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Even with strong capex, US nonfinancial corporations are generating more cash than they are investing

Winnie Tapasanun

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The Chicago Fed National Activity Index (CFNAI) fell to -0.04 in August from an upwardly revised +0.08 in July (-0.08 initially) and a downwardly revised -0.01 in June (+0.06 previously), today’s report from the Federal Reserve Bank of Chicago showed, indicating that economic activity was below its historical trend for the third time in four months in August after slightly above the historical trend in July. The latest CFNAI was above a low of -0.50 in October 2025 and a reading of -0.36 in August 2025 but below a high of +0.39 in February 2025.

The index's three-month moving average (CFNAI-MA3), which smooths out the m/m volatility in the index, increased to +0.01 in August from an upwardly revised -0.01 in July (-0.04 initially), registering the second positive reading in three months. It was above a low of -0.39 in October 2025 and -0.14 in August 2025 but below a recent high of +0.08 in April. The CFNAI-MA3 is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the Chicago Fed indicates that an average reading of -0.70 or below is consistent with the economy being in a recession. Thus, the August reading suggested that the U.S. economy is not currently in a recession.

The August reading reflected m/m declines in two of the four CFNAI key components and one negative contribution. The contribution of the Production & Income index to the CFNAI decreased to -0.07 in August, the lowest reading since January, from a neutral value (0.00) in July and June; it was below a high of +0.37 in February 2025 but above -0.13 in August 2025 and a low of -0.61 in January 2024. The contribution of the Sales, Orders & Inventories index fell to a neutral 0.00 in August, matching the lowest level since May, from +0.15 in July; it was below a high of +0.16 in March 2025 but above -0.08 in August 2025 and a low of -0.20 in April 2025. The Employment, Unemployment & Hours index contributed +0.01 in August, the highest reading since April, up from -0.01 in July; it was above a low of -0.13 in February 2026 and -0.12 in August 2025 but below a high of +0.05 in January 2026. The contribution of the Personal Consumption & Housing index rose to +0.01 in August, the second positive reading in three months, from -0.06 in July; it was above -0.03 in August 2025 and a low of -0.14 in January 2025 but below a high of +0.10 in March 2025.

The CFNAI Diffusion Index—which measures the breadth of change in the component series and is also a three-month moving average—slipped to +0.02 in August, the sixth consecutive positive reading, from a downwardly revised +0.04 in July (+0.05 initially). A string of negative readings was posted during the March 2023 to February 2026 period. A reading of zero indicates that all of the indicators are growing at their long-term average. The August reading was above a low of -0.56 in October 2025 and -0.18 in August 2025 but below a high of +0.15 in September 2022.

The CFNAI is a weighted average of 85 indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

These figures are available in Haver's **SURVEYS** database.

- CFNAI down to -0.04 in Aug., negative for the third time in four mths.
- Two of four CFNAI components down m/m; one makes a negative contribution.
- CFNAI-MA3 up to +0.01, second positive reading in three mths.; above -0.70 (recession signal).
- CFNAI Diffusion Index down to +0.02, still positive for the sixth straight mth.

Chicago Fed National Activity Index Negative in August After July’s Upwardly Revised Positive Level

Robert Brusca

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The exhibits in this report feature a graph based on the RICS survey showing U.K. sales expectations for the next three months versus the last three months, while tabular data show Nationwide housing prices and how they are moving month-to-month as well as year-over-year. In addition, the table provides the recent GfK survey results on consumer confidence in the U.K. and presents rankings of housing prices and consumer confidence.

These statistics paint a somewhat mixed picture of the U.K. economy although clearly they paint a picture of an economy that is not firing on all cylinders. The ranking on year-over-year house price changes in the Nationwide survey and the ranking for the GfK consumer confidence index give highly similar relative signals, with both of them around the 30th to 40th percentiles in their historic queues of data extending back to 1992.

Housing prices are still advancing more slowly than they did in previous years. While consumer confidence is still low, it has shown improvement in recent months, and the last two readings showed year-over-year improvement in the monthly data. The RICS chart on the pace of sales shows some improvement, if not yet outright gains. Still, housing conditions are weak, and the question of whether they are limping back into the black, whether prices are holding on for small gains, or whether there is a more solid recovery taking place remain unanswered. So far, at least, it does not look like backsliding.

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The Bank of England just met last week. Although the inflation background was poor and the inflation numbers before the BOE meeting were worse than expected, the bank did not move to hike interest rates. In part, the realization is that an interest-rate hike is not going to solve the international problem of high and rising energy prices, but they are still a reality that the central bank has to deal with. The central bank will want to take steps to head off knock-on effects even if it can't push back on the reason that prices are rising. One reason for hesitancy among Bank of England Monetary Policy Committee members is that, so far, they have not seen evidence that oil price effects are broadly being spread through the system, and there's concern about the fragility of the economy. The BOE is being wary about taking steps to stop the spread of inflation that isn't occurring. However, at some point, it may be forced to deal with spreading inflation even if the economy is not on solid footing.

These are the risks that the central bank is dealing with and the sorts of conditions, perceptions, and subtleties that are the bread and butter of monetary policy. Monetary policy is not simply a matter of asking: What's growth? What's inflation? What's the unemployment rate? And here's the solution. Many judgments need to be drawn about these variables and more. It's a central bank’s job to make the best decisions that it possibly can to generate the best of economic environments so that the economy can deliver its top level of performance. The decision made by the Bank of England this week, which you can understand by looking at the 200-word essays made by MPC members after the bank’s meeting, gives you real insight into the conditions that policymakers are dealing with and the difference among monetary policy committee members about how to handle these complexities. Whether the bank needs to deal with the inflation problem now or whether it can kick the can down the road and deal with it later or hope it will not have to deal with it at all, these are the options for action and inaction.

United Kingdom

U.K. Housing Surveys and Consumer Sentiment Support the View of Weak Growth

Tian Yong Woon

This week, we assess whether Asia is really moving away from the dollar by examining its US asset holdings, reserves, gold purchases and trade settlement. We then turn to Japan’s monetary normalisation. Asia’s presence in US portfolio markets has declined since the early 2010s (chart 1). Japan's share of foreign holdings of US long-term securities has halved, and mainland China's has fallen further still. The euro area and the UK have absorbed most of that ground. Even so, Japan is still the largest foreign holder of Treasuries, and a reshuffling among creditors need not mean an exit from dollar assets. Official reserves tell a similar story (chart 2). The dollar's share is down close to 6 percentage points over eight years, to 57.1%, yet no single currency has picked up all of it. The residual group of other currencies gained most, which points to diversification rather than substitution. Gold fits that reading (chart 3), with Singapore, India, Thailand and China all adding heavily in volume terms. Reserve growth alone may explain part of the rise. Trade settlement has moved least of all (chart 4). South Korea still settles about 84% of exports and 79% of imports in dollars, and broader studies point the same way. Moving to Japan, the central bank raised its policy rate to 1.25% last week, with Governor Ueda striking a hawkish note (chart 5). The spread to Fed, ECB and Bank of England policy rates has narrowed to about 2 percentage points. The yen, meanwhile, has rebounded from a record low after coordinated intervention, while the 10-year JGB yield has touched 3% (chart 6).

**Gold, the US, and the US dollar**
Asia's footprint in US portfolio markets has thinned considerably since the early 2010s (chart 1). Japan's share of overall foreign holdings of US long-term securities has roughly halved, from a peak near 14.5% in 2012 to about 8% in July 2026. Mainland China's slide is starker, from 13.4% at the start of 2012 to roughly 3%. The euro area has absorbed most of that ground, rising from about 19% to around 26%, while the UK sits at a record 10.6%. Japan nonetheless remains the largest foreign holder of Treasuries at USD 1.1tn, while China's holdings have slipped to USD 618bn, the lowest since September 2008. A reshuffling among creditors is not always the same as an exit from dollar assets. Japan also remains Asia's largest holder on both sides of the ledger, accounting for about 8.6% of US holdings of foreign securities.

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The de-dollarisation debate has a second front in the currency composition of official reserves (chart 2). The dollar's share has fallen by close to 6 percentage points over the past eight years, to 57.1% in the first quarter of 2026. The more revealing question is where that share went. No single currency has picked up all of it. The yen gained less than 1 percentage point, the Canadian dollar and the renminbi around half a point each, while the euro barely moved. The largest beneficiary was the residual group of other currencies, up some 3.7 points. That looks like diversification rather than a search for one alternative, and the renminbi's 2.0% share underlines the point.

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The same message shows up in gold, where volumes rather than values are the cleaner measure (chart 3). In volume terms, Singapore has added more than 60% to its holdings over the past eight years. India and Thailand are up by more than half, and China by close to 30%. Japan, Indonesia and Malaysia have made smaller additions, while the Philippines has cut its stock by about a third over two major bouts. Exceptions aside, and given the seemingly concerted accumulation of gold among Asian central banks, diversification is one reading. A simpler explanation, which may hold at the same time, is that reserves have grown overall, and gold holdings have had to rise in proportion.

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**South Korea and trade settlement**
Holdings are only part of the picture. Trade settlement, dollar funding and hedging practice matter just as much, and they shift far more slowly. South Korea, one of Asia's most important trade nodes, still settles about 84% of its exports and 79% of its imports in dollars (chart 4). The export share has barely budged in a decade. The import share has drifted down from a 2022 peak near 83%, but the decline is muted and remains within its ten-year range. South Korea is only one case, though broader work, including recent IMF studies, points the same way. The dollar's continued dominance in trade settlement does not chime with the de-dollarisation narrative.

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**Japan**
Turning to Japan, the central bank (BoJ) lifted its policy rate by 25 basis points to 1.25% last week (chart 5). Two details stand out. The vote was split 7 to 2, with Asada and Sato, both appointed this year, preferring to hold at 1%. Governor Ueda also struck a hawkish note. He said the BoJ should act pre-emptively rather than be forced into rapid hikes later. He added that the price trend is close to the bank's 2% target, and that authorities must ensure inflation does not overshoot. Even so, Japan remains the outlier among major central banks, though less of one than before. The gap to the average policy rate of the Fed, the ECB and the Bank of England is about 2 percentage points. That gap stood near 5 points in early 2024. The average is rising again, with the Fed and the ECB both tightening this month.

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Turning to the yen, the currency's recent rebound has been abrupt (chart 6). On a trade-weighted basis, it weakened at the end of July to a record low, based Haver’s proprietary calculations. It has since regained about 4% to 5% and now sits closer to its end-2025 level. The trigger was rare coordinated intervention by Tokyo and Washington, with Treasury Secretary Scott Bessent backing the effort to correct what he termed a substantial undervaluation. Japanese authorities reportedly spent a record JPY 15.4tn across July and August. Yields have carried part of the load. The 10-year JGB yield touched 3% at the start of September, a level last seen in 1996, having begun the year near 2.1%. The climb is part of a global repricing driven by energy-led inflation and fiscal supply, with Takaichi's spending plans adding a domestic premium. The yen slipped again after the BoJ decision, a reminder that intervention buys time rather than a trend.

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Asia

Economic Letter from Asia: Held in Reserve

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Industrial production (IP) was virtually unchanged m/m in August after rises of 0.2% in July (unrevised) and 0.2% in June (+0.3% previously), data from the Federal Reserve Board showed, indicating industrial activity remained on an upward trend despite little change in the latest month. A 0.3% m/m August increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate accelerated to 1.4% in August, the highest since May, from 1.1% in July (0.8% in August 2025). The August IP index at 103.1 was 3.8% above a low of 99.3 in November 2024 and 3.9% above a low of 99.2 in January 2024.

By **industry groups**, manufacturing production decreased 0.3% (+0.9% y/y) in August, the first m/m decline since December, after increases of 0.2% in July (unrevised) and 0.1% in June (+0.3% previously). Durable goods production fell 0.5% (+3.3% y/y) in August, down for the first time since November 2025, following a 0.6% rise in July. Within durables, almost all categories fell m/m in August, led by drops of 1.4% (-2.8% y/y) in furniture & related products and 1.4% (+0.7% y/y) in miscellaneous durable goods, followed by declines of 1.2% (+4.2% y/y) in aerospace & miscellaneous transportation equipment, 1.2% (-1.0% y/y) in motor vehicles & parts, 1.1% (+2.8% y/y) in nonmetallic mineral products, 0.5% (+8.7% y/y) in computer & electronic products, 0.3% (+0.5% y/y) in primary metals, and 0.1% (+3.6% y/y) in fabricated metal products. Notably, aircraft & parts production slid 1.4% (+7.7% y/y), the first m/m slide since January, after a 1.7% July gain. To the upside, durable goods categories for machinery (+0.5%; +6.3% y/y) and wood products (+0.2%; -0.7% y/y) posted m/m output gains in August. Durable goods for electrical equipment, appliances & components held steady m/m (+5.5% y/y) following a 0.4% July rebound.

Nondurable goods production was essentially unchanged m/m (-1.5% y/y) in August following a 0.4% decrease in July and a 0.4% rebound in June. The August flat reading reflected m/m falls of 1.0% (-4.8% y/y) in printing & related support activities, 0.9% (+0.8% y/y) in plastics & rubber products, 0.7% (+0.8% y/y) in petroleum & coal products, and 0.2% (-2.9% y/y) in paper. Meanwhile, nondurable goods categories for apparel & leather goods (+2.1%; +3.6% y/y), textiles & product mills (+1.3%; -0.1% y/y), and food, beverages & tobacco (+0.3%; -1.2% y/y) registered m/m output gains in August; output for chemicals held steady m/m (-2.6% y/y) following a 0.3% July decline.

Utilities output advanced 1.8% (6.2% y/y) in August on top of a 0.5% increase in July (unrevised), reflecting a 2.1% rise (7.0% y/y) in electric utilities output and a 0.5% decrease (+0.8% y/y) in natural gas utilities output. Mining activity edged up 0.1% (0.3% y/y) after a 0.1% July uptick (+0.2% initially). The utilities and mining series posted the third consecutive m/m gain and the fourth in five months, while recording May flat readings.

By **market groups**, materials production grew 0.2% (1.5% y/y) in August, the fourth m/m gain in five months, adding to a 0.3% rise in July. Consumer goods output ticked up 0.1% (-1.1% y/y) following a 0.3% July decrease, reflecting a 0.5% decline (-3.7% y/y) in durable consumer goods and a 0.3% increase (-0.4% y/y) in nondurable consumer goods. In contrast, construction supplies production fell 0.7% (+1.3% y/y), the first m/m fall since April, after a 0.5% July gain. Business equipment output slid 0.5% (+7.1% y/y) in August, the first m/m drop since October 2025, following a 1.0% July rise. 

In **special classifications**, factory output of selected high-tech industries was virtually unchanged m/m (+12.5% y/y) in August after four straight m/m gains, including a 1.3% increase in July. Manufacturing production excluding selected high-tech industries fell 0.3% (+0.5% y/y) in August, the first m/m decline since January, after a 0.1% increase in July. Manufacturing production excluding selected high-tech and motor vehicles & parts slipped 0.2% (+0.7% y/y), down for the first time since May, reversing a 0.2% July gain.

Capacity utilization was at 76.3% in August, the highest since July 2025, unchanged from July (unrevised). The Action Economics Forecast Survey forecasted 76.4%. The August reading was 3.1 percentage points below its long-run (1972–2025) average. Manufacturing capacity utilization fell to 75.7% in August, the lowest since March, from 76.0% in July (unrevised). The August rate was 2.5 percentage points below its long-run average.

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

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- August IP 0.0% (+1.4% y/y) after four consecutive m/m increases, remaining on an upward trend.
- Manufacturing -0.3% (+0.9% y/y), first m/m decline since Dec., w/ durables -0.5% and nondurables 0.0%.
- Selected high-tech 0.0% after four straight m/m rises; motor vehicles -1.2%, second successive m/m drop.
- Utilities +1.8% (+6.2% y/y), fourth rise in five mths., led by a 2.1% gain in electric utilities output.
- Mining +0.1% (+0.3% y/y), up for the fourth time in five mths.
- Key categories in market groups post mixed results.
- Capacity utilization steady at 76.3%, highest since July ’25; mfg. capacity utilization down to 75.7%, lowest since March.

U.S. Industrial Production Flat in August; Manufacturing IP Down

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German inflation in August saw the headline pop while core remained copacetic. The difference between the two trends is like night and day.

**Headline PPI**
Germany’s PPI spurted for the second consecutive month, rising by 1.2% in both July and August. These jumps followed a drop of 0.3% in June. The German headline PPI is up by 4.6% over 12 months, up by 12.5% at an annual rate over six months, and up at an 8.3% annual rate over three months. Those gains are largely driven by energy trends.

**The core is a different story**
The PPI excluding energy in August gained by 0.2%, the same as in July, after a 0.3% rise in June. Sequentially, the ex-energy PPI rose 3.1% (SAAR) over 12 months, at a 5.0% annual rate over six months, and at a 3.3% annual rate over three months. That’s still excessive, but much less worrisome.

**Sector stories**
The sectors, using unfortunately NSA data, show consumer prices moving lower over three months, with very mild, near-target overshooting for investment goods, while intermediate goods bear the burden of pressure. These observations are for the three-month annualized growth rates but apply equally to the 12-month growth rates.

**The CPI for reference**
German CPI inflation, included in the table as a reference, shows roughly the same patterns as the PPI, with the headline growing in excess of the ECB’s EMU-wide target pace, overshooting by about a percentage point, while the CPI ex-energy skims along at a nearly acceptable pace of overshoot that ranges from 2.2% to 2.5% over three months, six months, and 12 months.

**Inflation forces present but surprisingly contained**
Clearly, inflationary pressures are present in Germany and just as clearly, they are not spreading but have done their damage by the weight of energy in each sector. This does not mean there will not be progression or knock-on effects, just that, so far, they have not appeared. And part of this is because of ongoing economic weakness in Germany.

**QTD**
Quarter to date (QTD), the German headline two months into Q3 has risen at an 8.3% annual rate as the ex-energy PPI runs at a pace of 4%. Both are too hot. Sector inflation rates on NSA data are acceptable except for intermediate goods where the pace rises to 5.3% in the quarter (energy, again). The CPI on a quarterly basis also generates a 3.2% headline gain against a core pace of just 2.2%.

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**The rocky road ahead**
Brent oil prices have been somewhat wild recently, with action in the Strait of Hormuz on a volatile path. The Saudis just announced that they would be shipping no oil to Europe over the next few months as they have refinery repairs to conduct. The Houthis and the Saudis are going at it again. It’s hard to establish an outlook with this much geopolitical chaos. Best to just go day by day. My reading of the war is that the U.S. blockade has become more effective and is putting Iran under strain. Stories report that Iranian oil shipments to China have been mostly stopped. Maybe the U.S. approach finally has teeth. Will it work, or will it cause a counterattack by a trapped and pressured regime? Is a real truce between these enemies who can’t trust one another even possible? With that admitted, it is hard to see a stable end-game.

Germany

German PPI Shows Pressure, But It’s Limited

Andrew Cates

**From easing to tightening**
Market expectations concerning Fed policy have turned completely since January. Contracts covering December 2026 and the first half of 2027 then implied a federal funds rate a little above 3 per cent, comfortably below the rate the Fed was actually running, and an easing cycle was the base case. That gap closed in March and has since inverted, with the move accelerating over the past fortnight. Energy is the immediate cause. The conflict with Iran has kept crude above $100 a barrel, and August’s inflation report showed the pass-through into core prices that policymakers had hoped to avoid. This week’s quarter-point increase was accordingly almost fully priced beforehand and settled little on its own. The framing around it was another matter. Sixteen of the eighteen participants who submitted projections expect at least one further increase this year, four of them two, and the median path is held at around 4.1 per cent through the end of next year with no cuts at all. Chair Warsh’s insistence on a timelier return to target was taken as ruling out an early reversal, and equities gave up their initial gains as he spoke. Futures now sit above the committee’s own path by the middle of 2027, and the long end has followed rather than steadied. A policy rate expected to approach 4.5 per cent alongside a ten-year yield above 5 per cent speaks to term premia as much as to the Fed.

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**Who is paying for the boom**
The tightening is arguably not the product of corporate borrowing. The latest US financial accounts reveal that American non-financial companies ran a financing surplus of around 1 per cent of GDP in Q1, which is to say that internal cash flow more than covered their capital spending. The position has held for most of the past four years, and it stands in contrast to 2000, when the sector was running a deficit of more than 3 per cent of GDP at the peak of the last (internet-led) investment cycle. That distinction matters for how the present boom is read. Aggregates conceal distribution, and a small number of hyperscalers and data-centre developers have turned to bond and private credit markets on a scale that unsettled equity investors in recent weeks. At the level of the aggregate sector, however, the marginal claim on the US saving is coming from the US government rather than from companies.

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**A friendlier mix, for now**
The latest September survey reveals that the Blue Chip panel has made much the same adjustment almost everywhere in recent months: growth for this year has been revised up, inflation for this year revised down. Taiwan and Korea account for the largest growth upgrades, both for the same AI-related reasons, while the United States, the euro area, Japan, the United Kingdom and India all sit in the same quadrant on a more modest scale. China alone (in our sample in the chart below) has seen neither forecast moved. The combination reads well, but it needs qualifying. With a fixed target year this far advanced, most of the 2026 inflation number is already determined by outturns, so marking it down is largely a verdict on the first half of the year rather than on the energy shock now working through.

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**The UK’s quiet labour market**
The UK labour market is no longer adding much to inflation pressure. Private-sector regular pay is growing at around 3 per cent, the slowest rate since 2020 and below its average in the years before the pandemic. Vacancies have fallen to just over 700,000, the lowest outside the pandemic period since 2014, and payrolled employment declined again in August, leaving it around 145,000 lower than a year earlier. Unemployment, at 4.9 per cent, is up on the year. Smaller firms continue to tell the official vacancy survey that they are holding back from recruitment because of labour costs. None of this settles the Bank of England's decision later this week, since the inflation problem is arriving from outside rather than from wages.

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**China is producing strongly but spending weakly**
China's August data extended a familiar divergence. Industrial output accelerated 5.2% y/y in August after 4.5% in July, beating expectations despite four typhoons disrupting activity along the east coast. Retail sales, in contrast, grew by just 0.4%. Fixed investment in the first eight months was more than 7 per cent lower than a year earlier, a deeper contraction than through July, and investment in real estate development fell by close to a fifth. The weakness is no longer confined to property: total fixed investment turned negative last year and the pace of decline has steepened since, with private investment contracting while state-owned enterprises hold the total up. For the rest of the world the arithmetic is straightforward. An economy producing strongly and consuming weakly exports the difference, and potentially exports disinflation with it. That makes China a partial offset to the energy shock elsewhere, and raises the odds of further domestic stimulus in the immediate weeks ahead.

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**Ten days in September**
Korean customs data offer the earliest and cleanest reading on global technology demand, and the first ten days of September produced some of the largest numbers on record. Semiconductor shipments were worth $16.5 billion in that window, close to three and a half times their value a year earlier, and accounted for 47 per cent of all Korean exports. Total exports rose by more than 80 per cent, with shipments to China doubling and those to the United States more than doubling. This is the phenomenon behind the Taiwanese and Korean forecast upgrades noted above, and it is the physical counterpart of the capital spending recorded in the American accounts. It also concentrates risk. Close to half the export earnings of a major economy now rest on a single investment theme, financed in part by borrowing whose terms are set in the market that has repriced in recent weeks.

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The cost of energy and the cost of money set the tone this week. Brent crude held above $100 a barrel with a major Saudi pipeline still offline, and the Federal Reserve raised the federal funds rate by a quarter point, its first increase since 2023. The projections accompanying the decision mattered more than the decision itself, and futures have since priced a policy rate by the middle of 2027 above anything the committee has pencilled in, with the ten-year Treasury yield through 5 per cent for the first time since 2007 (chart 1). But the source of that tightening is worth dwelling on, because American companies are not competing for credit. The non-financial corporate sector is generating more cash than it spends, and has been for most of the past four years (chart 2). Forecasters have meanwhile spent the summer nudging growth forecasts up and inflation forecasts down for this year, with Taiwan and Korea marked up by some distance the most (chart 3). Britain provided a counterpoint, with pay growth and vacancies both back at or below pre-pandemic norms ahead of the Bank of England’s decision (chart 4). China’s August figures showed industrial output accelerating while investment contracted more deeply (chart 5). And Korean customs data for the first ten days of September gave yet another reading of how much of world trade now runs through a single product (chart 6).

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Charts of the Week: The Price of Money

Michael J. Moran

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Housing activity has been sluggish in the past few years, with private residential construction making negative contributions to GDP growth in seven of the past 10 quarters. The constraints have been small, averaging -0.06 percentage point, but a drag nonetheless (chart, upper left). The third quarter is on track for another negative contribution, as housing starts in July and August trail the average in the prior quarter by 3.9%.

Total housing starts in August were soft, declining 2.6%. The drop occurred from an upward revised reading in July (5.7% firmer than previously believed), but the initial reading was not impressive, and the adjusted level was still in the low portion of the recent range. The drop in August pushed total starts further into the low portion of the range (the fourth lowest since the start of 2023; chart, upper right).

It is tempting to dismiss the decline in August as random volatility, as the change was dominated by a retreat in the volatile multi-family sector (off 21.7%). We have seen similar degrees of multi-family noise in other recent months (-41.4% in May and a rebound of 83.3% in June). As such, there is a good chance that September will show a pickup in multi-family starts. However, a focus on trends still suggests a soft tone in housing.

In seeking to identify housing trends, building permits, because they are less volatile, provide more insight than starts do. Single-family permits trended lower during much of 2024 and early 2025, and they have moved sideways since late last year, signaling little chance of a positive contribution to economic growth (chart, lower left). Multi-family permits drifted upward during 2025, but they have turned a corner so far this year, as shown by the six-month average in the lower right chart. The recent increase in long-term interest rates (up approximately one-half percentage point since June) leads one to worry about a softening in housing trends.

The housing starts and permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- A drop in multi-family activity in August offset a gain in the single-family sector.
- Q3 shaping up to be another soft quarter for housing.

Housing Starts: Upward Revisions to June & July, but a Drop in August

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped by 10,000 to 196,000 in the week ending September 12 from an unrevised level of 206,000 in the week ending September 5. The four-week average was 203,250 in the September 12 week, down from 206,000 in the September 5 week, also unrevised. Claims have been largely range-bound at historically low levels between 200,000 and 230,000. The Action Economics/Haver Analytics Survey looked for 206,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”— dropped 39,000 to 1.730 million in the week ending September 5, down from 1.769 million in the week in the week ending August 29, revised from 1.774 million. The four-week moving average was 1.761 million in the September 5 week, down from 1.778 million in the August 29 week. The insured unemployment rate remained edged down to 1.1% in the September 5 week from 1.2% in the week of August 29, and the first drop since the April 25 week.

The insured unemployment rate varies greatly across individual states and territories. In the week ending August 29, the highest unemployment rates were in Massachusetts (2.03%), Puerto Rico (2.57%), and New Jersey (2.58%). The lowest rates were in South Dakota (0.21%), Florida (0.34%), Louisiana (0.34%), Alabama (0.35%), Kentucky (0.36%), North Carolina (0.37%), Arkansas (0.42%), Nebraska (0.43%), Iowa and North Dakota (both 0.44%), Tennessee (0.45%), Kansas (0.46%), Idaho (0.47%), and Wyoming (0.48%). Rates in other notable states include Texas (1.01%), Pennsylvania (1.39%), Illinois (1.41%), New York (1.72%) and California (1.78%). These state data are not seasonally adjusted.

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

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- New claims declined by 10,000 to 196,000 in the week of September 12.
- Continuing claims dropped by 39,000 to 1.730 million in the week ending September 5.
- The insured unemployment rate inched down to 1.1% in the week of September 5, the first drop since April 25.

U.S. Initial Unemployment Claims Dropped in the Week of September 12

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New orders for durable goods were virtually unchanged m/m in August to $338.6 billion after rises of 0.9% in July (+1.1% initially) and 0.6% in June, according to today’s advance report from the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 0.3% m/m August decline. The latest reading was still up 21.3% from a low of $279.1 billion in November 2022. The year-on-year rate decelerated to 8.5% in August from 11.8% in July (7.7% in August 2025), remaining positive since January 2025 except for May (-3.0%). Excluding transportation, durable goods orders grew 0.3% (11.2% y/y) in August, the 16th straight m/m increase, after a 0.7% rise in July. Durable goods orders excluding defense inched up 0.1% (7.9% y/y), the fourth m/m gain in five months, following a 1.4% July advance.

The m/m flat reading in August durable goods orders reflected a 4.3% m/m decrease in orders for nondefense aircraft & parts, following a 12.0% jump in July and a 2.9% decline in June. Orders for defense aircraft & parts rose 5.9% (-9.2% y/y), the first m/m rise since May, after drops of 13.0% in July and 7.0% in June. Orders excluding aircraft edged up 0.1% (11.2% y/y), the ninth successive m/m gain, after a 0.5% July increase.

Durable goods orders for transportation fell 0.6% (+3.4% y/y) in August, the third m/m fall in four months, following a 1.2% gain in July. In addition to August’s m/m decrease in nondefense aircraft orders and rise in defense aircraft orders, motor vehicles & parts orders slid 0.6% (+9.4% y/y) after a 0.8% July rebound. Orders for fabricated metal products dropped 1.3% (+8.6% y/y), down for the second time in three months, reversing a 0.3% July increase. Orders for computers & electronic products were essentially unchanged m/m (+16.5% y/y) following a 0.7% July decline and two consecutive m/m rises. To the upside, orders for primary metals climbed 1.2% (20.1% y/y), up for the ninth straight month, adding to a 2.1% July increase. Machinery orders grew 1.1% (15.1% y/y) on top of a 1.5% July rise, continuing a string of gains since March 2025. Orders for electrical equipment, appliances & components rose 1.1% (7.6% y/y) following a flat July reading and four successive m/m increases. Orders for all other durable goods were up 0.4% (4.0% y/y), the 12th straight m/m gain, after a 0.6% July rise.

Capital goods orders grew 0.7% (10.1% y/y) in August, the fifth m/m rise in six months, following a 0.6% increase in July. Nondefense capital goods orders rose 1.2% (6.0% y/y), up for the fourth time in five months, after a 2.3% July rise. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) advanced 1.6% (14.1% y/y), the sixth m/m gain in seven months, following a 0.6% July increase. Defense capital goods orders, however, fell 1.5% (+34.6% y/y), the third m/m decline in four months, after a 6.4% July drop. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 0.6% (11.4% y/y), the 11th m/m gain in 12 months, adding to a 1.4% July increase and pointing to a solid contribution to Q3 2026 GDP from business equipment spending.

Shipments of all manufactured goods held steady m/m (+8.6% y/y) in August following a 0.8% increase in July and no change in June. Durable goods shipments slipped 0.2% (+8.6% y/y), the first m/m decline since November 2025, after a 0.9% July rise. Nondurable goods shipments increased 0.3% (8.6% y/y), the eighth m/m rise in nine months, building on a 0.6% July gain.

Unfilled orders of durable goods climbed 0.6% (8.8% y/y) in August after rising at the same pace in July and June. Excluding transportation, unfilled orders rose 0.9% (7.1% y/y) after a 1.0% July gain. Both series posted the 13th consecutive m/m increase.

Manufacturing inventories advanced 0.5% (2.6% y/y) in August, up for the 10th month running, on top of a 0.4% rise in July. Durable goods inventories grew 0.5% (3.0% y/y), the 11th straight m/m increase, after rising at the same rate in July. Nondurable goods inventories rose 0.5% (1.9% y/y), up for the sixth time in seven months, following a 0.3% July rebound.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- August headline orders unchanged after two straight m/m rises; +8.5% y/y, positive since Jan. ’25 except for May; still up 21.3% from a Nov. ’22 low.
- Nondefense aircraft & parts -4.3% m/m vs. July’s +12.0%.
- Transportation orders -0.6%, third fall in four months; orders ex transp. +0.3%, 16th consecutive m/m increase.
- Core capital goods shipments +0.6%, 11th gain in 12 mths., pointing to a solid contribution to Q3’26 GDP from business equipt. spending.
- Durable goods shipments -0.2% (+8.6% y/y); unfilled orders +0.6% (+8.8% y/y); inventories +0.5% (+3.0% y/y).

U.S. Durable Goods Orders Flat in August on Nondefense Aircraft Weakness

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