Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118a.jpg" width="353">
Initial unemployment insurance claims continued to fall last week, decreasing 8,000 to 290,000, now the lowest level since last February. Consensus expectations had been for 310,000, which would have meant some reversal of the previous week&#39;s decline.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims also fell, reaching to 308,000 (+3.7% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118b.jpg" width="353">
In contrast, continuing claims for unemployment insurance rebounded in the January 6 week, with a rise of 120,000 to 2,530,000, almost exactly reversing the prior two weeks&#39; combined 112,000 drop.
The insured rate of unemployment returned to 1.9% after a dip to a downward revised 1.8% in the December 30 week. At the very beginning of 2006, the rate was 2.0%, but since February it has hovered at 1.9%, with the occasional 1.8%.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">01/13/07</th>
<th scope="col">01/06/07</th>
<th scope="col">12/30/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>290</td>
<td>298</td>
<td>325</td>
<td>3.2%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,530</td>
<td>2,410</td>
<td>-0.8%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
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Initial unemployment insurance claims continued to fall last week, decreasing 8,000 to 290,000, now the lowest level since last February. Consensus expectations had been for 310,000, which would have meant some reversal of the [...]

Initial Unemployment Insurance Claims Fall Again; Low Since Feb 2006

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Andrew Cates

**The Trump Trade versus global growth surprises**
Expectations of policies aimed at boosting US growth, including proposed tax cuts and deregulation, have fuelled the so-called "Trump trade" in recent weeks. One clear manifestation of this has been the rise in US Treasury yields, driven by investors' heightened expectations for stronger domestic growth and higher inflation in the months ahead. Interestingly, these trades have unfolded alongside positive surprises in US and broader global growth data, further reinforcing market sentiment. However, as chart 1 below illustrates, the tide may have begun to shift. Recent global data releases have broadly disappointed expectations, primarily due to weaker-than-anticipated survey data from Europe. This has raised questions about the sustainability of a bullish outlook for global growth. Notably, the pullback in US Treasury yields coincides with these weaker global data points—a reflection perhaps of investors recalibrating their optimism toward the world economy.

112824 US 10 yr and surprises.jpg

**The Fed’s balance sheet and global uncertainty**
That retracement in yields serves as a reminder of the interconnected nature of global markets. While US growth remains a key driver of optimism, the broader international backdrop will continue to influence market dynamics and investor sentiment in the weeks ahead. Broadly-based supply-side factors - such as climate change, the energy transition, geopolitical tensions, and heightened trade protectionism - have left uncertainty about the global economic outlook at structurally high levels. This continues to have ramifications for global imbalances, for the demand for US financial assets (including US Treasuries) as well as for Fed’s stewardship of the global financial system.

112824 US BS and uncertainty.jpg

**The global monetary policy consensus**
The December edition of the Blue Chip Financial Forecasts survey, published this week, echoed many of the observations above. The BCFF panel, for example, are expecting that the US election results will slow the pace of FFR cuts going forward. Forecasters are still fully expecting a 25bps cut at the December FOMC meeting but for 2025, the BCFF consensus now looks for 103bps of cuts versus 126bps of cuts in the November survey. This contrasts Europe where 84% of the panel do not believe that likely US policy changes will slow the pace of policy rate reductions from the ECB in the year ahead. The consensus specifically now looks for 114 bps of ECB cuts over the next 12 months and 100 bps from the BoE.

112824 BCFF policy.jpg

**Relative demand matters**
The scope for easing from the ECB relative to the Fed lies in part in lingering structural fault lines that bedevil the outlook for Europe’s economies. Chart 4 below chart underscores the longer-term divergence in domestic demand dynamics between the US and other major economies, including Japan. To put some numbers on this, domestic demand volume in 2024 Q3 in the US was 42% higher than its level in 2010. That stands in contrasts with the UK where domestic demand was only 25% higher than its 2010 level. And it stands in even starker contrast with the euro area and Japan where domestic demand was respectively only 14% higher (in Q2) and 10% higher (in Q3). This underscores the structural differences between the US and other major economies and concerns, among other factors, about institutional flexibility, financing flexibility, demographics and broader productivity potential.

112824 Domestic demand.jpg

**EM portfolio flows**
As for China, concerns about the economic outlook have also intensified of late largely thanks to the specific trade policy intentions of a new US administration. Chart 5 below underscores the continued sensitivity of emerging markets more generally to global macroeconomic and geopolitical developments. Having been buoyed by news of policy stimulus from China in September, emerging markets saw an exodus of equity capital in October. Disappointments about the scale and scope of that stimulus coupled with heightened uncertainty about US trade policy were probably the key reasons for this.

112824 Portfolio flows.jpg

**The global energy transition**
Finally we turn this week to broader structural challenges from climate change and the energy transition. Chart 6 below provides a snapshot of the relationship between electricity generation, its carbon intensity, and the price of electricity across countries. The x-axis represents the share of low-carbon electricity generated, while the y-axis measures per capita electricity generation. Bubble sizes denote the relative cost of electricity, with larger bubbles indicating higher electricity prices. Canada stand outs with high per capita electricity generation and a large share of low-carbon electricity (nearly 100%), yet with electricity prices that remain relatively low. This is likely due to the abundance of hydropower, a low-cost, low-carbon energy source. Germany, France, Italy and the UK, in the meantime, while achieving significant shares of low-carbon electricity generation, exhibit some of the largest bubble sizes, reflecting high electricity prices. Germany's reliance on renewable energy subsidies and grid costs contribute to these elevated prices. At the lower end, India combines low per capita electricity generation and a small share of low-carbon energy, indicative of a fossil fuel-reliant grid. Electricity prices here remain low likely reflecting limited access to energy-intensive infrastructure.

112824 Electricity gen and prices.jpg

A holiday-shortened trading week in the US, combined with persistent political uncertainties on both sides of the Atlantic, have kept financial markets relatively subdued in recent days. Latest data releases have generally supported the prevailing view that US economic growth will remain resilient in the near term, although this strength could come at a cost for the global economy (charts 1 and 2). The Fed's approach to calibrating monetary policy in this environment remains a key area of debate, particularly given the significant role of global factors—such as capital flows—in shaping financial stability (chart 3). Europe, meanwhile, finds itself at the eye of the storm, with political gridlock in Germany and France compounding concerns about the region's economic outlook. In the UK, recent budgetary measures that raised the corporate tax burden have further clouded the picture, sparking worries about their impact on business sentiment and investment. These dynamics risk stalling much-needed structural reforms across Europe, potentially exacerbating global imbalances and widening growth disparities with the US (chart 4). Elsewhere, fears over China’s economic outlook and the trajectory of broader emerging markets have intensified amid speculation over shifts in US trade policy (chart 5). At the same time, climate change and the energy transition remain high on the agenda, with the possibility of significant policy changes in the US adding to the uncertainty (chart 6).

Charts of the Week: Treading Water

Kathleen Stephansen, CBE

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**The PCE chain price index** rose 0.2% in October, following an unrevised 0.2% rise in September. The y/y rise was 2.3%, up from 2.1% in September. **The price index excluding food and energy** rose 0.3% last month after a similar 0.3% rise in September and after three straight months of 0.2% increases. The y/y rise was 2.8% in October, up from 2.7% in September and during Q3. **Durable goods prices** rose 0.1% (-1.6% y/y) in October, down from 0.3% (-1.9% y/y) in September. Motor vehicle & prices rose 0.9% (-1.3% y/y) following a rise of 0.3% (-2.4% y/y) in September, and after declining steadily since June. Recreational product prices declined 0.5% (-2.0% y/y) last month, after declining 0.3% (-2.0% y/y) in September, while home furnishings costs were unchanged (-2.6% y/y) after rising 0.5% (-2.7% y/y). **Nondurable goods prices** eased 0.1% (-0.6% y/y) in October after a decline of 0.4% (-0.8% y/y) in September, with clothing prices declining 1.4% (+0.1% y/y) last month after a 0.7% (1.4% y/y) gain. **Services prices** increased 0.4% (3.9% y/y) in October after rising 0.3% (3.7% y/y) the prior month. Housing & utility prices rose 0.4% (4.9% y/y) after similar monthly and y/y rises in September, and services prices excluding energy & housing increased 0.4% (3.5% y/y) in October after a rise of 0.3% (3.2% y/y) in September. Healthcare prices rose 0.1% (2.5% y/y) in October. Food & beverage prices were unchanged (1.0% y/y) in October, while energy goods & services prices fell 0.1% (-5.9% y/y).

**Personal consumption expenditures (PCE)** increased 0.4% (5.4% y/y) in October, after a 0.6% (5.3% y/y) rise in September. A 0.4% increase had been expected in the Action Economics Forecast Survey. **When adjusted for price changes**, PCE increased 0.1% (3.0% y/y) last month, after rising 0.5% (3.1% y/y) in September.

**Real spending on durable goods** rose 0.3% (4.6% y/y) in October after a 1.1% (3.6% y/y) advance in September. Real spending on motor vehicles rose 0.1% (2.3% y/y) during October after a 1.7% (0.3% y/y) rise the prior month. Real outlays on furnishings & durable household equipment declined 0.2% (+5.9% y/y) in October, following a 0.7% (5.5% y/y) rise in September, while real spending on recreational goods & vehicles rose 0.8% (6.0% y/y) last month, after a 1.2% (5.1% y/y) rise the prior month. Spending on other durable goods rose 0.5% (5.5% y/y) after rising 0.3% (5.3% y/y) in September.

**Real spending on nondurable goods** edged down 0.1% (2.2% y/y) in October, after rising 1.1% (2.6% y/y) during September. Real clothing and footwear purchases rose 0.8% (1.7% y/y) last month, following a decline of 0.2% (+0.6% y/y) in September. Real food & beverage purchases rose 0.2% (2.0% y/y) in October, after a rise of 0.8% (1.9% y/y) in the prior month. Real outlays on gasoline & other energy products declined 0.4% (-0.3% y/y), after a rise of 0.5% (1.6% y/y) in September. Real spending on other nondurable goods declined by 0.6% (3.3% y/y) last month, following a 2.0% (4.1% y/y) rise in September.

**Real spending on services** edged up 0.2% (3.0% y/y) in October, following a similar rise of 0.2% (3.2% y/y) in September. Real spending on housing & utilities eased 0.1% (0.9% y/y) last month, after a 0.1% (1.0% y/y) rise the prior month, while real healthcare spending rose 0.4% (5.6% y/y), after rising 0.5% (6.1% y/y) in September. Real spending on food services & accommodations rose 0.3% (1.2% y/y) in October, after a 0.7% (1.2% y/y) rise the prior month, while real spending on financial services & insurance gained 0.1% (4.0% y/y) after a 0.3% (3.6% y/y) gain the prior month. Real spending on transportation services eased 0.1% (+3.8% y/y) in October, after a decline of 1.0% (+3.9% y/y) in September. Recreation spending edged down 0.1% (+2.8% y/y) after a similar 0.1% (+2.9% y/y) decline in September. Other services spending was flat in the month (1.4% y/y) in October after easing 0.2% (2.4% y/y) the prior month.

**Personal income** rose 0.6% (5.3% y/y) in October, after a rise of 0.3% (5.0% y/y) in September. A 0.3% gain was expected. Wages & salaries rose 0.5% (5.6% y/y) last month following a rise of 0.4% (5.3% y/y) in September. Rental income rose 0.4% (5.4% y/y) last month, after a similar 0.4% rise (5.6% y/y) in September. Proprietors’ income rose 0.4% (2.1% y/y) following a 0.5% (+1.9% y/y) decline in September. Income from assets rose 1.0% (1.9% y/y) after edging down 0.1% (+1.9% y/y), and current transfer receipts rose 0.7% (8.0% y/y) in October, the same monthly rise of 0.7% (7.3% y/y) than in September. Similarly, government social benefits rose 0.7% (7.8% y/y), after a 0.7% (7.2% y/y) in September.

**Disposable personal income** increased 0.7% (5.1% y/y) in October, following a rise of 0.3% (4.8% y/y) in September. After adjusting for price changes, disposable income improved 0.4% (2.7% y/y) after edging up 0.1% (2.6% y/y) in September.

**The personal saving rate** rose to 4.4% in October, from 4.1% in September. The rate was down from a January high of 5.5%. Personal saving rose 8.4% (2.3% y/y) in October, after falling 6.6% (-2.0% y/y) in September.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Monthly 0.3% gain in core prices same as in September.
- Improvement in real spending is concentrated in goods.
- Disposable income firms as wages maintain strength.

U.S. Core PCE Price up 2.8% Y/Y, While Real Spending Edged Up in October 

Tom Moeller

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Real GDP growth of 2.8% (SAAR) last quarter was unrevised. It followed a 3.0% gain in the second quarter and 1.6% growth in Q1. The increase matched expectations in the Action Economics Forecast Survey. Growth during the latest four quarters eased to 2.7% from 3.2% at the end of last year.

After-tax profits were unchanged in Q3 (+0.6% y/y) following a 3.0% rise in Q2. Before-tax profits slipped 0.3% (+6.1% y/y). Financial sector earnings held steady (+26.6% y/y) while nonfinancial earnings strengthened 1.1% (3.9% y/y). Foreign sector profits declined 8.0% (-13.0% y/y).

Holding back GDP growth was a 0.11 percentage point subtraction by business inventories, revised from -0.17. Net exports subtracted 0.57 percentage point, revised from -0.56. Exports rose a lessened 7.5% (4.1% y/y) and imports surged a lessened 10.2% (7.0% y/y).

Domestic final demand increased an unrevised 3.5% (3.1% y/y), the strongest growth this year, after rising 2.8% in Q2. It was powered by a 5.0% surge (3.3% y/y) in government spending which followed a 3.0% gain. That reflected 8.9% growth (3.1% y/y) in federal government spending which included a 13.9% jump (3.9% y/y) in defense spending. State & local spending rose an improved 2.7% (3.5% y/y).

Private sector final sales grew an unrevised 3.2% (3.1% y/y) after a 2.7% rise in Q2. Consumer spending grew 3.5% (2.9% y/y), revised from 3.7%, as spending on durable goods grew broadly at a 7.6% rate (3.5% y/y), revised from 8.1%. Nondurable goods buying strengthened 4.5% (2.2% y/y), revised from 4.9%.  Purchases of services rose a steady 2.6% (3.1% y/y).

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Business fixed investment grew 3.8% (4.0% y/y), revised from 3.3% after rising 3.9% in Q2. Structures spending fell 4.7% (+1.9% y/y) but spending on equipment surged a little-revised 10.6% (5.3% y/y). Computer purchases soared 17.8% (9.7% y/y), revised from 14.7%. Intellectual property product spending rose an upwardly revised 2.5% (4.0% y/y). Residential investment declined 5.0% (+1.9% y/y), revised from 5.2% following a 2.8% slump.

The GDP price index rose 1.9% (2.2% y/y), revised from 1.8%, after a 2.5% Q2 rise. The PCE price index rose an unrevised 1.5% (2.3% y/y) as the price index less food & energy increased 2.1% (2.7% y/y), less than half of the 5.2% rise (4Q/4Q) during 2022. The business fixed investment price index rose 2.8% (2.0% y/y) and the residential price index increased 4.2% (2.9% y/y), revised from 2.7%. The government price index increased 2.4% both q/q and y/y.

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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- GDP grew 2.8% (SAAR) after a 3.0% Q2 gain. Domestic final demand remains strong & unrevised. 
- Before-tax profits dip.					
- Inventory & foreign trade effects remain negative.
- Price index growth is slowest this year.

U.S. GDP Growth Is Unrevised in Q3; After-Tax Corporate Profits Steady

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The Pending Home Sales Index, based on contract signings, rose 2.0% (5.4% y/y) to 77.4 in October. The gain came after a 7.5% September rise and a 0.6% August increase, according to the National Association of Realtors (NAR).

The rise in sales occurred as the rate on a 30-year mortgage rose to an average 6.43% in October from 6.18% in September. These rates remain higher than a low of 5.22% in August 2022 and well above their all-time low of 2.68% in December 2020.

Pending home sales rose across the country. Sales in the Northeast improved 4.7% (7.2% y/y) after a 6.5% September gain. Sales in the Midwest strengthened 4.0% (1.8% y/y) after rising 6.9% in September. Sales in the South increased 0.9% (2.5% y/y), following a 7.0% September rise. Sales in the West edged 0.2% higher (16.8% y/y) in October after a 9.8% September increase.

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.

- Sales are highest since March.
- Home sales strengthen across the country.

Initial Unemployment Insurance Claims Fall Again; Low Since Feb 2006

Summary

Carol Stone, CBE

More Economy in Brief

Charts of the Week: Treading Water

U.S. Core PCE Price up 2.8% Y/Y, While Real Spending Edged Up in October

U.S. GDP Growth Is Unrevised in Q3; After-Tax Corporate Profits Steady

U.S. Pending Home Sales Increase in October

Unemployment Insurance (000s)	01/13/07	01/06/07	12/30/07	Y/Y	2006	2005	2004
Initial Claims	290	298	325	3.2%	313	332	343
Continuing Claims	--	2,530	2,410	-0.8%	2,459	2,662	2,924