these readings were well below a peak of 37% in July 2022. Other concerns (in July vs. June) included labor costs (8% vs. 8%), insurance cost/availability (8% vs. 8%), poor sales (8% vs. 7%), government requirements (7% vs. 8%), and competition from large businesses (7% vs. 5%).

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.

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- NFIB Small Business Optimism Idx up 2.4 pts. to 99.8 in July, above its 52-year avg. of 98.0.
- Uncertainty Idx up 2 pts. to 91, well above the historical avg. of 68.
- Expectations for economy up 2 pts. to 15%, highest since Feb.
- Expected real sales down 2 pts. to 7% from June’s five-month high.
- Plans to expand business up 4 pts. to 12%, a five-month high.
- Hiring plans up 9 pts. to 20%, highest since Oct. ’22.
- Firms raising avg. selling prices down 7 pts. to 31%, a three-month low.
- Top three business concerns: labor quality (27%), taxes (16%), and inflation (14%).

U.S. NFIB Small Business Optimism Climbs in July to an 11-Month High

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Inflation in the Netherlands picked up in July compared to June. Both the June HICP and the domestic inflation index had shown declines. In July, the HICP posted an increase of 0.7% month-to-month while the domestic CPI gained 0.5%, both easily showing accelerations compared to June. Monthly inflation rates increased in July the same or greater than previously in May.

Sequentially inflation is not exactly busting out; however, the legacy of inflation is still a bitter pill for the ECB to try to swallow even for this small European economy. The total HICP is up at a 2.9% annual rate over 12 months; that rises to a 4% annual rate over six months and settles back down to 2.1% over three months. That deflation is mostly on the strength of the weak showing in June. The domestic inflation rate rises 3.1% over 12 months; it accelerates to 4.3% annualized over six months and then only backs down to 2.8% at an annual rate over three months, largely on the back of the decline posted in June.

The domestic components show inflation accelerating in all but three categories in July; eight of thirteen showed declines in June. Only two categories showed declines in May.

Sequentially, looking at the percentage changes from 12 months to six months to three months, the components are showing mixed results. However, for food and for alcoholic beverages & tobacco, inflation steadily decelerates from 12 months to six months to three months. Only recreation & culture show inflation accelerating over 12 months, six months and three months. However, if we look at inflation trends over three months compared to six months, and six months compared to 12 months, acceleration is present for housing & utilities, for healthcare, for recreation & culture, and for personal care & miscellaneous categories. The not-named categories have more complex patterns, not necessarily good or bad, just complex. The line on the table for diffusion shows us that over 12 months inflation is accelerating in 38.5% of the categories compared to what it had done a year ago. However, over six months, the category inflation rates are higher compared to 12 months in 61.5% of the categories. Over three months compared to six months, inflation is higher in 46% of the categories. By these diffusion calculations, inflation is accelerating over six months compared to 12 months but otherwise it is decelerating over three months and over 12 months.

As an overview, the 2.1% inflation rate for the HICP over three months looks excellent; however, in context, it's result of three months, two of which were terrible, one of which was excellent, and so that's not much to go on. The HICP progressive inflation rates other than three months are all too high at 4% and 2.9%; for the domestic CPI, the same statements are true, except that the three-month rate at 2.8% is even worse than for the HICP over three months. The inflation diffusion statistics by themselves are not bad over three months, showing inflation accelerating in only 46.2% of the categories. That's a pretty good result and inflation accelerating over 12 months in only 38.5% of the categories. But the six-month pace is too high, and the question is where the three-month number is going to settle in once we move down the road; the good June inflation statistic beginning to fade and drop out is another issue. June increasing is looking like an outlier.

So that's a significant question on the outlook for inflation, and it's basically a question that we ask for every country because we had that break because of the hopeful situation that had arisen around the Strait of Hormuz and the prospect of oil prices going back down. Now that prospect appears to have passed and we're not quite sure where we stand. That puts the outlook and all the trends in a danger zone.

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Netherlands

Dutch Inflation Picks Up

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For the second consecutive month, the employment report disappointed. Nonfarm payrolls fell 23,000 in July with significant downward revisions to both May and June, according to today’s report from the Bureau of Labor Statistics. The Action Economics Forecast Survey expected an increase of 85,000. The 129,000 increase previously reported for May was revised down to 63,000 while the much lower-than-expected 57,000 increase previously reported for June was revised down to 20,000. The average gain over the past three months fell to 20,000 from 77,000 in June while the average increase over the past six months declined to 44,330 from 74,830 in June. Both remain stronger than in the second half of last year but in the past two months have slowed from the pace exhibited in the spring.

In contrast to the headline figure, private-sector payrolls posted a 30,000 increase in July. However, this was still much lower than the expected 79,000 increase, and there were also significant, though smaller than for the headline figure, downward revisions to both May and June (totaling 55,000). Government employment fell 53,000 in July, almost completely accounted for by a surprising 49,600 decline in local government education jobs.

The weaker-than-expected payroll report was once again reinforced by a weak report from the **household survey** for July. While the number of unemployed fell 178,000, the third consecutive monthly decline, and the unemployment rate unexpectedly edged down to 4.1% from 4.2% in June, the number of employed fell 87,000, the fifth monthly decline in the past six months, on top of a 507,000 plunge in June. The labor force continued its sharp fall, declining 264,000 in July following a 720,000 drop in June. The labor force participation rate decreased to 61.4%, its lowest reading since February 2021.

On a slightly brighter note, wage growth was well behaved. Private sector average hourly earnings, a key variable for the Federal Reserve, edged up a less-than-expected 0.1% m/m in July, the smallest monthly gain since last December. The 3.2% increase from a year ago was the lowest May 2021. Action Economics Forecast Survey looked for a 0.3% m/m rise. Wages in private service-producing firms were unchanged and advanced just 2.9% from a year ago, the slowest pace of advance since May 2021. Goods-producing wages rose 0.3% m/m (4.1% y/y) in July, up slightly from a 0.2% monthly increase in June.

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In the **establishment survey**, goods-producing jobs increased a solid 25,000 in July, the largest monthly advance since March, led by a 22,000 rise in construction jobs. Manufacturing jobs rose 5,000 in July, the second consecutive monthly gain. Private-sector service-producing jobs rose only 5,000 in July, the weakest performance since a 127,000 decline in February. Job performance varied significantly across sectors. Surprisingly, leisure and hospitality was the weakest sector with jobs declining 40,000 in July on top of a 43,000 decline in June. There were expectations that the World Cup would generate additional leisure and hospitality jobs, but this obviously has failed to pan out. Retail trade jobs fell 19,400 following a 3,700 decline in June. Financial activities jobs declined 14,000, the fifth consecutive monthly decline. By contrast, private education and healthcare jobs increased 25,000 in Jul, though this was well below the 60,000 monthly increase averaged over the previous four months. Professional and business services jobs rose 18,000, and information jobs gained 11,000, the first monthly increase in four months.

The breadth of private job growth narrowed in July from June with the one-month diffusion index falling to 51.8 from 53.2, though still above the key 50 level that indicates that more industries were adding jobs than losing them. Moreover, the six-month diffusion index rose to 55.0 in July, its highest reading since January 2024.

The length of the workweek was unchanged at 34.3 hours in July, where it has been for the past four months. The aggregate weekly hours index was also unchanged in July as it had been in June. The goods-producing workweek edged up to 40.2 hours in July, the highest since January 2023, from 40.1 in June. The private service-producing workweek was unchanged at 33.2 hours in July.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- U.S. nonfarm payrolls unexpectedly fell 23,000 in July with meaningful downward revisions to both May and June.
- The market consensus looked for an 85,000 increase.
- The unemployment rate edged down to 4.1%, its lowest since June 2025, from 4.2%, due mostly to another significant decline in the labor force.
- Average hourly earnings edged up 0.1% m/m (3.2% y/y), meaningfully lower than expectations.

U.S. Payroll Employment Unexpectedly Declined in July

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German industrial production rose by 0.2% in June, continuing a string of increases. Production in Germany is on an accelerating path. It is unchanged over 12 months, but it has a 0.9% annual rate increase over six months and a 4.5% annual rate increase over three months, a clear acceleration in the rates of growth over the shorter periods.

That trend is accentuated by consumer goods that grow 2.3% over 12 months; output then steps up to a 3% annual rate over six months and advances to 18.9% at an annual rate over three months. Capital goods and intermediate goods interrupt the pattern to some extent. For capital goods, output falls 2.5% over 12 months, then weakens further, falling by 4.2% annually over six months, but it rebounds to grow at a 0.8% annual rate over three months. That's not an accelerating pattern, but there is a recovery over three months. Intermediate goods show a 0.1% increase in output over 12 months, rising to 1.7% annually over six months but then stepping back to a 1% growth rate over three months.

Manufacturing alone also shows accelerating growth as growth rates improve from 12 months to six months to three months. Real manufacturing orders have a convoluted growth rate, with positive growth over 12 months, a decline over six months, and then a small recovery over three months. The pace of real sales, as we saw in yesterday's durable goods orders and sales report, is on a shrinking path.

Industrial surveys generally show sequential deterioration for the sector from the ZEW and the IFO. The exception is the EU Commission industrial index that shows some slight improvement sequentially.

Industrial production results are presented for five other European countries that have issued IP data as of June. These data show acceleration sequentially in Spain, Sweden, and Norway. France and Portugal have complex patterns that end with negative three-month growth rates.

On balance, Germany shows some hopeful trends, with some rebound being led to some extent by the consumer sector. The survey data on industry are not encouraging. Although the picture for the rest of Europe shows some tendency for acceleration, there’s still a good deal of lingering weakness.

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Germany

German Industrial Output Gathers Strength

Andrew Cates

**A world economy that refuses to buckle**
For all the anxiety in the headlines, the world economy has kept its footing. The gauge in question is the Global Economic Conditions Indicator of Baumeister, Korobilis and Lee, a composite distilled each month from sixteen separate series that among them span the breadth of the global economy: industrial production and leading indicators, consumer confidence and expectations, commodity and energy prices, financial conditions and the dollar, shipping and transport, geopolitical risk, and even the weather, by way of measures of El Niño and energy-related temperatures. Expressed relative to normal trend growth, it fell close to a full percentage point below par during the disruption of 2022. It has since climbed back above zero, leaving global activity running, if anything, a shade faster than its long-run trend.

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**Higher interest rate expectations**
That resilience has had a consequence for interest rates, and not the one markets spent much of the past year anticipating. Rather than the cuts once taken for granted, Blue Chip forecasters have been quietly raising their expectations for where policy rates will sit twelve months hence — and doing so almost everywhere at once, across the United States, the euro area, Japan and Australia alike. The breadth of the revision is what gives it weight. A change confined to a single economy might be put down to a local quirk of politics or the cycle; a shift that spans most of the advanced world at the same moment is far harder to dismiss. It has the look of a collective reassessment of how far, and how fast, rates can now fall — the same conclusion the neutral-rate estimates in the next chart reach by a longer road.

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**A higher resting place**
The reassessment reaches well beyond the coming year. The neutral rate — the real rate that neither stimulates nor restrains an economy running at capacity, and thus the level rates settle at once the cycle has passed — has risen as well. Estimates for eleven advanced economies now put it higher than in 2019 in every economy; Japan's is still below zero but a full point higher than it was, and New Zealand's is above three per cent. This arguably matters more than a rise in current rates. A high policy rate today can be written off as cyclical, to be reversed at the first downturn; a higher resting rate cannot. On these estimates the very low rates of the past decade were not the normal order of things but a phase that is probably now ending, which makes the widespread assumption that rates will eventually drift back to them increasingly hard to defend.

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**Fiscal appetite meets the demand for capital**
Why has the anchor moved? The US Fed’s decomposition points, above all, to governments. The largest single force lifting neutral rates across the advanced world has been the swelling supply of government debt: as safe assets multiply, they can be absorbed only at a higher yield, with a fading premium for their safety adding to the effect. Ranged against that, an ageing population's appetite for safe saving and the slow retreat of the global savings glut have pulled the other way, though not by enough to offset it. What gives the fiscal story its bite is the company it now keeps on the demand side. Wide deficits are competing for savings with an investment cycle that has plainly turned — in artificial intelligence, in defence, in the reshoring of supply chains — and a rising demand for capital meeting a supply that no longer grows freely is the very definition of a more expensive real rate.

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**A boom financed (so far) from profits, not debt**
The character of that investment matters as much as its scale, and there is some reassurance. Set the proportion of American banks tightening their lending standards, drawn from the Federal Reserve's quarterly Senior Loan Officer Opinion Survey, against the financial balance of the private sector as a whole, and a comforting picture emerges. Banks turned cautious through the recent cycle, tightening credit conditions appreciably, and yet the private sector has gone on running a healthy surplus, its spending funded in aggregate out of income rather than a build-up of debt. This week's survey, covering the second quarter, suggests that even the credit squeeze is now fading. Banks reported that standards on business loans were little changed over the quarter, while demand for those loans strengthened — a pick-up they attributed, tellingly, to their customers' higher spending on plant and equipment. The distinction between profits and borrowing remains a crucial one. An investment upturn paid for largely from profits is far sturdier than one built on leverage, and far less exposed to the higher cost of borrowing described in the earlier charts; and where firms are now turning to the banks, they appear to be doing so to finance new capacity rather than to plug a hole. It also lends some perspective to the recent jitters over artificial-intelligence spending: for all the noise, the economy-wide accounts show little sign, as yet, of the over-extension that turned earlier booms to bust.

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**Where the boom meets its limits**
The financial foundations look solid; the physical ones are more of a challenge. Copper is the clearest example. An economy cannot electrify, expand its power grid, build data centres or rearm without a great deal of it, and the real price of copper now sits close to its highest in decades. The reason is a straightforward imbalance: demand is rising quickly, while a new mine takes the best part of a decade to come on stream, so supply struggles to keep pace. The strains are not confined to metals. Tensions in the Middle East over the summer have kept markets wary about the security of energy supply, a reminder that the constraints on a fast-investing economy are now as much a matter of geopolitics as of finance.

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The global economy has proved stubbornly resilient this summer, even as the backdrop has grown noisier. A fresh flare-up in the Middle East, reports of official intervention to arrest a slide in the yen, and a bout of nerves over the vast sums now being committed to artificial intelligence have all unsettled sentiment, while central banks — the Federal Reserve among them — have turned markedly more hesitant about cutting rates than they appeared only a few months ago. Yet the incoming data have held up better than feared, with a broad gauge of global activity climbing back above its normal trend and shrugging off the gloom (chart 1). If anything, the pressure on interest rates has been upward rather than down. Forecasters have spent recent months marking up their expectations for policy rates a year ahead across almost every major economy (chart 2), and the shift looks more than cyclical: estimates of the neutral rate, the resting point for real rates, now stand higher than they did in 2019 in every advanced economy (chart 3), lifted above all by the swelling supply of government debt (chart 4). Behind that repricing lies an investment cycle that is quietly gathering pace and, encouragingly, one still financed largely out of profits rather than borrowing (chart 5). It is not without its constraints, however. The real price of copper, the indispensable metal of electrification, sits close to a multi-decade high — a reminder that a capital-hungry world is beginning to strain against physical limits (chart 6).

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Charts of the Week: A Resilient World Economy, and Its Price

Michael J. Moran

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Productivity in the nonfarm business sector rose 1.4% in the second quarter, better than the expected increase of 0.7% but trailing average gains of more than 2.0% in both 2024 and 2025. Results in the prior two quarters also were below 2.0%. In all of the past three quarters, the easing in productivity growth reflected slow advances in output: 1.7% in Q2 and an average of 1.4% in the prior two quarters. Output growth in both 2024 and 2025 averaged 3.0%. Growth of labor input in recent quarters has remained comfortably within the range of recent observations. Productivity growth is approximately equal to output growth less growth of labor hours.

The slowdown in productivity growth in the past three quarters might raise concern about the underlying pace of growth. However, the recent easing is not especially alarming, as productivity often moves erratically; soft patches have occurred in the past only to revive in subsequent quarters. Still, the past three quarters have generated a downward drift in the eight-quarter moving average of growth, which is intended to smooth the random changes in productivity. Despite this drift, it is too early to conclude that productivity growth is fading. The softening in recent quarters should be viewed as disappointing only to those expecting a burst in efficiency gains from artificial intelligence. AI, thus far, does not seem to have generated miracles.

Unit labor costs—hourly labor compensation relative to productivity—rose 1.3% in Q2, matching the increase in the prior quarter and trailing the average results in the prior few years. Labor compensation grew moderately in Q2, at 2.7%, and the offset from 1.4% productivity growth left a restrained advance in unit labor costs.

Fed officials have argued in recent months that the labor market is not a factor pushing inflation above the target of 2.0%. The results on unit labor costs support this view. If labor costs were the only factor driving price changes, the 1.3% growth of unit labor costs would suggest an inflation rate below 2.0%.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

- Productivity gains, while still respectable, have lost a bit of vigor in recent quarters.
- Unit labor costs rose moderately, suggesting little inflation pressure.

Productivity: Moderate Growth in Q2

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Total retail sales unexpectedly fell 0.6% m/m to $763.6 billion in July after increases of 0.2% in June (unrevised) and 0.9% in May (+1.0% previously), data from the U.S. Census Bureau showed, pointing to a soft start to Q3 2026. A 0.2% m/m July increase had been expected in the Action Economics Forecast Survey. The decline interrupted a streak of five straight m/m gains dating back to February. The year-on-year growth rate decelerated to 5.0% in July, the lowest since March, from 6.8% in June (4.1% in July 2025); it remained far below a high of 17.1% in February 2022 and a record-high 51.8% in April 2021.

Excluding motor vehicles & parts, retail sales unexpectedly decreased 0.3% (+5.8% y/y) in July following a 0.2% decline in June and five consecutive m/m gains. A 0.2% m/m July increase had been expected. Sales of motor vehicles & parts fell 1.8% (+1.9% y/y), the first m/m fall since April, reversing a 2.4% June rise; this compared to a 1.0% decline (-1.3% y/y) in unit light vehicle sales after a 2.6% June advance.

Sales in the retail control group, which excludes autos, building materials, gasoline stations, and food services, fell 0.4% (+4.6% y/y) in July after a 0.4% increase in June, snapping a string of gains since January. These sales are used in the construction of personal consumption expenditures in NIPA accounts. Nonauto sales excluding gasoline & building materials slid 0.3% (+4.7% y/y), the first m/m slide since December, following a 0.4% June increase.

Sales by category showed mixed performance in July. To the downside, nonstore retail sales decreased 2.2% (+7.7% y/y) in July, the biggest m/m decline among major categories, after a 0.9% rise in June and a streak of gains dating back to January. Gasoline station sales fell 0.9% (+16.2% y/y) following a 5.8% June drop and four consecutive m/m increases. Electronics & appliance store sales, down for the second time in three months, declined 0.5% (+4.7% y/y) in July after holding steady in June. Meanwhile, sporting goods, hobby, book & music store sales were virtually unchanged m/m (+10.1% y/y) after five straight m/m rises.

To the upside, clothing & accessory store sales rebounded 1.9% (5.0% y/y) in July following a 0.7% June decline. Miscellaneous store sales grew 0.5% (10.7% y/y), the smallest of three successive m/m increases, after a 2.1% June gain. Building materials & garden equipment store sales climbed 0.3% (6.7% y/y), the ninth straight m/m rise, on top of a 1.2% June increase. Furniture & home furnishing store sales grew 0.3% (-1.2% y/y) after a 0.1% June easing. General merchandise store sales rose 0.3% (3.7% y/y) in July after a 0.2% increase in June; within this category, department store sales edged up 0.1% (2.5% y/y) following a flat June reading.

In the nondiscretionary sales categories, health & personal care store sales recovered 0.7% (1.1% y/y) in July, up for the second time in three months, after a 0.4% decline in June. Food & beverage store sales were essentially unchanged m/m (+0.9% y/y) following a 0.1% June dip and three consecutive m/m rises.

Consumers appeared to dine out more frequently in July despite still-high inflation (July CPI +0.1% m/m, +3.4% y/y; core CPI +0.2% m/m, +2.5% y/y). Restaurant & drinking place sales rose 0.5% (5.0% y/y) in July, the fifth m/m gain in six months, after an upwardly revised 0.4% increase in June (+0.1% initially).

Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total retail sales -0.6% (+5.0% y/y) in July vs. +0.2% (+6.8% y/y) in June.
- Ex-auto sales -0.3% (+5.8% y/y), second successive m/m decline; auto sales -1.8% (+1.9% y/y), first drop since Apr.
- Ex-gas sales -0.6% (+4.2% y/y) and ex-auto & gas sales -0.2% (+4.8% y/y); both up m/m from Jan. to June.
- Retail control group -0.4% (+4.6% y/y) after six consecutive m/m increases.
- Declines m/m: nonstore sales (-2.2%), gasoline stations (-0.9%), electronics stores (-0.5%).
- Gains m/m: clothing stores (+1.9%), health & personal care stores (+0.7%), misc. stores (+0.5%), restaurants (+0.5%).

U.S. Retail Sales Disappoint in July Following Five Straight M/M Gains

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