Robert Brusca

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The data facts 
Japan's index for all industries, which has separate components for industry, construction, and services (the tertiary sector), showed a slight downtick in July as it fell to 105.0 from June's 105.1. The construction component was dead flat month-to month at a reading of 119.4. The industry reading fell to 101.5 in July from 102.3 in June; it is however above its May value but then below its April value. The services sector ticked up to a slightly stronger reading at 104.9 in July from 104.8 in June. The services sector, however, is still below both of its readings for May and April.

What they mean... 
As always, there are several ways to look at these indexes and their performances. The chart shows year-on-year growth rates by sector. On that graphic, we can easily see that construction has been the leading growth sector followed by the industrial sector and followed in turn by services. Both construction and industry appear to have had relatively strong gains in recent months, but both are fading and are off peak as of July. The services sector, while not as strong as the other two, has nonetheless also seen its pace slow.

Growth rankings show moderate results 
These general observations are confirmed by more formal growth rankings. In the table, we rank each sector on its year-on-year growth rate compared to its own history. On that basis, the overall all-industry index has a 73rd percentile standing. Ranked over values since 2008, the all-industry 12-month gain has been stronger about 27% of the time. The construction sector has done a bit better than that. Ranked on the same criteria, it has been stronger only 22% of the time. The tertiary index typically grows slower than the other sectors, but even accounting for that as the ranking procedure measures its current growth relative to its past performance, the tertiary index has only at 56th percentile standing, barely above the 50% level that denotes its median growth rate.

Index levels are not impressive 
While the all-industry index does not score strongly on growth metrics, it has been growing steadily. When the index level is compared to its historic values, the ranking (of course) is much higher. The overall index level standing has been higher only about 8% of the time; the construction sector has been higher only about 2% of the time; and the services sector has been stronger less than 5% of the time. The industry sector, despite its recent somewhat better growth, lags the other sectors as its level has been better nearly 14% of the time. Despite a recent growth spurt, the industrial sector has been lagging in Japan and currently is undergoing another lull.

BOJ policy 
Against this background, the Bank of Japan just met and decided to hold its policy unchanged. There was one dissent as one member thought the BOJ was not likely to reach is policy objective on its current policy path. Still, BOJ policy is unchanged. In addition to the METI indexes, today chain grocery store sales were released and they weakened in August from one year ago, falling by 0.5% year-on-year. Grocery store sales are about as steady as any sector sales are. The weakness there is not good news. Clearly, the BOJ faces challenges and it is not clear where they should turn next or if steady-as-she-goes policy is good enough.

ECB policy 
Elsewhere the ECB has released added commentary on its policy and it notes that Europe's improved growth has yet to feed into prices and boost inflation. As a result, the ECB is surprising observers by staying true to its price objective and it is not cutting back on its stimulus in any way with prices still lagging their objective (single mandate) so badly.

Fed policy 
In the U.S., the Fed continues to follow its 'Fleetwood Mac' strategy and go its own way and to jam the square peg of policy action into the round hole of 'policy framework' to rationalize it. The Fed did, as expected, announce its great balance sheet shrinking act would commence in October. Janet Yellen noted that it was still likely that there would be a rate hike before yearend (likely in December) based on a majority of Fed members still looking for another hike in their 'dots' presentation. Still, Yellen joined the chorus of voices from Japan to Europe in having no explanation for the weak inflation. She went out of her way to note the various ways that the U.S. jobs market has improved despite the fact that it has generated little-to-no wage/price pressures. Moreover, there is some evidence trend inflation has weakened she admitted. What is left unexplained by the Fed is why with inflation 'too low' around the world a tight U.S. labor market should change that. Indeed, Yellen complained several times that the inflation under-shoots of the past could be explained by a too-strong dollar or by falling oil prices, but that the current episode of price weakness was simply not what the Fed had been expecting. She once again dismissed the special factors in the U.S. price index such as lower prices for cell-phone services as one-off events. But why dismiss that? We live in an age of Schumpeterian technological change. Not all price impacts are the smooth and continuous functions economists embrace in their models. Do you throw out reality when it doesn't fit your model? That's an odd choice.

The global economy offers few clues... 
Looking back across the global economy, we find that the OECD has just boosted its outlook by a tick this month. Australia has a view of an improving economy, but Switzerland has cut back its outlook. New Zealand's Q2 growth rate was just revised slightly higher. Despite the OECD lifting its growth-gauge a touch, it also warned that self-sustained growth may not yet be in force as it lamented the lack of progress on structural reforms and noted the still weak inflation background. In an unrelated development - as if to underscore the risk in the global economy- S&P downgraded China's sovereign debt rating following a period of heated credit growth. The rating on China's long-term outlook remained unchanged. On balance, there are still a lot of issues and concerns. If the global growth scene is a jigsaw puzzle, it still has many missing pieces although a good number of new pieces have been slotted into the puzzle. Growth numbers continue to come on line with solid-to-strong performance, but inflation remains elusive. Today a U.S. report on manufacturing in the Philadelphia Fed's region was quite strong while the U.S. leading economic index continued to expand, although somewhat modestly. There is no threat to growth. Asset markets remain strong. Some worry about asset bubbles. Some worry that inflation is ready to pounce out of nowhere and overwhelm central bankers; they argue for relentless increases in rates regardless of the presence or absence of inflation.

First we try their souls... then we put their reputations on trial 
It is truly a time that tries men's and women's souls, that is if they are monetary policy-makers. The ECB is being strict to its lone inflation mandate in making policy. The Fed is pushing rates up relentlessly, but slowly, even absent hitting all its policy goals. Japan has pulled out all the money stops, but that may not be enough. What are central bankers going to do? Is it virtue to be true to your policy edict or to press head based on the lessons you have learned in the past? If so, what are those lessons? (1) Are they that central bankers tend to keep rates too low for too long, or (2) as Ben Bernanke once said, is it true that in the wake of great economic downturns policymakers have tended to return rates to 'normal' too soon? Where is the Wisdom? What is the Fallacy? Policymakers are in search of truth. But judging from Janet Yellen's comments yesterday and what is emerging from the policy discussion in Japan, there may be more that central bankers do not know than they are really willing to let on. Are they making policy from the strength of their wisdom or frozen by the fear of the known? And if it is the unknown that is dominant, how does policymaking inspire confidence?


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The data facts Japan's index for all industries, which has separate components for industry, construction, and services (the tertiary sector), showed a slight downtick in July as it fell to 105.0 from June's 105.1. The construction [...]

Japan's All-Industry Index (METI) Backs Off In July; Global Policy Conundrums Continue

Tom Moeller

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The Federal Housing Finance Agency's (FHFA) index of U.S.
house prices rose 6.3% y/y during July compared to a peak 7.0% y/y gain in
April. Recent figures show an even sharper deceleration in house price
inflation. During the last three months, prices improved at a slow 2.8% annual
rate. In July, prices rose 0.2% following a 0.1% June uptick. These gains
compared to monthly increases in the range of 0.4%-to-0.9% during the prior four months.

The performance of home prices continued to vary greatly
around the country. On the strong side were the Pacific and Mountain regions
where prices rose 8.2% y/y. Over the last three months, however, prices rose at
3.4%-to-4.4% annual rates.

These strong y/y gains were followed by the South Atlantic,
East South Central, New England and East South Central regions where prices rose
roughly 6.0% y/y. Recently, however, gains have slowed sharply.

Slower house price inflation occurred amongst states in
Middle Atlantic region where prices rose 4.4% y/y. The rate of gain during the
last three months declined more sharply to 1.4%. In the West North Central
region, prices rose 4.2% y/y and at a 1.7% rate in the last three months.

In New England, home prices have not risen on average during
the last three months, and in the South Atlantic &amp; East North Central
states, gains have slowed markedly to 1.0% to 3.0%.

An exception to the slowdown story is the East South Central
region where home price inflation remained a firm 9.4% during the last three months.

The FHFA house price index is a weighted repeat sales index,
measuring average price changes in repeat sales of the same property. An
associated quarterly index also includes refinancings on the same kinds of
properties. The indexes are based on transactions involving conforming,
conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
Only mortgage transactions on single-family properties are included. The FHFA
data are available in Haver's USECON database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >FHFA U.S. House Price Index, 
 Purchase Only (SA %)</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Jul Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >0.2</td>
 <td >0.1</td>
 <td >0.4</td>
 <td >6.3</td>
 <td >6.2</td>
 <td >5.6</td>
 <td >5.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Pacific</td>
 <td >-0.5</td>
 <td >0.4</td>
 <td >1.1</td>
 <td >8.2</td>
 <td >8.1</td>
 <td >8.0</td>
 <td >9.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Mountain</td>
 <td >0.3</td>
 <td >0.3</td>
 <td >0.3</td>
 <td >8.2</td>
 <td >8.0</td>
 <td >7.9</td>
 <td >7.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; South Atlantic</td>
 <td >0.4</td>
 <td >-0.0</td>
 <td >0.1</td>
 <td >6.6</td>
 <td >7.2</td>
 <td >6.5</td>
 <td >5.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; East South Central</td>
 <td >0.5</td>
 <td >1.2</td>
 <td >0.6</td>
 <td >6.4</td>
 <td >5.3</td>
 <td >4.8</td>
 <td >3.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; New England</td>
 <td >0.2</td>
 <td >0.3</td>
 <td >-0.5</td>
 <td >6.1</td>
 <td >4.0</td>
 <td >3.6</td>
 <td >3.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; East North Central</td>
 <td >0.6</td>
 <td >-0.0</td>
 <td >0.2</td>
 <td >5.9</td>
 <td >5.4</td>
 <td >4.5</td>
 <td >4.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West South Central</td>
 <td >-0.0</td>
 <td >-0.6</td>
 <td >1.0</td>
 <td >5.5</td>
 <td >6.1</td>
 <td >6.4</td>
 <td >5.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Middle Atlantic</td>
 <td >0.5</td>
 <td >0.4</td>
 <td >-0.5</td>
 <td >4.4</td>
 <td >3.6</td>
 <td >2.7</td>
 <td >2.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West North Central</td>
 <td >-0.5</td>
 <td >0.2</td>
 <td >0.7</td>
 <td >4.2</td>
 <td >5.7</td>
 <td >4.3</td>
 <td >4.1</td>
 </tr>
 </tbody>
</table>
&nbsp;
<table width="100%" class="centered" border="0" cellSpacing="0">
 <tbody>
 <tr>
 <td>
 Mountain: Montana, Idaho, Wyoming, Nevada, Utah,
 Colorado, Arizona and New Mexico. 
 South Atlantic: Delaware, Maryland, D.C., Virginia, West Virginia, North
 Carolina, South Carolina, Georgia and Florida. 
 Pacific: Alaska, California, Hawaii, Oregon, Washington. 
 West South Central: Oklahoma, Arkansas, Texas and Louisiana. 
 East North Central: Michigan, Wisconsin, Illinois, Indiana and Ohio. 
 East South Central: Kentucky, Tennessee, Mississippi and Alabama. 
 New England: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island
 and Connecticut. 
 Middle Atlantic: New York, New Jersey and Pennsylvania. 
 West North Central: North Dakota, South Dakota, Minnesota, Nebraska,
 Iowa, Kansas and Missouri.
 </td></tr>
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The Federal Housing Finance Agency's (FHFA) index of U.S. house prices rose 6.3% y/y during July compared to a peak 7.0% y/y gain in April. Recent figures show an even sharper deceleration in house price inflation. During the last [...]

U.S. FHFA House Price Increases Moderate

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Initial filings for unemployment insurance fell sharply to
259,000 during the week ended September 16 from 282,000 in the prior week,
revised from 284,000. Expectations had been for
300,000 initial claims in the Action Economics Forecast Survey. The four-week
moving average increased to 268,750.

The latest initial claims figure covers the survey period for
September nonfarm payrolls. There was an 11.6% increase from 232,000 in the
August period. During the last ten years, there has been a
74% correlation between the level of initial claims and the m/m change in payroll employment.

Continuing claims for unemployment insurance increased
to 1.980 million (-5.4% y/y) in the week ended September 9, after falling to 1.936 million
the week before. The four-week moving average of claimants fell to 1.953 million.

The insured unemployment rate remained at the record low of 1.4%.

Insured rates of unemployment varied widely across the
country. For the week ended September 2, the lowest rates were in South Dakota
(0.22%), Nebraska (0.42%), North Carolina (0.50%), Utah (0.51%), Indiana (0.54%)
and Florida (0.56%). The highest rates were found in Massachusetts (1.73%),
California (1.80%), Pennsylvania (1.89%), Alaska (2.03%), Connecticut (2.05%)
and New Jersey (2.55%). These state data are not seasonally adjusted.

Data on weekly unemployment insurance are contained in
Haver's WEEKLY database and they are summarized monthly in USECON.
Data for individual states are in REGIONW. The expectations figure is
from the Action Economics Forecast Survey, carried in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >Unemployment Insurance (SA, 000s)</th>
 <th>09/16/17</th>
 <th>09/09/17</th>
 <th>09/02/17</th>
 <th>Y/Y %</th>
 <th>2016</th>
 <th>2015</th>
 <th>2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Initial Claims</td>
 <td >259</td>
 <td >282</td>
 <td >298</td>
 <td >3.3</td>
 <td >263</td>
 <td >278</td>
 <td >308</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Continuing Claims</td>
 <td >--</td>
 <td >1,980</td>
 <td >1,936</td>
 <td >-5.4</td>
 <td >2,136</td>
 <td >2,267</td>
 <td >2,599</td>
 </tr>
 <tr>
 <td class="firstcol" >Insured Unemployment Rate (%)</td>
 <td >--</td>
 <td >1.4</td>
 <td >1.4</td>
 <td >
 1.5 
 (Sep 2016)
 </td>
 <td >1.6</td>
 <td >1.7</td>
 <td >2.0</td>
 </tr>
 </tbody>
 </table>
 
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Initial filings for unemployment insurance fell sharply to 259,000 during the week ended September 16 from 282,000 in the prior week, revised from 284,000. Expectations had been for 300,000 initial claims in the Action Economics [...]

U.S. Initial Jobless Insurance Claims Decline

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The Mortgage Bankers Association reported that its total
Mortgage Applications Volume Index backpedaled 9.7% (-21.3% y/y) in the week
ended September 15 and reversed the prior week's gain. Purchase applications
fell 10.8% (+1.6% y/y) following a 10.9% rise. Applications to refinance were
off 8.5% and remained down by roughly one-third y/y.
The effective interest rate on a 15-year mortgage rose to 3.46%
from 3.40%. The effective rate on a 30-year fixed-rate loan was little-changed
at 4.16%. The rate on a Jumbo 30-year loan eased slightly to 4.05%. For
adjustable 5-year mortgages, the effective interest rate rose to 3.42%.
The average mortgage loan size slipped to $297,800, up 7.1%
y/y. For purchases, the average loan size rose to $313,900 (3.4% y/y); for
refinancings, it declined to $282,900 (+7.4% y/y).
Applications for adjustable rate loans rose 22.5% y/y, while
applications for fixed rate loans fell 23.3% y/y.
The survey covers over 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 SURVEYW
database.
<table width="1769" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="755">MBA Mortgage Applications (%,
 SA)</th>
 <th scope="col" width="144">09/15/ 17</th>
 <th scope="col" width="144">09/08/17</th>
 <th scope="col" width="144">09/01/17</th>
 <th scope="col" width="144">Y/Y</th>
 <th scope="col" width="144">2016</th>
 <th scope="col" width="145">2015</th>
 <th scope="col" width="145">2014</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" width="755">Total Market Index</td>
 <td align="center" width="144">-9.7</td>
 <td align="center" width="144">9.9</td>
 <td align="center" width="144">3.3</td>
 <td align="center" width="144">-21.3</td>
 <td align="center" width="144">15.6</td>
 <td align="center" width="145">17.9</td>
 <td align="center" width="145">-41.4</td>
 </tr>
 <tr>
 <td class="firstcol" width="755">&nbsp;Purchase</td>
 <td align="center" width="144">-10.8</td>
 <td align="center" width="144">10.9</td>
 <td align="center" width="144">1.4</td>
 <td align="center" width="144">1.6</td>
 <td align="center" width="144">13.3</td>
 <td align="center" width="145">15.5</td>
 <td align="center" width="145">-12.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="755">&nbsp;Refinancing</td>
 <td align="center" width="144">-8.5</td>
 <td align="center" width="144">8.9</td>
 <td align="center" width="144">5.1</td>
 <td align="center" width="144">-35.1</td>
 <td align="center" width="144">17.3</td>
 <td align="center" width="145">19.7</td>
 <td align="center" width="145">-52.8</td>
 </tr>
 <tr>
 <td class="firstcol" width="755">15-Year Mortgage Effective Interest Rate
 (%)</td>
 <td align="center" width="144">3.46</td>
 <td align="center" width="144">3.40</td>
 <td align="center" width="144">3.44</td>
 <td align="center" width="144">3.04 (Sep. '16)</td>
 <td align="center" width="144">3.22</td>
 <td align="center" width="145">3.37</td>
 <td align="center" width="145">3.54</td>
 </tr>
 </tbody>
</table>

&nbsp;
U.S. Existing Home Sales Ease, as Prices Also Dip 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>
September 20, 2017
Sales of existing homes fell 1.3% (+2.1% y/y) during July to
5.440 million units (AR) from a slightly revised 5.510 million in June. It was
the lowest volume of sales since August 2016. Expectations were for 5.570
million sales in the Action Economics Forecast Survey.
Sales of existing single-family homes fell 0.8% (+1.7% y/y)
to 4.840 million while sales of co-ops and condos dropped 4.8% (+5.3% y/y) to
600,000.
By region, total existing home sales fell the most in the
northeast, 14.5% (-1.5% y/y), to 650,000 from 760,000 in June. Sales in the
Midwest fell 5.3% (-1.6% y/y) to 1.250 million from 1.320 million. But sales
improved in the west, 5.0% (+5.0%) to 1.260 million from 1.200 million, and
those in the south gained 2.2% (+3.6% y/y) in July to 2.280 million from 2.230
million in June.
The median price of all existing homes sold decreased 1.9%
(6.2% y/y) to $258,300.
The number of homes on the market was down 1.0% (-9.0% y/y)
to 1.92 million. There was a 4.2 months' supply of those homes available for
sale, up from a recent low of 3.5 months in January, but down from 4.8 months a
year ago.
The data on existing home sales, prices and affordability are
compiled by the National Association of Realtors and can be found in Haver's USECON
database. The regional price, affordability and inventory data are available in
the REALTOR database. The expectations figure is from the Action
Economics Forecast Survey, reported in the AS1REPNA database.
<table width="1769" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="706">Existing Home Sales (SAAR,
 000s)</th>
 <th scope="col" width="151">Aug</th>
 <th scope="col" width="151">Jul</th>
 <th scope="col" width="151">Jun</th>
 <th scope="col" width="151">Y/Y %</th>
 <th scope="col" width="151">2016</th>
 <th scope="col" width="152">2015</th>
 <th scope="col" width="152">2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="706">Total</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">5,440</td>
 <td align="center" width="151">5,510</td>
 <td align="center" width="151">2.1</td>
 <td align="center" width="151">5,440</td>
 <td align="center" width="152">5,234</td>
 <td align="center" width="152">4,923</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="706">&nbsp;&nbsp; Northeast</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">650</td>
 <td align="center" width="151">760</td>
 <td align="center" width="151">-1.5</td>
 <td align="center" width="151">735</td>
 <td align="center" width="152">685</td>
 <td align="center" width="152">641</td>
 </tr>
 <tr>
 <td class="firstcol" width="706">&nbsp;&nbsp; Midwest</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">1,250</td>
 <td align="center" width="151">1,320</td>
 <td align="center" width="151">-1.6</td>
 <td align="center" width="151">1,296</td>
 <td align="center" width="152">1,231</td>
 <td align="center" width="152">1,134</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="706">&nbsp;&nbsp; South</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">2,280</td>
 <td align="center" width="151">2,230</td>
 <td align="center" width="151">3.6</td>
 <td align="center" width="151">2,217</td>
 <td align="center" width="152">2,148</td>
 <td align="center" width="152">2,048</td>
 </tr>
 <tr>
 <td class="firstcol" width="706">&nbsp;&nbsp; West</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">1,260</td>
 <td align="center" width="151">1,200</td>
 <td align="center" width="151">5.0</td>
 <td align="center" width="151">1,193</td>
 <td align="center" width="152">1,170</td>
 <td align="center" width="152">1,100</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="706">Single-Family</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">4,840</td>
 <td align="center" width="151">4,880</td>
 <td align="center" width="151">1.7</td>
 <td align="center" width="151">4,828</td>
 <td align="center" width="152">4,624</td>
 <td align="center" width="152">4,333</td>
 </tr>
 <tr>
 <td class="firstcol" width="706">Median Price Total ($, NSA)</td>
 <td align="center" width="151"></td>
 <td align="center" width="151">258,300</td>
 <td align="center" width="151">263,300</td>
 <td align="center" width="151">6.2</td>
 <td align="center" width="151">232,067</td>
 <td align="center" width="152">219,867</td>
 <td align="center" width="152">206,708</td>
 </tr>
 </tbody>
</table>

&nbsp;
FOMC Holds Rates Steady; Asset Sales to Begin Soon 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;September
20, 2017
At today's meeting of the Federal Open Market Committee, the
targeted federal funds rate was held steady in a range of 1.00% to 1.25%. This
followed two increases earlier this year.
Additionally, the Fed indicated that shrinking its
bondholdings would begin &quot;relatively soon.&quot;
The Fed expects moderate economic growth to continue and that
inflation would stabilize near its two percent objective.
The press release for today's FOMC meeting can be
found <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20170726a.htm">here</a>.
Haver's SURVEYS database contains the economic projections from the
Federal Reserve Board.
<table width="1769" class="centered" border="0" cellSpacing="0">
 <colgroup>
 <col>
 <col>
 <col>
 <col>
 <col>
 <col>
 <col>
 <col>
 </colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="563"></th>
 <th scope="col" width="200">Current</th>
 <th scope="col" width="200">Last</th>
 <th scope="col" width="200">2016</th>
 <th scope="col" width="200">2015</th>
 <th scope="col" width="201">2014</th>
 <th scope="col" width="201">2013</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" width="563">Federal Funds Rate Target</td>
 <td align="center" width="200">1.00%-1.25%</td>
 <td align="center" width="200">1.00%-1.25%</td>
 <td align="center" width="200">0.40%</td>
 <td align="center" width="200">0.13%</td>
 <td align="center" width="201">0.09%</td>
 <td align="center" width="201">0.11%</td>
 </tr>
 </tbody>
</table>


</body>

</html>

The Mortgage Bankers Association reported that its total Mortgage Applications Volume Index backpedaled 9.7% (-21.3% y/y) in the week ended September 15 and reversed the prior week's gain. Purchase applications fell 10.8% (+1.6% y/y) [...]

U.S. Mortgage Loan Applications Decline as Interest Rates Rise

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At today's meeting of the Federal Open Market Committee, the
targeted federal funds rate was held steady in a range of 1.00% to 1.25%. This
followed two rate increases earlier this year.

Additionally, the Fed stated that &quot;The Committee expects
that economic conditions will evolve in a manner that will warrant gradual
increases in the federal funds rate.&quot; Nevertheless, the Fed stated that the
rate will remain below its long-run level.

As the economy recovers from the effects of Hurricanes
Harvey, Irma and Maria, economic growth is expected to continue at a moderate
pace and labor markets will improve.

Price inflation is expected to pick up due to higher gasoline
prices, then recede to the Fed's two percent objective.

The Fed also indicated that its balance sheet restructuring will begin next month.

Updated economic projections include GDP growth of 2.4% in
2017, 2.1% in 2018, 2.0% in 2019 and 1.8% in 2020. Core CPI growth of 1.5% is
expected this year, 1.9% in 2018, then 2.0% in 2019 and 2020. An unemployment
rate of 4.3% is projected this year, 4.1% in 2018 and 2019, then 4.2% in 2020.

The press release for today's FOMC meeting can be
found <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20170920a.htm">here</a>.

Haver's SURVEYS database contains the economic projections from the
Federal Reserve Board.

<a href="/comment/170920l.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170920l.png"></a>
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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" ></th>
 <th scope="col" >Current</th>
 <th scope="col" >Last</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Federal Funds Rate Target</td>
 <td >1.00%-1.25%</td>
 <td >1.00%-1.25%</td>
 <td >0.40%</td>
 <td >0.13%</td>
 <td >0.09%</td>
 <td >0.11%</td>
 </tr>
 </tbody>
 </table>
 
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At today's meeting of the Federal Open Market Committee, the targeted federal funds rate was held steady in a range of 1.00% to 1.25%. This followed two rate increases earlier this year. Additionally, the Fed stated that "The [...]

FOMC Leaves Rates Unchanged but Suggests Gradual Increases Ahead

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With the Bank of England having met and put markets on notice that at some point rates would go up and with BOE Governor Mark Carney being outspoken about how Brexit will not be good for U.K. growth, many are simply holding their breath for the next BOE chance to hike rates. Against that background, the August U.K. retail sales gain of 1% on the heels of a 1% gain in July has the economy looking pretty strong. Or does it?

Retail trends 
The U.K. nominal sales pace is up from the 5% to 5.5% pace over 12 months and six months to log a three-month growth rate of 8.9%. The volume series shows volume growth rates expanding from 2.4% over 12 months to a 3.7% pace over six months to a 7.1% pace over three months. Still, the 12-month growth rate has been hovering below 3% for some time. The CBI survey on retailing for September had expected orders as weaker only 21% of the time historically and expected sales for September were placed just a touch above their median historic value. Sales adjusted for the time of year were assessed as just a few bits below their median. Retailers have not been overly impressed by sales performance.

Retail sales: accelerating or having accelerated? 
The question is whether retail sales are really accelerating or not. The U.K. HICP pace has been dropping from 2.9% over 12 months to 2.5% over six months to a 1.9% pace over three months. The year-on-year pace of nominal sales is up compared to a year ago at this time while the growth of retail sales volumes is lower. A year ago volumes were expanding at an 8.9% clip while now that pace is down to a 2.4% pace. The BOE in its policy statement noted that it expected the inflation overshoot to last for three years. But wages continue to lag inflation and inflation is not creating knock-on impacts and instead seems to be cooling faster even as growth has continued to surprise on the upside. The BOE has noted that economic slack is being used up and that policy may need to be adjusted faster than the markets now assume. That was taken as warning shot. On the other hand, the BOE has a lot of trends to handicap here and the situation is in flux.

U.K. retail sales were up by an ordinary 0.2% in nominal terms in June and solid 0.3% real pace in June. Since then, the sales pace has increased. But will that continue?

Brexit uncertainty 
The U.K. is still embroiled in formulating and negotiating its Brexit plans. As Governor Carney notes, Brexit is not going to be good for U.K. growth. The EU is complaining that it still does not have a concrete proposal from the U.K. about its Brexit desires. However, if Governor Carney is right and if leaving the EU will slow U.K. growth and damp productivity, the post-EU UK economy eventually may be a candidate for higher rates to meet its inflation objective.

The Brexit entanglement 
What the BOE has to sort out is if it makes sense for it to hike rates 'soon' in the wake of inflation's gain which is only a response to the BOE's own action to give the economy a shot of monetary stimulus in the wake of the unexpected Brexit vote result. With all the Brexit uncertainty hanging in the air and with investment being tied up until what Brexit 'is' becomes clear, U.K. growth is going to be adversely affected in the run up to the actual U.K. departure. So should the BOE accept the current growth/inflation overshoot without addressing it with a 'typical' policy tightening move knowing that the overshoot is temporary? Or should policy begin the process now of bringing inflation to heel and of clamping down on an economy with less slack and with a more limited upside than it used to have? Is the optimal monetary policy channel getting narrower?

Past inflation is like spilled milk 
The danger here is that the U.K. begins to follow an almost Germanic style tightening process for the sake of getting its policy in alignment sooner rather than later when the economy might already be headed there. Inflation as measured by the HICP or the CPIH - as well as by the CPIH excluding energy - shows that the inflation rate is ratcheting down with the three-month pace already below 2% or close to it on all this measures. Hiking rates now for a past inflation overshoot when inflation is already beginning to slow back to target does not seem to be a very defensible strategy. After a relatively brief period when sterling weakness permitted the U.K. to have some inflation, that historic episode is fast drawing to a close in a global environment in which inflation is not a player.

Vehicle registrations are less solid already 
The U.K. car market has been blowing hot and cold. In August, motor vehicle registrations were up by a strong 4.2% month-on-month. But over 12 months and six months, U.K. vehicle registrations are lower on balance. Compared to the EMU's big four economies, the U.K. is the only one with vehicle registrations lower on balance over the last 12 months ending in August.

Policymaking and Catch-22 
In monetary policymaking, perception is at least 50% of the job. The monetary authority has to know the facts and see the economy and evaluate how it is doing while understanding its behavior relative to its own business cycle and in the midst of various global forces. The BOE will have to render a judgment call from a committee with members who have at least slightly divergent views. Perhaps in the wake of this retail sales report, the economy looks strong enough that a tick up in interest rates does not seem likely to damage growth prospects very much. But markets rarely think central banks are going to 'tick' interest rates up once then leave things alone. Markets will extrapolate a single move into a program of moves and may or may not 'believe' central bank boiler-plate to the contrary.' Since 25bp is such a puny move if a central bank is going to hike rates, why do that? The point is that such a move would be pointless! That's the Catch-22 of central-bank watching. Moreover, with inflation already slowing what's the rush and what's the point of a rate hike with all the stress of Brexit all around and more it on the near horizon? We will find out soon what the BOE really thinks and what it really fears. A solid retail sales report could give it some cover for a rate hike, but that still does make it such a good idea.


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With the Bank of England having met and put markets on notice that at some point rates would go up and with BOE Governor Mark Carney being outspoken about how Brexit will not be good for U.K. growth, many are simply holding their [...]

UK Sales Volumes Hold Ground-What Does That Mean?; Expected Orders Improve But Do Not Impress

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Sales of existing homes fell 1.7% (+0.2% y/y) during August
to 5.350 million units (AR) from an unrevised 5.440 million in July. It was the
lowest volume of sales since August 2016. Expectations were for 5.470 million
sales in the Action Economics Forecast Survey.

Sales of existing single-family homes fell 2.1% (+0.4% y/y)
to 4.740 million units while sales of co-ops and condos rose 1.7% (-1.6% y/y) to 610,000.

By region, total existing home sales in the South were
reduced 5.7% (-0.9% y/y) to 2.150 million units, reflecting the effects of
Hurricane Harvey, following a 2.2% rise in July. Home sales in the West were
off 4.8% (+0.8% y/y) to 1.200 million after a 5.0% gain. In the Northeast,
existing home sales strengthened 10.8% (1.4% y/y) to 720,000 after a 14.5% drop.
Home sales in the Midwest gained 2.4% (0.8% y/y) to 1.280 million after a 5.3% decline.

The median price of all existing homes sold decreased 1.8% (+5.6%
y/y) to $253,500.

The number of homes on the market declined 2.1% (-6.5% y/y)
to 1.88 million. There was a 4.2 months' supply of those homes available for
sale, up from a recent low of 3.5 months in January.

The data on existing home sales, prices and affordability are
compiled by the National Association of Realtors and can be found in Haver's USECON
database. The regional price, affordability and inventory data are available in
the REALTOR database. The expectations figure is from the Action
Economics Forecast Survey, reported in the AS1REPNA database.

<a href="/comment/170920h.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170920h.png"></a>
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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Existing Home Sales (SAAR,
 000s)</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >5,350</td>
 <td >5,440</td>
 <td >5,510</td>
 <td >0.2</td>
 <td >5,440</td>
 <td >5,234</td>
 <td >4,923</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; Northeast</td>
 <td >720</td>
 <td >650</td>
 <td >760</td>
 <td >1.4</td>
 <td >735</td>
 <td >685</td>
 <td >641</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Midwest</td>
 <td >1,280</td>
 <td >1,250</td>
 <td >1,320</td>
 <td >0.8</td>
 <td >1,296</td>
 <td >1,231</td>
 <td >1,134</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; South</td>
 <td >2,150</td>
 <td >2,280</td>
 <td >2,230</td>
 <td >-0.9</td>
 <td >2,217</td>
 <td >2,148</td>
 <td >2,048</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; West</td>
 <td >1,200</td>
 <td >1,260</td>
 <td >1,200</td>
 <td >0.8</td>
 <td >1,193</td>
 <td >1,170</td>
 <td >1,100</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >Single-Family</td>
 <td >4,740</td>
 <td >4,840</td>
 <td >4,880</td>
 <td >0.4</td>
 <td >4,828</td>
 <td >4,624</td>
 <td >4,333</td>
 </tr>
 <tr>
 <td class="firstcol" >Median Price Total ($, NSA)</td>
 <td >253,500</td>
 <td >258,100</td>
 <td >263,300</td>
 <td >5.6</td>
 <td >232,067</td>
 <td >219,867</td>
 <td >206,708</td>
 </tr>
 </tbody>
 </table>
 
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Sales of existing homes fell 1.7% (+0.2% y/y) during August to 5.350 million units (AR) from an unrevised 5.440 million in July. It was the lowest volume of sales since August 2016. Expectations were for 5.470 million sales in the [...]

U.S. Existing Home Sales Decline to One-Year Low

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The Mortgage Bankers Association reported that its total
Mortgage Applications Volume Index backpedaled 9.7% (-21.3% y/y) in the week
ended September 15 and reversed the prior week's gain. Purchase applications
fell 10.8% (+1.6% y/y) following a 10.9% rise. Applications to refinance were
off 8.5% and remained down by roughly one-third y/y.

The effective interest rate on a 15-year mortgage rose to 3.46%
from 3.40%. The effective rate on a 30-year fixed-rate loan was little-changed
at 4.16%. The rate on a Jumbo 30-year loan eased slightly to 4.05%. For
adjustable 5-year mortgages, the effective interest rate rose to 3.42%.

The average mortgage loan size slipped to $297,800, up 7.1%
y/y. For purchases, the average loan size rose to $313,900 (3.4% y/y); for
refinancings, it declined to $282,900 (+7.4% y/y).

Applications for adjustable rate loans rose 22.5% y/y, while
applications for fixed rate loans fell 23.3% y/y.

The survey covers over 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 SURVEYW database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >MBA Mortgage Applications (%,
 SA)</th>
 <th scope="col" >09/15/ 17</th>
 <th scope="col" >09/08/17</th>
 <th scope="col" >09/01/17</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Total Market Index</td>
 <td >-9.7</td>
 <td >9.9</td>
 <td >3.3</td>
 <td >-21.3</td>
 <td >15.6</td>
 <td >17.9</td>
 <td >-41.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Purchase</td>
 <td >-10.8</td>
 <td >10.9</td>
 <td >1.4</td>
 <td >1.6</td>
 <td >13.3</td>
 <td >15.5</td>
 <td >-12.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Refinancing</td>
 <td >-8.5</td>
 <td >8.9</td>
 <td >5.1</td>
 <td >-35.1</td>
 <td >17.3</td>
 <td >19.7</td>
 <td >-52.8</td>
 </tr>
 <tr>
 <td class="firstcol" >15-Year Mortgage Effective Interest Rate
 (%)</td>
 <td >3.46</td>
 <td >3.40</td>
 <td >3.44</td>
 <td >3.04 (Sep. '16)</td>
 <td >3.22</td>
 <td >3.37</td>
 <td >3.54</td>
 </tr>
	 </tbody>
	 </table>
	 
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Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

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

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Andrew Cates

**Global growth**
Latest flash PMI readings reveal a widening gap in manufacturing performance across major economies. Europe remains mired in contraction, with both the UK and euro area registering PMI figures below the 50 threshold. The UK’s manufacturing sector is particularly under pressure, with the PMI dropping to a new low not seen in over a year—reflecting weak output and mounting challenges from both domestic uncertainty and external shocks, including the disruptive impact of recent US trade actions. While the euro area shows tentative signs of stabilization, with PMI readings inching higher, the recovery remains fragile. In sharp contrast, India’s manufacturing sector continues to outperform, with PMI figures climbing further and signalling resilient industrial momentum amidst global headwinds.

250425Z1.jpg

**US capex intentions**
The latest reading from the US Philly Fed survey suggests a sharp drop in capex intentions among manufacturers in the Philadelphia region, likely reflecting growing uncertainty in the wake of the US administration’s surprise announcement of sweeping tariffs on April 2nd, 2025. This abrupt policy shift has rattled business confidence, echoing past episodes—such as during the 2008 financial crisis and early stages of the pandemic—when capex sentiment similarly plunged. The downturn underscores how policy-induced trade disruptions can swiftly chill investment appetite, particularly in manufacturing sectors exposed to global supply chains.

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**South Korean trade**
The fallout from President Trump’s “reciprocal” tariffs and the rapid escalation of the trade dispute with China is also now becoming evident in Asia’s trade data. South Korea’s trade figures for the first 20 days of April—often seen as a bellwether for global trade—fell sharply compared to the same period last year. The drop was led by a steep decline in exports to the United States, where tariffs on Chinese goods have surged to as high as 145%, effectively choking bilateral trade flows outside a narrow band of exemptions for strategic goods like electronics and semiconductors. Even these sectors are feeling the strain: South Korea’s semiconductor exports continued to decelerate in April, highlighting the broader collateral damage of deepening trade tensions.

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**Gold prices**
The latest escalation in US-China trade tensions is reverberating far beyond traditional trade channels. Market sentiment has deteriorated noticeably, weighed down by darkening global growth prospects and deepening uncertainty over the future of relations between the world’s two largest economies. The forced decoupling is also reshaping investor behaviour, particularly among Chinese investors, who are increasingly turning to stateless safe-haven assets like gold. This shift is evident in the surge in trading volumes on the Shanghai Gold Exchange and the steady climb in global gold prices—buoyed further by a weakening US dollar. The trend points to rising concern among Chinese investors about the geographic concentration of their wealth, as Washington’s increasingly hawkish posture prompts a reassessment of cross-border financial exposure.

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**The US dollar and market volatility** 
Recent sweeping US-led trade actions and a broader turn toward protectionism have sharply eroded the goodwill and soft power long associated with the US and its financial assets. As Washington becomes an increasingly prominent source of global instability, investor confidence in the US dollar as a safe-haven currency has weakened. This loss of faith is reflected across asset markets, with the dollar’s persistent and more entrenched decline against major currencies standing out as a clear signal of a broader reassessment of the US’s global economic role. Elevated market uncertainty reinforces this shift, as underscored by still-high—albeit slightly moderated—readings on the VIX volatility index.

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**Asia’s consumption**
Viewed in a broader context, the recent actions by the US may signal an effort to rebalance its economy—though whether this strategy is well-calibrated remains highly contested. As the issuer of the world’s dominant reserve currency, the US has long been ensnared in the so-called Triffin dilemma: global demand for dollar-denominated assets has sustained persistent trade deficits, gradually undermining the competitiveness of its domestic manufacturing and other tradable sectors. China, by contrast, grapples with the mirror image of this problem. Its growth model remains heavily anchored in manufacturing and external surpluses, and it is now under mounting pressure to pivot toward consumption-led growth—an imperative sharpened by the latest wave of US measures designed to curb Chinese export strength.

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Financial market volatility has remained elevated over the past several days as investors attempted to weigh a modest improvement in sentiment—driven by a potential, if partial, retreat by the US administration from its aggressive tariff stance—against a still-cloudy global outlook. Signals from flash PMI surveys on global growth remain mixed: Europe continues to stagnate, with the UK particularly weak, while India stands out with resilient and rising manufacturing activity (chart 1). In the US, most of the incoming data suggest that business confidence has faltered, with capital expenditure intentions plunging particularly sharply in the wake of the April 2nd tariff announcement (chart 2). The drag from trade tensions is, moreover, becoming more evident: South Korea’s exports have slumped, especially to the US, and even sectors granted exemptions—like semiconductors—are showing signs of strain (chart 3). These pressures are reverberating through financial markets as well, where Chinese investors are shifting into gold as a hedge, fuelling record trading volumes on the Shanghai Gold Exchange and lifting global gold prices (chart 4). Meanwhile, a broadly-based decline in the US dollar and persistently high readings on the VIX index arguably reflect a deeper reassessment of US assets as reliable safe havens amid mounting policy unpredictability (chart 5). Beneath these short-term ripples lie more entrenched structural challenges: the US is seeking to rebalance away from external deficits linked to its reserve currency role, while China is under growing pressure to pivot toward consumption-led growth—an imperative sharpened by American efforts to choke off its export strength (chart 6). In short, the latest softening in US trade rhetoric may offer brief relief, but the underlying economic, geopolitical, and structural crosswinds remain very much in play.

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Charts of the Week: Dollar Dips and Trade Trips

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The Federal Reserve Bank of Kansas City reported that its index of manufacturing sector activity declined to -4 during April from -2 in March, indicating a continued decline in factory sector activity. The index has been at zero or below since October 2022. This survey was taken between April 16-21.

Haver Analytics calculates an index based on the Kansas City results which is comparable to the ISM series. This index eased to 50.0 (NSA) from 51.4 in March. It compared to a low of 43.7 last July.

The new orders index of -11 this month compared to -12 in March. Thirty percent (NSA) of respondents reported higher orders while 37% reported a decline. Shipments improved to -2 from -4 and remained above -12 in December. Thirty-three percent (NSA) of respondents reported higher shipments while 28% reported a decline. Employment fell to -11 this month from -4 In March. It has been negative for three straight months. Thirteen percent (NSA) of respondents reported more hiring while 25% reported less. The average workweek index fell to -6 from +6 in March. Supplier delivery times surged to 13 from -1 as a higher 18% (NSA) of respondents reported a quickening of delivery speeds and a lessened 2% indicated a slowdown. Finished goods inventories rose to +5 from -8 in March, indicating the greatest rate of inventory accumulation in four months. Materials inventories weakened to -5 in April from +4 in March.

Inflation indicators strengthened in April. The prices paid index for finished products jumped to 29 from 15 in March. It was the highest reading in almost three years, up from a low of -3 in July 2023. Thirty-four percent (NSA) of respondents reported higher prices while none paid less. The raw materials index held at 42, up from a low of -1 in October 2023.

The composite index of expectations six months ahead fell to 6 in April from 10 in March. It was below a high of 17 in December. Expectations for future shipments fell to 9 this month, down from 31 in December. Orders expectations also weakened significantly, with the index falling to a minimal 3 from 20 in March. The employment reading of 1 compared to zero in March and 19 in December. Expectations continue to be for higher prices. The expectations index for finished goods prices jumped to 59, a roughly three-year high, from 39 in March. Raw material prices jumped to 71 in April, also a three-year high, from 57 in March.

The latest survey was conducted between April 16-21, 2024 and included 97 responses from factories in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Data for the Kansas City Fed Survey can be found in Haver’s **SURVEYS** database.

The Fed’s latest **Beige Book** covering regional economic conditions is available [here](https://www.federalreserve.gov/monetarypolicy/files/BeigeBook_20250423.pdf).

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- Index has moved sideways for over two years.
- Most components remain negative.
- Prices paid reading surges.

Kansas City Fed Manufacturing Activity Index Declines in April; Expectations Diminish

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Existing home sales declined 5.9% (-2.4% y/y) during March to 4.02 million units after rising 4.4% to 4.270 million units in February, revised from 4.26 million, according to the National Association of Realtors (NAR). The Action Economics Forecast Survey expected 4.15 million unit sales. The March sales decline accompanied an easing in the effective 30-year mortgage interest rate to an average 6.65% in March from 6.84% in February. The sales figures are based on closings of sales signed over the past couple of months.

Existing single-family home sales in March declined 6.4% (-2.2% y/y) to 3.64 million units after a 5.7% increase to 3.89 million in February. Sales of condos and co-ops held steady (-5.0% y/y) at 380,000, following a 7.3% February decline.

Sales declined in all regions in March. Sales in the West fell 9.4% (+1.3% y/y) to 770,000 after a 13.3% strengthening in February. Sales in the South declined 5.7% (-4.2% y/y) to 1.81 million after a 4.9% February increase. Sales in the Northeast were off 2.0%, unchanged y/y to 490,000, down for the third straight month. Sales in the Midwest declined 5.0% (-3.1% y/y) to 950,000 units after holding steady in February.

The median price averaged by all existing homes (NSA) rose 1.7% (2.7% y/y) to $403,700 in March after a 0.9% February increase. Prices remained below a high of $426,900 in June 2024. The median price of an existing single-family home rose 1.8% (2.9% y/y) to $408,000 in March and the median price of condos and co-ops increased 2.3% (1.5% y/y) to $363,000 last month. Prices for all homes rose 2.3% (+3.5 y/y) in the Midwest to $302,100. In the South, prices rose 1.2% (0.6% y/y) to $360,400. Prices in the Northeast prices increased 0.8% (7.7% y/y) to $468,000 while in the West prices rose 1.1% (2.6% y/y) to $621,200.

The number of existing homes for sale (NSA) rose 8.1% (19.8% y/y) to 1.33 million units in March following a 4.2% February increase. The supply of homes on the market at the current selling rate (NSA) increased to 4.0 months. A high of 4.2 months occurred in September 2024. The record low in supply of 1.6 months occurred in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- Sales are lowest since September.
- Decline extends throughout the country.
- Median sales price increases.

U.S. Existing Home Sales Fall Sharply in March

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New orders for durable manufactured goods jumped 9.2% (11.9% y/y) during March after increasing 0.9% in February, revised from 1.0%. A 2.0% increase had been expected in the Action Economics Forecast Survey. A 27.0% rise (31.2% y/y) in transportation sector orders accounted for the rise, following a 1.2% gain. Excluding the transportation sector, new orders for durable goods held steady (+2.2% y/y), after a 0.7% rise during February.

The March rise in transportation orders was driven by a more-than-doubling of aircraft & parts orders and a 2.3% increase (0.6% y/y) in motor vehicles & parts, coming on the heels of a 5.1% February gain. Primary metals orders rose 0.7% (4.6% y/y) after rising 1.3% while fabricated metals orders increased 0.2% (2.7% y/y) after a 1.2% rise. Machinery orders edged 0.1% higher (1.1% y/y) after increasing 0.8% in February. Elsewhere, orders declined. Computer & electronic product orders fell 1.2% (+2.7% y/y) following a 0.1% easing while electrical equipment, appliance & component orders declined 0.5% (5.2% y/y) after rising 0.6% in February.

Nondefense capital goods orders surged 29.4% (32.3% y/y), while nondefense capital goods orders excluding aircraft improved 0.1% (1.8% y/y) in March after falling 0.3% in February. Defense capital goods orders fell 9.4% (+3.5% y/y), the sixth straight month of sharp decline.

Factory shipments of durable goods edged 0.1% higher (3.7% y/y) in March following a 1.3% February rise. Transportation sector shipments fell 0.5% (+7.3% y/y) after a 2.4% gain. Shipments excluding the transportation sector improved 0.4% (2.1% y/y) following a 0.8% rise. Machinery shipments gained 0.5% (0.3% y/y) following a 0.9% rise while computer & electronic product shipments eased 0.2% (+4.0% y/y) after rising 1.6%. Shipments of electronics & appliances rose 0.5% (3.7% y/y) after a 0.3% decline. Shipments of all manufactured products eased 0.1% (+2.1% y/y) in March after improving 0.7% in February. Shipments of nondefense capital goods less aircraft rose 0.3% (0.8% y/y) after rising 0.7% in February.

Unfilled orders of durable goods rose 2.0% (2.3% y/y) during March after a 0.1% February gain. Excluding transportation, backlogs eased 0.1% (+0.7% y/y) after no change in February. Inventories of durable goods edged 0.1% higher (1.0% y/y) following no change during both of the prior two months. Less transportation, durable goods inventories rose 0.2% (0.3% y/y) after holding steady in February. Inventories of all manufactured products rose 0.1% (1.0% y/y) during March for the third month in a row.

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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- Increase exceeds expectations after moderate February rise.
- Transportation orders account for all of last month’s gain.
- Nondefense capital goods less aircraft orders are minimally higher.

U.S. Advance Durable Goods Orders Surge During March

Winnie Tapasanun

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The Chicago Fed National Activity Index (CFNAI) was at -0.03 in March, down from +0.24 in February (+0.18 initially) and up from -0.26 in January (-0.08 previously), today’s report from the Federal Reserve Bank of Chicago showed, indicating U.S. economic growth decreased for the month. The March CFNAI registered the second negative reading in three months and the eighth negative in 10 months; it was up from -0.20 in March 2024 but below a high of +0.38 in February 2024.

The index's three-month moving average (CFNAI-MA3), which smooths out the m/m volatility in the index, dropped to -0.01 in March after rising to +0.12 in February (+0.15 initially), posting the first negative reading since December; nevertheless, it was an improvement from -0.21 in March 2024. 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 March reading suggests that the U.S. economy is not currently in a recession.

The March negative reading reflected m/m drops in two of the four CFNAI key components and three negative contributions. The contribution of the Production & Income index decreased to -0.09 in March from +0.25 in February; however, it was up from -0.10 in March 2024 and a low of -0.59 in December 2022. The contribution of the Sales, Orders & Inventories index fell to -0.03 in March from +0.01 in February, but it was up from -0.05 in March 2024 and a low of -0.23 in January 2024. The Employment, Unemployment & Hours index contributed -0.01 in March, slightly up from -0.02 in February and improved from -0.04 in March 2024. Meanwhile, the contribution of the Personal Consumption & Housing index to the CFNAI rose to +0.11 in March, the highest reading since January 2023, after rebounding to a neutral value (0.00) in February; it was also up from -0.01 in March 2024.

The CFNAI Diffusion Index, which measures the breadth of change in the component series and is also a three-month moving average, fell to -0.01 in March after posting +0.12 in February (+0.16 initially) and +0.07 in January (+0.08 previously) and a string of negative readings from March 2023 to December 2024. A reading of zero indicates that all of the indicators are growing at their long-term average. The March reading was up from -0.18 in March 2024 and a low of -0.35 in October 2023; however, having remained below a high of +0.25 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 -0.03 in March vs. +0.24 in February.
- Two of four CFNAI components fall m/m and three make negative contributions.
- Personal Consumption & Housing index rises to the highest since Jan. ’23.
- CFNAI-MA3 declines to -0.01, the first negative reading since Dec.; still above -0.70 (recession signal).

Economy in Brief

Jump to:

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