Sandy Batten

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The Current General Activity Diffusion Index rose to 10.3 in October from 1.7 in September, according to the Manufacturing Business Outlook Survey (MBOS) from the Federal Reserve Bank of Philadelphia, indicating further improvement in activity in the third Federal Reserve District this month. A reading of 3.0 had been expected in the Action Economics Forecast Survey. Twenty-four percent of the firms reported increases in general activity in October (up from 21.9% in September) while 14.0% reported decreases (down from 20.2% in September). Responses to this month's survey were collected from October 7 to October 14.

The headline index reflects the answer to a single question about business conditions. Haver Analytics calculates an ISM-adjusted current activity diffusion index from five key components using the methodology along the lines of the national ISM index. The index rebounded to 52.7 in October from 49.3 in September, indicated that the rise in activity was relatively broad based.

The new orders index rebounded to 14.2 in October after having fallen to -1.5 in September with 30.5% of respondents reporting an increase in orders while only 16.3% reported a decline, the lowest since August 2023. Similarly, the shipments index bounced back to 7.4 in October from -14.3 in September. Twenty-seven percent of respondents reported an increase in shipments while 19.8% reported a decline. Unfilled orders rose but remained negative for the second consecutive month at -1.5. Delivery times lengthened to 10.2 in October from -0.7 in September. Inventory investment continued but the pace slowed with the index falling to 0.5 in October from 5.0 in September.

Employment conditions weakened in October with the number of employees’ index falling to -2.2 from 10.7 in September. Eleven percent of respondents reported an increase in employment, the same as last month, while 12.9% reported a decline versus 0% last month. The average workweek index rose slightly but remained decidedly negative at -11.8.

Both price indexes declined in October but remained positive. The prices paid index declined from 34.0 to 29.7. Nearly 35% of the firms reported increases in input prices, while 5.0% reported decreases; 60.0% of the firms reported no change. The current prices received index decreased 7 points to 17.9. Almost 22 of the firms reported increases in prices received for their own goods, 3.8% reported decreases, and 71.9% reported no change.

The future activity index jumped up to 36.7 this month, its highest reading in three months, from 15.8 in September. Apart from inventories, all other components posted solid increases, led by new orders and shipment.

In this month’s special question, manufacturers were asked about their plans for different categories of capital expenditures next year. Almost 52% of the firms expect to increase total capital spending, compared with 21% that expect to decrease total spending; 27% expect total spending to stay the same. When this question was asked last year, the share of firms expecting to decrease spending slightly exceeded the share of firms expecting to increase spending (30% versus 24%). On balance, the firms expect higher capital expenditures next year for computer and related hardware, software, noncomputer equipment, and energy-saving investments, and lower expenditures on structure and other investments.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The series from the survey dating back to May 1968 can be found in Haver’s **SURVEYS** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- The headline index rose more than expected to 10.3 from 1.7.
- The increase was rather widespread with the ISM-adjusted index rising to 52.7.
- New orders and shipments components indexes rebound from negative readings in September to positive in October.
- The employment component index fell back into negative territory in October after a solid increase in September.
- Capital spending expectations rise markedly.

Philly Fed Manufacturing Index Rises Further in October

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Total business inventories rose 0.3% m/m (2.4% y/y) in August, the same monthly increase as in June and July. A 0.3% increase had been expected in the Informa Global Markets Survey.

Retail inventories rose 0.6% m/m (6.4% y/y) in August, slightly slower than the 0.8% monthly gain in July. Increased auto inventories continued to be the major contributor to the rise in overall inventories in August. While the 0.8% m/m increase in auto inventories was the lowest monthly increase in six months, it accounted for 44% of the monthly increase in total inventories. General merchandise inventories were up 1.3% m/m, their largest monthly gain since December 2023. Food and beverage store inventories rose 1.2% m/m in August, their largest monthly gain since October 2022. By contrast, furniture inventories fell 0.5% m/m, their fourth consecutive monthly decline.

Manufacturing inventories edged up 0.1% m/m (0.6% y/y) in August after having been unchanged in July. Wholesale inventories also increased 0.1% m/m (0.6% y/y) in August versus a 0.2% monthly gain in July.

Total business sales fell 0.2% m/m (+1.3% y/y) in August after a 1.1% m/m jump in July. Factory sales fell 0.5% (+1.0% y/y); wholesale sales slipped 0.1% m/m (+1.1% y/y). Retail sales were essentially unchanged (+1.9% y/y) with weakness widespread across major sectors.

With sales falling and inventories rising in August, the inventory/sales (I/S) ratio edged up to 1.38 from 1.37 in July, It has been either 1.37 or 1.38 in each of the past nine months. The manufacturing I/S ratio inched up to 1.46 in August from 1.45. The wholesale I/S was unchanged at 1.35. And the retail I/S increased to 1.33 from 1.32 in July.

The manufacturing and trade data are in Haver’s **USECON** database. The Informa Global Markets forecast is in the **MMSAMER** database.

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- Inventories increased 0.3%, led by retailers.
- Sales declined, led by factory sales.
- Inventory/sales ratio stuck in a range.

U.S. Business Inventories Rose While Sales Fell in August

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped by 19,000 to 241,000 seasonally adjusted in the week ended October 12, from 260,000 in the previous week, revised up 2,000 from the initially reported 258,000 level. The Action Economics Forecast Survey had expected 245,000 in the October 12 week. Press reports indicate that the jump in the October 5 week was related to the impact of Hurricane Helene. The effects of both Hurricane Helene and Milton will likely keep weekly claims data volatile in the coming weeks. The four-week moving average of initial claims was 236,250 in the week ended October 12, up from 231,500 the week before.

In the week ended October 5, the total number unemployment benefit recipients – also known as insured unemployment – was 1.867 million, up 9,000 from 1.858 million in the week of September 28, revised down from 1.861 million. The four-week moving average of insured unemployment was 1.843 million, up from 1.831 million in the prior week.

Also, in the week ended October 5, the insured unemployment rate was still 1.2%. This is the number of beneficiaries as a percent of covered employment; the rate has been at 1.2% continuously since March 11, 2023.

Economic conditions vary widely across states and territories. In the week ended September 28, the highest unemployment rates were in New Jersey (2.18%), California (2.01%), Puerto Rico (1.81%), Rhode Island (1.78%) and Washington (1.76%). The lowest rates were in South Dakota (0.23%), North Dakota (0.34%), Florida, Virginia and North Carolina (each 0.40%), and Alabama, Kansas and Nebraska (each 0.43%). Rates in other notable states include New York (1.47%), Illinois (1.42%), Pennsylvania (1.34%) and Texas (1.05%). These state rates 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. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Continuing claims up 9,000 in the October 5 week, after the 39,000 jump in September 28 week.
- Insured unemployment rate holds at 1.2%.

U.S. Unemployment Insurance Claims Dropped 19,000 in Week Ended October 12

Tom Moeller

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Pricing pressure from the foreign trade sector eased last month. Import prices weakened 0.4% (-0.1% y/y) in September following a 0.2% August decline, revised from -0.3%. The Action Economics Forecast Survey expected a 0.3% decline. Export prices declined 0.7% (-2.1% y/y) last month after falling 0.9% in August, revised from -0.7%. The Action Economic Forecast Survey expected a 0.6% drop.

The monthly decline in import prices reflected a 7.0% drop (-17.3% y/y) in fuels & lubricants prices which came after a 2.9% decline in August. Nonfuel prices, however, edged 0.1% higher for the third straight month. Their y/y increase has risen to 1.8%, up from -1.9% in April of 2023. Auto import prices improved 0.2% (2.7% y/y), the same as in August. Nonauto consumer goods prices increased 0.2% (0.8% y/y). The gain followed three straight monthly declines. Capital goods prices held steady (+0.4% y/y) after a 0.2% increase. Weakening, however, were foods, feeds & beverage prices which declined 1.5% (+3.8% y/y) after rising 0.2% in August.

The weakening in export prices in September reflected a 0.9% drop (-1.8% y/y) in nonagricultural export prices which was the fourth decline in the last five months. A 0.6% rise (-5.3% y/y) in agricultural product prices offset some of this weakness. Leading the decline, industrial supplies & materials prices fell 2.4% (-6.3% y/y) after a 1.6% August drop. Motor vehicle & parts prices edged 0.1% lower (+2.9% y/y) and reversed the 0.1% rise in August. Offsetting these declines, nonauto consumer goods prices increased 0.3% (0.9% y/y) following a 0.1% improvement in August. Capital goods prices rose 0.2% (1.6% y/y) after a 0.2% dip.

Each of these monthly trade price numbers are not seasonally adjusted. 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 **AS1REPN**A database.

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- Import price decline led by oil; elsewhere most prices firm.
- Export price weakness led by costs of industrial supplies.

U.S. Import and Export Prices Decline in September

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Retail gasoline prices for all grades rose to $3.29 per gallon (-11.1% y/y) in the week ended October 14 after falling to $3.26 per gallon in the prior week. Prices remain below the late-April high of $3.79 per gallon, well under their all-time high of $5.11 in the week ended June 13, 2022. Retail prices for on-highway diesel fuel increased to $3.63 per gallon (-18.3% y/y) from $3.58 per gallon. These prices reached a high of $4.63 per gallon in the third week of September of last year.	

The average price of West Texas Intermediate crude oil strengthened to $75.07 per barrel (-12.0% y/y) in the week ended October 11 after rising to $71.47 per barrel in the prior week. It was the highest price in six weeks but they remained lower than the $91.45 high in the last week of September 2023. Yesterday, the price of West Texas Intermediate crude oil fell to $70.58 per barrel. The price of European Brent crude oil increased to $78.51 per barrel (-10.5% y/y) in the week ended October 11 after rising to $75.16 in the prior week. The price of Brent has recently ranged from a low of $74.31 in the week ended June 30, 2023 to a high of $121.57 in the week ended June 10, 2022. Yesterday, the price weakened to $73.75 per barrel.

Natural gas prices fell to an average $2.40 /mmbtu (-25.0% y/y) in the week ended October 11 from $2.67 in the prior week. Prices recently touched a high of $2.73/ mmbtu in the second week of June and they remained well above their low of $1.40/mmbtu in the second week of March. Prices reached a high of $9.56/mmbtu averaged in the last week of August 2022. Yesterday, the price of natural gas moved lower to $2.37/mmbtu.

These data are reported by the Energy Information Administration of the U. S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** and **USENERGY** databases.

- Gasoline prices edge up, reversing earlier decline.
- Crude oil costs move higher.
- Natural gas prices decline.

U.S. Energy Prices Are Mixed in Latest Week

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Mortgage loan applications plummeted 17.0% (+37.9% y/y) in the week ended October 11, after a decline of 5.1% (+54.8% y/y) in the week ended October 4. Applications for loans to purchase a house dropped 7.2% (+6.6% y/y) in the week ended October 11, after a decline of 0.1% (+8.5% y/y) in the week ended October 4, while applications to refinance an existing mortgage fell 26.3% (+111.3% y/y) following a decline of 9.3% (+158.5% y/y) in the prior week. These data are from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey.

The effective interest rate on a 30-year fixed-rate mortgage was 6.71% in the week ended October 11, up 17 bps from 6.54% in the week ended October 4 and up 39 bps over the past two weeks. A recent high of 6.59% was reached in the week ended August 30. The effective rate on a 15-year fixed rate mortgage was 6.10% in the October 11 week, up 22 bps from the 5.88% rate in the October 4 week. The rate on 30-year Jumbo loans rose 17 bps to 6.95% in the October 11 week, from 6.78% in the October 4 week, and the rate on 5-year ARM loans rose 5 bps to 6.33% in the latest week from 6.28%.

The share of loan applications to refinance an existing mortgage was 46.5% in the week ended October 11, down from 52.4% in the week ended October 4. The share of applications for ARMs was 5.9% in the latest week, unchanged from the prior week.

The average size of a mortgage loan application was $389,200 in the week of October 11, down 3.4% w/w from $402,900 in the week ended October 4. The average size of a loan to purchase a house eased 0.9% w/w to $448,600 in the latest week from $452,600 in the October 4 week. The average size of a loan to refinance dropped 10.2% to $321,000 in the October 11 week from $357,600 in the October 4 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Loan applications to purchase and refinance a house plummeted in the latest week.
- Interest rates on all loans rose in the latest week.
- Average loan size declined.

U.S. Mortgage Loan Applications Plunged in the October 11 Week

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The General Business Conditions Index from the Federal Reserve Bank of New York declined to -11.9 in October after surging to 11.5 in September. The decline brought it to the lowest level since a May level of -15.6. A reading of 3.0 had been expected in the Action Economics Forecast Survey. The percentage of respondents reporting an improvement in business conditions fell to 26.6% from 32.7% in September while the percentage reporting a decline in activity rose to 38.5% from 21.2% last month. The headline index reflects the answer to a single question concerning the state of economic activity. The survey responses were collected between October 2 and October 9.

Haver Analytics calculates a composite index, which is comparable to the ISM manufacturing index. That index declined to 48.1 in October from 52.0 in September. A level of 50 is the breakeven point between expansion and contraction. The index is the average of five diffusion indexes; new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

The new orders index fell to -10.2 in October from 9.4 in September. A lessened 29.8% of respondents reported higher orders while an increased 40% reported order declines. The shipments index fell to -2.7 from 17.9. The unfilled orders index dropped to -2.2 from 2.1 in September. Delivery times lengthened as the index fell to -3.2 from -1.1. Inventories weakened this month to -7.5 from a break-even level of zero in September.

Labor market conditions were greatly improved in October. The employment index of 4.1 compared to -5.7 in September. It was the first month above the break-even level of 50 in twelve months. An increased 12.7% of respondents reported increases in employment while a lessened 8.6% reported lower employment. The hours-worked index increased to 4.7 after rising to 2.9 in September. It was only the second positive reading following ten months where it stood below zero.

Inflation pressures increased this month. The prices paid index rose to 29.0 after easing to 23.2 in September and falling to 23.4 in August. A higher 33.3% of respondents were paying higher input prices, while a greatly reduced 4.3% reported paying lower input prices. The prices received index also rose to 10.8 from 7.4 in September. It was the highest level since May as 17.2% of respondents reported an increase in prices while 6.5% reported price declines.

Companies grew more optimistic about the outlook in October. The index for future business conditions of 38.7 this month compared to 30.6 in September, and was the highest level since October 2021. The outlook for shipments, unfilled orders, vendor performance and employment improved, but new orders eased. The future prices paid index slipped just slightly from its highest level since February 2023, but capital spending plans rebounded sharply.

The headline index reflects the answer to only one question concerning general business conditions and is not calculated from the components. The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- Factory sector indicator declines to five-month low.
- New orders & shipments lead decline, while employment increases.
- Prices paid & received continue to strengthen.

U.S. Empire State Factory Index Returns to Negative Territory in October

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) increased 3.2% (3.7% y/y) during the four weeks ended October 11, 2024, the same as it did four weeks earlier.

Prices in the Metals group led the rise and increased 8.0% (15.8% y/y) over the most recent four weeks. Zinc prices gained 13.4% (25.5% y/y) in four weeks and aluminum prices rose 10.2% (18.2% y/y). Copper scrap prices rose 7.1% in four weeks (21.5% y/y), while tin prices gained 6.7% (35.6% y/y) in four weeks. Also, lead prices firmed 5.8% in four weeks (-4.2% y/y) and steel scrap prices rose 5.9% (6.0% y/y) over four weeks.

Crude Oil & Benzene group prices increased 2.7% (-9.1% y/y) in the latest four weeks. The cost of West Texas Intermediate crude oil rose 10.6	% in four weeks to $74.85 per barrel, but was 11.2% lower y/y. The cost of the petro-chemical benzene, used for making plastics & synthetic fibers, fell 5.6% (-23.1% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index rose 2.8% (4.6% y/y) in the latest four-week period.

Textile group prices rose 1.3% (-1.3% y/y) over the same four week period. Cotton prices rose 6.3% (-18.0% y/y) in four weeks. The cost of burlap posted a 2.6% rise (18.3% y/y) during the last four weeks.

Prices in the Miscellaneous group improved 0.9% during the last four weeks and were up 4.5% y/y. The cost of natural rubber rose 5.0% in four weeks and jumped 81.0% y/y. Plywood prices improved 3.2% over the last four weeks (5.1% y/y).

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

**Thoughts on the Economy and Policy Rules at the Federal Open Market Committee** by Fed Governor Christopher J. Waller can be found [here](https://www.federalreserve.gov/newsevents/speech/waller20241014a.htm).

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- Metals prices surge for second consecutive period.	
- Increasing crude oil costs push energy price index higher.
- Textile prices continue to increase.

FIBER: Industrial Commodity Prices Strengthen Broadly in Latest Four Weeks

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

Announcement of snap French election is causing concern across Europe

The UK economy’s post-pandemic under-performance relative to its pre-pandemic trend

US Beveridge Curve back to near pre-pandemic levels

Negative economic surprises in the US but positive in Europe, especially the UK

Latest PMIs show US losing momentum while RoW is gaining momentum

Sticky services prices behind sticky overall PCE inflation

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Andrew Cates

**Markets and data**
As noted, a soft landing narrative has continued to shape sentiment in financial markets in recent weeks. Incoming global growth data, most notably from the US, have been stronger than expected. And inflation outcomes have additionally been weaker-than-expected. As chart 1 below suggests that combination – stronger growth and weaker inflation – has typically been greeted positively by equity investors.

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**US bond yields** 
That being said there has also been an active debate in markets about the potential consequences of a US election. US bond yields, for example, have been climbing possibly because of market fears about the burgeoning US federal government deficit and debt. Still, as chart 2 below suggests, the increase in yields has unfolded at the same time as the incoming US (and broader global growth) data have been outperforming expectations. Inasmuch as that trend additionally led to some re-pricing of Fed policy, economic fundamentals have arguably been the dominant driver of the US Treasury market, not fears about politics and deficits.

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**Global growth momentum**
Still, although incoming US data have been outperforming expectations in recent weeks, latest forward looking business surveys suggest that global growth is losing momentum. October’s flash PMIs, for example, revealed that business activity contracted for a second consecutive month in the euro area and Australia, and slipped into a phase of decline in Japan as well. The UK additionally saw growth weaken sharply. And although the US continued to reveal resilience, that was primarily because of ongoing growth in the service sector - the manufacturing sector, in contrast, has been contracting for four consecutive months (see chart 3).

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**UK fiscal policy** 
One reason why UK businesses may have elicited weaker confidence in recent weeks concerns fears about this week’s Budget. Some of the details, for example, had been widely telegraphed in the UK press. The specifics that were announced on October 30th included a large rise in public spending (amounting to over 2% of GDP per year), and with only half of that being recouped in higher taxes. About two-thirds of that higher tax burden, moreover, falls on the corporate sector. The UK’s fiscal watchdog – the Office for Budget Responsibility – expects overall public sector borrowing to rise from £121.9 billion (4.5 per cent of GDP) last year to £127.5 billion this year, before falling steadily back to £70.6 billion (2.1 per cent) by 2029-30. That’s about 0.9 per cent of GDP a year higher on average over the forecast horizon compared to their last projections in March (see chart 4).

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**Japan’s politics**
Staying with policy and politics, Japan’s ruling party, the Liberal Democratic Party (LDP), faced an electoral upset over the weekend, losing its majority in the lower house of Parliament. Even with the support of its coalition partner, Komeito, the LDP is now unable to form a majority. This has put Prime Minister Ishiba's position in jeopardy, as he may need to seek support from parties outside his usual allies to advance his policy agenda, should he continue in office. In response to the news, the yen weakened further, reflecting the market's concerns, while equities experienced a slight increase.

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**China and US politics**
Ahead of next week’s US Presidential Elections there remains much uncertainty about the outlook for China (and the broader Asian region). Many observers are keen to assess the potential extent and nature of future policy actions toward China by an incoming president. Key concerns include the possibility of ongoing US efforts to curb China’s advancements in critical technologies, such as artificial intelligence, and trade-related restrictions aimed at addressing overcapacity in electric vehicles (EVs) and other sectors. Notably, presidential candidate and former President Trump, has proposed significantly raising tariffs on goods imported from China if elected. However, regardless of who takes office, it is likely that China will continue to face frictions with the US, as the latter has maintained a hawkish stance toward China over the past decade, irrespective of the sitting president.

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Some unexpected resilience in the US economy and particularly in the labour market has continued to reinforce soft landing narratives over the past few days. At the broader global level, weaker-than-expected inflation data have also been reinforcing the view that most major central banks will continue to loosen monetary policy in the period ahead. In our charts this week we illustrate how this soft landing narrative continues to shape sentiment in financial markets (see charts 1 and 2). But we illustrate too, that notwithstanding US resilience, latest forward looking business surveys suggest that global growth is losing momentum. Domestic policy and politics, however, have also been important in recent days with the new UK labour government’s first budget dominating the headlines (chart 4). Some uncertainty has additionally crept into Japan’s political scene and generated some financial market consequences (chart 5). Finally, and looking ahead to next week, US politics has continued to dominate the global headlines and may well be a key driver of economic and financial market outcomes in the period immediately ahead (chart 6).

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Charts of the Week: Data, Policy and Politics

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The PCE chain price index rose 0.2% in September following unrevised increases of 0.1% and 0.2% in August and July. The y/y rise continued its downward trend. The 2.1% annual rise compares to its 7.2% y/y peak in June 2022. The price index excluding food and energy, however, moved 0.3% higher last month after three straight months of 0.2% increase. The y/y rise was steady at 2.7% and remained half of its 5.6% peak in February and March of 2022. Durable goods prices rose 0.3% (-1.9% y/y), after declines in four of the prior five months. Motor vehicle & prices rose 0.3% (-2.4% y/y), after declining steadily since December. Recreational product prices eased 0.3% (-2.0% y/y) but home furnishings costs rose 0.5% (-2.7% y/y). Nondurable goods prices eased 0.4% (-0.8% y/y) in September, off for the fourth month in five, but clothing prices rose 0.7% (1.4% y/y) after a 0.5% gain. Services prices increased 0.3% (3.7% y/y) after rising 0.2%. Housing & utility prices rose 0.4% (4.9% y/y) after a 0.3% rise, and services prices excluding energy & healthcare increased 0.3% (3.9% y/y) in September for the fourth straight month. Healthcare prices rose 0.4% (3.0% y/y). Food & beverage prices rose 0.4% in September (1.2% y/y) while energy goods & services prices fell 2.0% (-8.1% y/y).

Personal consumption expenditures (PCE) increased 0.5% (5.3% y/y) in September, after a 0.3% rise during August. A 0.4% increase had been expected in the Action Economics Forecast Survey. When adjusted for price changes, PCE increased 0.4% last month (3.1% y/y) after increasing 0.2% during August.

Real spending on durable goods rose 0.4% (3.4% y/y) last month after a 0.2% August decline. Real spending on motor vehicles rose 1.4% (0.2% y/y), after a 2.3% decline. Real outlays on furnishings & durable household equipment declined 0.3% (+4.8% y/y) following a 0.1% uptick while real spending on recreational goods & vehicles rose 0.2% (5.3% y/y) last month, after a 1.3% August jump. Spending on other durable goods eased 0.3% (+5.3% y/y) after strengthening 1.3% in August.

Real spending on nondurable goods surged 0.8% (2.5% y/y) during September, after holding steady in August. Real clothing and footwear purchases edged 0.1% higher (1.5% y/y) last month following a 0.5% decline. Real food & beverage purchases rebounded 0.6% (1.8% y/y) after slipping 0.2%. Real outlays on gasoline & other energy products rose 0.3% (0.7% y/y) last month after declining 1.7% in August. Real spending on other nondurable goods improved 1.3% (4.0% y/y) after a rise of 0.8% in August.

Real spending on services edged up 0.2% (3.2% y/y) in September, following a 0.3% rise in August. Real spending on housing & utilities rose 0.2% (1.1% y/y), after ticking 0.1% higher, while real healthcare spending rose 0.2% (4.9% y/y) following a 0.1% August rise. Real spending on food services & accommodations strengthened 0.8% (1.7% y/y) after a 0.4% rise in August, while real spending on financial services & insurance gained 0.2% (2.8% y/y) last month, after rising 0.5%. Real spending on transportation services fell 0.7% (+4.6% y/y) in September after rising 1.0% in August. Recreation spending fell 0.4% (+2.7% y/y) after rising 0.6% while other services spending gained 0.1% (3.2% y/y) for the second straight month.

Personal income rose 0.3% (5.5% y/y) in September, after rising of 0.2% in August. A 0.4% gain was expected. Wages & salaries rose 0.5% (6.4% y/y) for the second straight month. Rental income rose 0.5% (5.8% y/y) in September, the same as in August. Proprietors’ income weakened 0.4% (+2.2% y/y) following a 0.1% August increase. Income from assets weakened 0.2% (+1.4% y/y), off for the third straight month, and current transfer receipts rose 0.4% (7.6% y/y) in September after rising 0.3% in August. Government social benefits increased 0.4% (7.5% y/y), after a 0.3% rise in August.

Disposable personal income increased 0.3% (5.3% y/y) in September following a 0.2% August increase. After adjusting for price changes, disposable income improved 0.1% (3.1% y/y) for the fourth straight month.

The personal saving rate dipped to 4.6% in September from 4.8% in August. The rate was down from a January high of 5.5%. Personal saving fell 4.7% (+10.3% y/y) in September after falling 1.7% in August.

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 gain in core prices is highest in six months.
- Improvement in real spending is concentrated in goods.
- Disposable income firms as wages maintain strength.

U.S. Core PCE Price Gain Picks Up, but Real Spending Posts Solid Increase in September

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The employment cost index (ECI) for civilian workers rose 0.8% q/q (3.9% y/y) in this year’s third quarter following a 0.9% quarterly gain in Q2, according to the Bureau of Labor Statistics. This is the smallest quarterly increase since Q2 2021 and the smallest annual increase since Q4 2021. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 4.1% y/y gain.

Wages and salaries for civilian workers also rose 0.8% q/q (3.9% y/y) in Q3 versus a 0.9% quarterly increase in Q2 and three consecutive 1.1% quarterly gains. This was the smallest quarterly gain and the smallest annual increase since Q2 2021. Benefits increased 0.8% q/q (3.7% y/y) in Q3 versus 1.0% q/q in Q2. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing meaningfully.

Private industry workers’ compensation rose 0.7% q/q (3.7% y/y) in Q3, down from 0.9% q/q (3.9% y/y) in Q2. Wages and salaries for private industry workers increased 0.8% q/q (3.8% y/y) in Q3, the same quarterly increase as in Q2. The quarterly gains in Q2 and Q3 were the smallest since Q4 2020. Benefits for private industry workers rose 0.7% q/q (3.3% y/y) in Q3 versus 0.8% q/q (3.4% y/y) in Q2.

By industrial sector, total compensation in goods-producing industries rose 0.9% q/q (3.5% y/y) in Q3 following an outsized slowdown to 0.5% q/q in Q2. Compensation in construction jumped up 1.1% q/q following a 0.3% q/q decline in Q2 while manufacturing compensation slowed to 0.8% q/q from 0.9% in Q2. In service-producing industries, total compensation increased 0.8% q/q (3.9% y/y) following a 1.0% quarterly gain in Q2. Compensation in private service-producing industries increased 0.7% q/q (3.6% y/y). Information compensation surged 1.4% q/q in Q3 following a rare 02% quarterly decline in Q2. Growth of education and health services compensation remained elevated, rising 1.2% q/q after a 1.0% q/q gain in Q2. Professional and business services compensation slowed to 0.2% q/q in Q3 from 0.8%, while the rise in leisure and hospitality compensation slowed to 0.6% q/q in Q3 after a 1.4% q/q jump in Q2.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- The pace of growth in employment costs slowed to multiyear lows in Q3.
- While still elevated relative to pre-pandemic readings, the trend in employment costs is clearly down.

Rise of U.S. Employment Cost Index Slows Further in Q3

Carol Stone, CBE

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Initial claims for unemployment insurance were 216,000 seasonally adjusted in the week ended October 26, down from 228,000 in the October 19 week; that earlier number was revised slightly from 227,000 reported before. The 216,000 amount was lower than the Action Economics Forecast Survey expectation of 233,000. The four-week moving average of these initial claims was 236,500 in the week ended October 26, down from 238,750 the week before.

In the week ended October 19, the total number of unemployment insurance beneficiaries was 1.862 million, seasonally adjusted, down from 1.888 million the prior week. That earlier week was revised down from 1.897 million previously reported. The four-week moving average of these beneficiaries was 1.869 million in the October 19 week, up from 1.858 million the previous week.

The associated insured unemployment rate, that is, the number of beneficiaries as a percent of covered employment, was back to 1.2% and the prior week was revised down from 1.3% to 1.2%. So, this rate has returned to the 1.2% amount that has been in place since March 2013, and the hurricane effects of early October were not so widespread as to raise the overall rate.

Economic conditions vary widely across states and territories. In the week ended October 12, the highest unemployment rates were in New Jersey (2.15%), California (1.92%), Puerto Rico (1.84%), Washington (1.78%) and Nevada (1.58%). The lowest rates were in South Dakota (0.23%), North Dakota (0.35%), Virginia (0.41%), Nebraska, Florida and Alabama (each 0.43%) and Kentucky (0.44%). Rates in other notable states include New York (1.44%), Illinois (1.43%), Pennsylvania (1.34%) and Texas (1.02%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor, 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. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims down 12,000 in latest week.
- Total unemployment insurance beneficiaries decrease 26,000 in October 19 week.
- Insured unemployment rate revised down, maintaining 1.2% amount even during hurricanes.

U.S.  Unemployment Insurance Claims Ease to 216,000 in October 26 Week

Robert Brusca

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Inflation in the European Monetary Union turned flat in September with the headline flat and the core flat month-to-month. Over 12 months, headline inflation is rising at a 1.7% annual rate, the same as over six months; over three months, that pace steps down to 1.6%. Headline inflation is across the board consistent with the European central bank’s target of inflation of around 2%. Core inflation is higher. Over 12 months, the core runs hot at a 2.8% pace, rising over six months at a stronger 3.2% annual rate and then dipping to a 2.3% annual rate over three months. The three-month pace is coming much closer to the ECB's target for inflation.

The four largest economies in the EMU also had inflation fall in September. In Germany, prices dropped by 0.2%, the same as in Spain. Headline prices fell 0.7% in France and just ticked lower by 0.1% in Italy. Price dropping across the board is a special sign; in this case, it signals dropping oil prices.

Sequential inflation rates for headline inflation in large economies also are looking good. Germany and Spain have the highest 12-month inflation rates at 1.7%. France is next at 1.4% and then Italy logs a 0.7% 12-month inflation rate. However, over six months, inflation picks up above target for Italy and Germany to 2.7%; it cruises at a 1.9% annual rate in France and at 1% annual rate in Spain. Over three months, prices are flat in Germany, rising at a 0.2% annual rate in France, rising at a 0.3% annual rate in Spain, and rising at a 2.3% annual rate in Italy. The results we see for headline inflation clearly echoed across the large economies of the European Monetary Union.

However, as having been the case for some time, the sticking point for inflation is the core. This is because Brent oil prices fell by 8.1% in September and fell by 7.6% in August after rising by 0.1% in July. In fact, Brent oil prices are falling to a 47.7% annual rate over three months, falling at a 29.3% annual rate over six months, and falling at a 24% annual rate over 12 months. This helps to explain why headline inflation is doing so well. Core inflation is showing more signs of being stuck at a too-high level.

Core (ex-energy) inflation in the case of Germany is at a 2.6% annual rate over 12 months. Spain’s core pace is at a 2.4% annual rate, Italy logs a 1.9% annual rate, and France checks in at a 1.5% annual rate. For France and Italy, core inflation over 12 months is very much in the fold of the target pace, while in the case of Spain and Germany, the departures aren't so great as they both hover around 2.5% at an annual rate. However over six months, German inflation is still up by 2.4%, the same as in Italy. Spain logs in at a 2.2% annual rate. France stays with the low 1.5% annual rate. Over three months, inflation runs at a 2.8% annual rate for ex-energy in Germany; it's at a 2.4% annual rate for the core in Spain and 2.1% for the core in Italy, compared to an even weaker 0.4% annual rate in France.

Even with core inflation getting stuck in the EMU economy overall at 2.8%, inflation is still not very far from the ECB's goal and is broadly behaving for the large economies. And if economic data are deemed weak enough, inflation doesn't seem to be that far from the ECB's target nor is it misbehaving enough to keep ECB rate cuts off the table.