Tom Moeller

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U.S. nonfarm business productivity (output per hour) increased 2.5% (2.7% y/y) last quarter, revised from 2.3%, after a 0.4% gain in Q1. The Action Economics Survey Forecast expected a 2.4% increase in productivity during Q2. The increase remained below growth in the last three quarters of 2023 which averaged 3.8%. Nonfarm business output increased 3.5% (3.5% y/y), revised from 3.3%, after a 1.0% Q1 rise. Hours-worked rose an unrevised 1.0% (0.7% y/y) after edging 0.5% higher in Q1.

Compensation growth slowed to 3.0% last quarter (3.1% y/y), revised from 3.3%, versus a 4.2% gain in Q1. As a result, unit labor cost growth was revised down to 0.4% (0.3% y/y) in Q2 from 0.9%, after a 3.8% rise in Q1. The Action Economics survey expected unit labor costs to rise 0.8% last quarter.

In the manufacturing sector, productivity in Q2 grew 1.3% (0.4% y/y), revised from 1.8%, after falling 0.7% in Q1, revised from a 1.1% decline. Compensation growth grew 4.9% (4.7% y/y), revised from 5.1%, in Q2 following a 3.2% rise. Unit labor costs grew 3.6% (4.3% y/y), revised from 3.2%, in Q2 after a 3.9% increase in Q1, revised from 4.3%.

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

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- Output per hour growth raised.
- Compensation growth is reduced.
- Modest unit labor cost increase is lessened.

U.S. Productivity Increase Revised Slightly Higher in Q2’24

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Import prices declined 0.3% (NSA, +0.8% y/y) during August after rising an unrevised 0.1% in August. Expectations had been for a 0.1% decline in the Action Economics Forecast Survey. Export prices fell 0.7% both m/m and y/y. The previously reported 0.7% increase in July was revised to +0.5%. The Action Economic Forecast Survey had looked for export prices to ease 0.1% in August.

The August decline in import prices was led by a 3.0% weakening (-4.6% y/y) in fuel & lubricant prices which followed a 1.1% July increase. Excluding this decline, import prices edged 0.1% lower (+1.3% y/y) after a 0.1% July improvement. Foods, feeds & beverages prices eased 0.1% (+4.8% y/y) after strengthening 1.5% in July and 1.1% in June. Motor vehicle & parts prices held steady (+2.3% y/y) following a 0.4% gain. Nonauto consumer goods prices slipped 0.1% in August (+0.5% y/y) after falling 0.2% in both of the prior two months. Capital goods prices inched 0.1% higher (0.3% y/y) after holding steady in July.

The August weakening in export prices reflected 1.8% decline (-5.8% y/y) in foods, feeds & beverages prices which came after falling 1.7% in July. Industrial supplies and materials fell 1.1% (-2.0% y/y), following a 1.8% rise. Capital goods prices slipped 0.2% (+1.4% y/y) after holding steady, while auto export prices improved 0.1% (4.0% y/y) following a 0.3% rise. Nonauto consumer goods prices rose 0.1% (-1.5% y/y) and reversed the July decline. Overall, agricultural export prices fell 2.0% (-6.9% y/y), the same as in July. Prices of nonagricultural exports declined 0.6% (-0.1% y/y) following a 0.8% rise in July.

The import and export price series can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Import price weakness is led by lower oil prices.
- Price declines of other imported goods are widespread.
- Export price decline reflects lower food prices.

U.S. Import and Export Prices Drop in August

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) increased 1.8% (1.2% y/y) in July to 95.0 after falling 0.2% to 93.3 in June. The level of home affordability has plunged 46.9% from a peak of 179.0 in April 2020.

The rise in affordability reflected a 1.0% decline (+4.2% y/y) in the median price of an existing single-family home to $428,500. This followed five straight monthly increases to a record $432,900 in June. The price weakening accompanied a drop in the average mortgage rate to 6.93% from 7.00% in June. It remained up sharply from the December 2020 low of 2.73%. The declines lowered the principal & interest payment by 1.7% (+4.3% y/y) to $2,265. That was increased from the most recent low of $984 in February 2020. Monthly mortgage payments averaged 26.3% of income during July versus 26.8% in June. It remained up from a recent low of 14.0% in April 2020.

The decline in housing costs was accompanied by improvement in median family income which increased 0.1% in July (5.5% y/y) to a record $103,278 after rising 0.8% in June.

Housing affordability increased across the country in July. The affordability index rose 4.3% (-3.8% y/y) in the Northeast to 87.9. The index increased 2.5% (1.0% y/y) to 122.3 in the Midwest and it remained the most affordable region of the country to live. In the South, the index rose 1.0% (3.5% y/y) to 98.8 and in the West, where homes are the least affordable, the index rose 0.7% (2.7% y/y) to 69.1.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013; since then, it fell below 100 for the first time in June 2022 (98.8).

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Home prices slip & mortgage rates decline.
- Median income edges up.
- Affordability increases throughout the country.	

U.S. Housing Affordability Index Improves in July

Robert Brusca

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In the wake of European Central Bank rate cuts, the European Monetary Union reports a 0.3% reduction in industrial production in July. Industrial production in the euro area shows a decline of 2.2% in output over 12 months; the rate of decline improves slightly to -1.6% when annualized over six months but then has a severe setback over three months as it falls at a 4.8% annual rate. You simply cannot put positive spin on this month’s report or on the trend. The best we can is that year-on-year trends are not worsening; several are potentially encouraging if they persevere.

The patterns in manufacturing are the same but manufacturing output declines at an 8.2% annual rate over three months, a much larger decline than for output overall. Sectors show some upbeat trends for consumer goods, as output is up by 1.6% over 12 months and then continues to advance at a 4.3% annual rate over six months and over 12 months. The increase in overall consumer goods output is underpinned by a steady acceleration in nondurable goods output and held back by declines in durable goods output over 12 months, six months and three months. Intermediate goods output faces a decelerating profile, with output falling 3% over 12 months, falling at a 3.7% annual rate over six months, and falling at a 6% annual rate over three months. The capital goods progression is not as steadily deteriorating, but it's a chilling development since output falls by 5.1% over 12 months, then that decline is trimmed to -2.9% at an annual rate over 6six months, but it comes back to show a 12.6% decline at an annual rate over three months. That's not a clean steady deterioration but the 12.6% pace of decline over three months is certainly chilling.

In the quarter-to-date, which is at this point a nascent calculation, one-month into the new quarter. Overall output falls at a 3.9% annual rate, manufacturing output falls at a 5.3% annual rate, consumer goods output is rising strongly pushed ahead by nondurable goods output. But apart from that, there are ongoing sharp declines in consumer durables output, the output of intermediate goods, and then the output of capital goods.

The performance of industrial output in July supports the decision by the ECB to cut rates even though that decision occurs with inflation over the top of its target and still accelerating. However, the factory sector has been weak for quite some time and the services sector has been strong enough to provide overall expansion for the economy. The goods sector is simply the weakest part of the economy and so it's going to seem like it is in support of any policy step taken to offset weakness.

**EMU member countries**
The country level data for 13 of the earliest European Monetary Union members shows output declines in July in six of these reporters. In June, there were output declines in five of them; in May, there were output declines in seven of them.

Sequential calculations show that output has been increasing less broadly from 12-months to 6-months to 3-months. Over 12 months about two-thirds of the reporting countries showed output increases/ Over six months that fell back to 50% of them, whereas over three months only a little better than one-third of the reporting monetary union members are indicating accelerating output. In addition to that, over the last three months eight countries show actual declines in output in progress.

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The manufacturing sector remains the weakest sector in the global economy with service sectors continuing to churn out growth. That means that economies can continue to report job growth since the service sector globally is the job creating sector. However, for growth to become more vital, the goods sector is going to have to join in. For now, manufacturing continues to be challenged.

Globally unemployment rates are still quite low even though in many places unemployment rates are up from their lowest levels. Central banks in most places have embarked on easing cycles with the Bank of Japan of course being the odd man out of this process. The Baltic dry goods index shows that there has been some recovery in international trade; however, across recent months, that trend has gone stagnant. In the meantime, pastor geopolitical conditions continue to deteriorate in the Middle East and for the Russia-Ukraine war. The risks may even be getting worse.

Europe

EMU IP Takes a Small Step Backward

Carol Stone, CBE

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Borrowing in the U.S. economy totaled $4.2 trillion seasonally adjusted annual rate in Q2, equal to 14.7% of GDP (measured in current dollars). This is moderately larger than the $3.9 trillion in Q1, which was 14.0% of GDP. The Q1 borrowing was revised from $4.1 trillion reported back in June, which was 14.4% of GDP. All of the quarterly dollar amounts shown here are seasonally adjusted annual rates, and revisions to prior quarters are frequent in this dataset. The Federal Reserve released the Q2 data on September 12, 2024.

As usual, the federal government had by far the largest amount of borrowing, $1.89 trillion, marginally more than the $1.83 trillion in Q1. The Q2 federal government borrowing was 6.6% of GDP, up very slightly from 6.5% in Q1; both of these were much smaller than in 2023, which averaged $2.62 trillion, equal to 9.6% of GDP.

Borrowing by the private sectors of the economy was quite similar among them in Q2. Corporate nonfinancial businesses borrowed $625 billion in Q2, down slightly from $689 billion in Q1; both of these are substantially more than the total for 2023 of $245 billion. The Q2 amount consisted of debt securities of $279 billion, down from $541 billion in Q1, and loans of $346 billion, noticeably more than the $148 billion in Q1.

Households and nonprofit institutions borrowed $632 billion in Q2, up from $549 billion in Q1. The Q2 amount included $398 billion in 1-4 family home mortgages, up from $251 billion in Q1, and $83 billion in consumer credit in Q2, slightly less than the $96 billion in Q1.

State and local governments borrowed $196 billion in Q2, basically double the Q1 amount of $100 billion.

Financial institutions’ credit needs, which can vary noticeably from period to period, were $69 billion in Q2, down from $422 billion in Q1 and a total for all of 2023 of $355 billion. The Q2 amount was just 0.2% of GDP and 1.5% in Q1, while back in 2022, the annual total was 6.2% of GDP.

Foreign sector borrowing was $627 billion in Q2, up from $213 billion in Q1 and the largest quarterly amount since Q3 2021. For all of 2023, foreigners borrowed just $164 billion in U.S. markets.

For the whole U.S. economy, net wealth was $153 trillion at the end of Q2, up from $150 trillion at the end of Q1 and $144 trillion at the end of 2023. The Q2 amount was up 7.0% from a year ago. Household and nonprofits net worth was $164 trillion at the end of Q2, up from $161 trillion at the end of Q1 and $155 trillion at the end of 2023.  These net wealth and net worth amounts are not seasonally adjusted.

The Financial Accounts data are in Haver's **FFUNDS** database. The Federal Reserve is the main source, while associated information is compiled in the Integrated Macroeconomic Accounts produced jointly with the Bureau of Economic Analysis (BEA); those nonfinancial data are carried in Haver's **USNA** database as well as in **FFUNDS**. Note that revisions are common throughout the accounts with every quarterly release.

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- Q2 credit demand was 14.7% of GDP, somewhat larger than Q1’s 14.0%.
- Federal government continues as largest borrowing sector.
- Household and businesses each borrowed about $600 billion in Q2.

Borrowing in U.S. Markets Up Slightly in Q2