Haver Analytics
Haver Analytics

Economy in Brief

    • Service sector weakness is notable.
    • Earnings disappoint m/m and trend growth continues to decelerate.
    • Jobless rate stays on upward path.
  • The money supply picture in June is beginning to turn with growth on the rise. In the European Monetary Union, M2 growth progresses from a 1.3% pace over 12 months to 2.1% over six months and accelerates to a 4.3% annual rate over three months. The rate of growth in private credit in the Monetary Union is 0.8% over 12 months, moves up to 0.9% over six months, and to 1.6% over three months.

    Real money growth: EMU- Indexing these variables for inflation to look at rates of growth in real money balances in the European Monetary Union, shows a decline of one-half of one percent over 12 months, a decline at a 0.3% annual rate over six months and an increase at a 0.7% annual rate over three months. Monetary growth has completed the progression from being in a contractionary mode to being expansionary in real terms. Real private credit has not yet made that turn. The growth in credit over 12 months is -1.7%. That contraction is reduced to a pace of -1.5% over six months, but then, over three months private credit growth contracts 2% at an annual rate. On balance, real private credit growth continues to be restrictive.

    Other monetary centers- Turning to the other major monetary center countries, we see positive nominal money growth in U.S. M2 and U.K. M4 over three months, six months, and 12 months. Japan moves in the opposite direction with growth rates of money slowing down and showing contraction over three months. Japan has been on the opposite cycle for some time. Japan just this week executed a rate hike as all the rest of the money center central banks have begun or are anticipating interest rate cutting. The ECB began cutting rates a while ago. The Bank of England cut its key policy rate just this week while the Federal Reserve had a meeting this week and decided not to cut rates although it began to point to September. In the wake of some surprising data, especially the U.S. employment report for July, U.S. markets have gone a little nutty, and they're starting to price in not just a rate cut but a large rate cut and several of them. The U.S. case marks a strong change in market pricing. I would caution what markets are doing on the heels of this employment report since the employment report clearly showed that there were flaws. A large increase in the number of workers who were not able to work because of weather conditions and yet markets have completely ignored this and treated all of the weakness in that report as though it's authentic weakness. It's not clear that that's the case, but for now markets are on that bandwagon- keep an eye on U.S. data.

    The growth rate in U.S. real money balances shows that, without the Federal Reserve changing policy, money growth has become stimulative. Over 12 months the U.S. monetary aggregate M2 declines by 1.9%, over six months it declines at a 0.2% annual rate, and over three months it increases at a 2.6% annual rate. U.K. 12-month money growth in M4 declines by 1.9%, then it increases at a 0.8% pace over six months and at a 0.7% pace over three months. In Japan, with a tightening kicked off, the 12-month growth rate for M2 plus CDs is -1.3%. That stays pretty level at -1.4% at an annual rate over six months, but over three months that tightens considerably to a decline rate of -4.9% at an annual rate. Japan is barely touching the brakes on interest rates while money supply is showing some significant weakness. Since late-2022, Japan's M2 growth has been consistently showing declines; about a year ago, Japan began to show some slight increases. However, declines are back and now they're starting to progress to even weaker numbers. Japan’s situation is still in flux as its headline inflation rate has been moving up, but its core inflation rate has remained relatively stable and to right around its target rate.

  • Monetary policy normalisation has been a big theme over the past few days and, insofar as this signals that inflation is also returning to more normal levels, this has been welcomed by global investors. Most importantly the Fed has signalled a high likelihood that it will cut its policy rate at its next scheduled meeting in September and, in doing so, kick start an easing cycle (see chart 1). The Bank of England, in the meantime, has cut its policy rate by 25bps this week, a little earlier than some market participants had anticipated (chart 2). And on the other side of the equation, the Bank of Japan also sprung a surprise by unexpectedly lifting its policy rate and announcing a new plan to taper its bond buying programme (chart 3). While the timing of these communications and policy shifts has caught some analysts by surprise, there has been little to dislodge the view that most major central banks will embark on – or extend – an easing cycle over the next few months (chart 4). And this, coupled with recent evidence suggesting that labour market activity is softening and that inflation is subsiding, is reinforcing a soft landing narrative (chart 5). All that aside there is no shortage of factors that are challenging this narrative. One of these factors concerns the further flare-up of instability in the Middle East in recent days, which might amplify supply chain pressures and lift global energy prices in the period ahead (chart 6). Inasmuch as goods price disinflation has been a critical driver of the downward drift in broader consumer price inflation in the global economy, this could be of some significance in coming months, not least if service sector CPI inflation remains sticky.

    • Both light truck and passenger car sales rise.
    • Imports' market share strengthens.
    • Index weakens to lowest point in eight months.
    • Employment & production lead decline while supplier deliveries edge higher.
    • Price index moves up.
    • June construction spending -0.3% m/m; +6.2% y/y, the lowest since July ’23.
    • Residential private construction -0.3% m/m, led by a 1.2% decrease in single-family building.
    • Nonresidential private construction -0.1% m/m, the fourth m/m decline in five months.
    • Public sector construction -0.4% m/m, reflecting m/m drops in both residential & nonresidential public buildings.
    • Output per hour rose 2.3% saar in Q2 vs. 0.4% in Q1.
    • Compensation growth slowed more than expected.
    • So did unit labor costs—to 0.9% saar.
    • Initial claims rose 14,000 in the week ended July 27.
    • Continuing claims rose 33,000 in the week ended July 20.
    • Insured unemployment rate holds steady.