Robert Brusca

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<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320h.jpg" align="left" border="0" height="265" width="353">German ex-energy MFG prices are showing pressure with
three-month inflation surging and pushing up the pace across the major
tenor comparisons. Headline MFG price inflation is in the 5% to 6%
range over three and six months. It is still at 3.7% year/year much
more than its year/year pace of 2.9% one year ago. Inflation&#8217;s
acceleration is deeply rooted for the MFG headline rate.Ex-energy prices have less of a
structural problem and more of a rising cyclical issue. Year/year
ex-energy inflation is at 2.6%. A year ago ex-energy inflation was
stronger at 3%; ex-energy inflation decelerated further to 2.3% over
six months. But the recent three-month pace at 3.6% is a decided
acceleration. As you can see on the chart this is a reversal of a
decelerating trend that had been in place. January and February
ex-energy price have brought more pressure. This is going to be
disconcerting to the ECB that is worried about second round effects on
inflation.</p>
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<thead><tr><th colspan="8" scope="col"> <b>Germany PPI</b></th>
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<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3"><b>%m/m</b></td>
<td colspan="4"><b>%-SAAR</b></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td><b>Feb-08</b></td>
<td><b>Jan-08</b></td>
<td><b>Dec-07</b></td>
<td><b>3-mo</b></td>
<td><b>6-mo</b></td>
<td><b>12-mo</b></td>
<td><b>12-moY-Ago</b></td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>5.0%</td>
<td>6.0%</td>
<td>3.7%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>3.6%</td>
<td>2.3%</td>
<td>2.6%</td>
<td>3.0%</td>
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German ex-energy MFG prices are showing pressure with three-month inflation surging and pushing up the pace across the major tenor comparisons. Headline MFG price inflation is in the 5% to 6% range over three and six months. It is [...]

German Ex-Energy PPI Shows Disconcerting Pressure!

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Tom Moeller

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The Producer Price Index for final demand rose 0.1% (2.6% y/y) during May after falling 0.2% in April, revised from down 0.5%, and easing 0.1% in March, revised from unchanged, according to the Bureau of Labor Statistics (BLS). The Action Economic Forecast Survey expected a 0.2% increase in May. Producer prices excluding food, energy & trade services also edged up 0.1% (2.7% y/y) after falling an unrevised 0.1% in April and rising an unrevised 0.2% in March. The PPI excluding food and energy (the former core index) rose 0.1% last month (3.0% y/y) after declining 0.2% in April, revised from down 0.4%, and rising 0.3% in March, revised from 0.4%. A 0.3% increase had been expected.

A 0.1% increase (3.2% y/y) in final demand services prices held back overall pricing pressure last month and followed a 0.4% decline. Final demand trade services prices rose 0.4% (4.1% y/y) after falling 0.5%, while the trade of finished goods index rose 0.3% (3.9% y/y) following a 0.3% April decline. Transportation & warehousing prices fell 0.2% (+2.3% y/y) after a 0.1% improvement in April. Prices for final demand services less trade, transportation, and warehousing held steady last month (+3.0% y/y) after falling 0.3% in April.

The price index for final demand goods less foods & energy increased 0.2% (2.4% y/y) during May following a 0.3% increase. Nondurable consumer goods prices less food & energy rose 0.2% (2.2% y/y) after rising 0.4% in April. Durable consumer goods prices rose 0.4% (2.1% y/y) following a 0.2% rise. The private capital equipment price index improved 0.4% (3.0% y/y) following a 0.3% gain. Government prices less food & energy rose 0.2% (2.6% y/y) after rising 0.4% in April.

Food prices edged 0.1% higher (3.5% y/y) during May after falling 0.9% in April. Consumer good prices rose 0.1% (4.3% y/y) following a 1.2% decline. Energy prices for final demand held steady (-4.4% y/y) last month after rising 0.1% in April. Finished consumer energy prices rose 0.8% (-3.9% y/y) after holding steady in April.

Construction costs rose 0.3% (2.0% y/y) in May after falling 0.5% in April.

Prices for intermediate demand of processed goods edged 0.1% higher (1.9% y/y) in May after rising 0.3% in April. Processed energy goods prices fell 1.2% following a 0.4% rise while processed foods prices rose 0.5% after falling 0.9% in April.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Annual increase remains below January peak.	
- Core price gain slows y/y.
- Final demand goods price increase is steady y/y while services decelerate.

U.S. Producer Price & Core Price Indexes Edge Higher in May

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance were 248,000 in the week ending June 7, unchanged from the revised level in the week ending May 31. The previous week’s level was revised up by 1,000 from 247,000. The Action Economics Forecast Survey had expected 241,000. These data are seasonally adjusted by the Department of Labor. The 4-week moving average was 240,250, an increase of 5,000 from the previous week’s average of 235,250, which was revised up 250 from 235,000. It also is the highest level for this average since August 26, 2023, when it was 245,000.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended May 31 was 1.956 million, up 54,000 from 1.902 million, revised from 1.904 million in the prior week. The Department of Labor reported that this is the highest level for insured unemployment since November 13, 2021, when it was 1,970,000. The 4-week moving average was 1.915 million, an increase of 19,750 from the previous week’s level of 1.895 million. This is the highest level for this average since November 27, 2021, when it was 1.924 million.

The insured unemployment rate for the week ending May 31, that is, the number of unemployment beneficiaries as a % of covered employment, edged up to 1.3% from the prior week’s 1.2%.

Economic conditions vary widely across states and territories. In the week ended May 24, the highest unemployment rates were in New Jersey (2.22%), Washington (2.06%), California (2.03%), Rhode Island (1.96%), and Massachusetts (1.87%). The lowest rates were in South Dakota (0.28%), Florida (0.36%), Alabama (0.45%), North Carolina (0.47%), Tennessee (0.48%), and Kentucky (0.49%). Rates in other notable states include Illinois (1.61%), New York (1.55%), Pennsylvania (1.46%) and Texas (1.13%). These state data 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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- Initial claims for unemployment insurance were unchanged in the June 7 week.
- Total beneficiaries rose by 54,000 in the May 31 week.
- The insured unemployment rate ticked up to 1.3%.

U.S. Initial Jobless Claims Were Steady in Latest Week

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**The outlook survey**
Japan's Ministry of Finance business outlook survey for business conditions among large enterprises registered a decline in the second quarter, posting a -1.9 reading in the current quarter compared to 2.0 in the first quarter and 5.7 in the fourth quarter of 2024. Manufacturing enterprises registered even weaker results with a -4.8 reading in the second quarter, down from -2.4 in the first quarter and compared to +6.3 in the fourth quarter. Even nonmanufacturers in the second quarter logged a negative response at -0.5, compared to +4.1 in the first quarter and +5.4 in the fourth quarter of 2024. These are all responses from large enterprises.

The survey also covers medium and small enterprises; both medium and small enterprises showed negative figures for the second-quarter business conditions. For medium enterprises, the drop was to -0.9 from +0.7 in the first quarter and +3.8 in the fourth quarter. Whereas medium-sized enterprises showed less change with a -12.3 response for the second quarter compared to -12.7 in the first quarter and -4.7 in the fourth quarter. Small enterprises seem to be facing difficulty.

General conditions for the domestic economy in the survey for large enterprises showed a fall off to -6.2 in the second quarter from +3.1 in the first quarter and +4.2 in the fourth quarter. Drop offs were apparent for manufacturing and for nonmanufacturing establishments. Medium-term enterprises showed a similar and sharper drop off and small enterprises saw weakening worsening with the overall negative numbers being posted for the second quarter even weaker than what they registered under business conditions.

On the employment side, large enterprises posted a 26.9 reading in the second quarter, a decrease from the first quarter reading of 28.3, compared to a fourth quarter reading of 27.4. Manufacturers showed flat employment responses; nonmanufacturing enterprises showed weakening responses. Medium and small enterprises both show a pattern of weakening.

**The Outlook**
In addition to the current quarter responses, there are also one- and two-quarter-ahead outlooks provided by the survey. Business conditions for large companies post a +1.5 reading for the quarter ahead and +2.6 for the quarter after that. For medium-sized enterprises, they see a +3.1 reading for the quarter ahead and +3.3 for the quarter after that. Small enterprises log a -5.1 reading for the quarter ahead and -3.8 for the quarter after that.

The readings for the general domestic economy are generally higher than for business conditions for large enterprises. In all cases, the net readings for the general domestic economy for the quarters ahead are better than the assessment for the current quarter (2025-Q2).

One significant caveat here is that the outlook quarter for employment generally shows weaker net readings for the future quarters than for the current quarter -and this is true across the board.

**Rankings**
To understand these assessments better we can look at them as rankings, ranked against their own past responses. The rank standings of the various data across the industry types and various sizes of companies for business conditions shows generally stronger rankings for medium and smaller enterprises than for large ones for the current quarter. Large and medium-sized firms see erosion in conditions looking ahead and farther ahead. But small nonmanufacturing enterprises see conditions firming ahead compared to past responses on this survey.

General domestic economic assessments show weak rankings across the board all below their 50-percentile mark in standing, but all also show improving trends in ranking looking ahead. But the response for small manufacturers even though they obey these same trends, they are extremely weak.
  
The job market assessments show a rank assessment of 80- and 90- percentile standings across most firms regardless of firm size; the exception is for medium and small manufacturers. But even there while their current quarter standings are below 80%, their outlook remains solid even with a current quarter ranking as low as 41%, small manufacturers get their two quarter ahead employment expectations up into the 80th percentile.

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**Summing up**
On balance, this is an upbeat report. Business conditions show some slackening in the current quarter, but then conditions are mostly expected to pick up. When put in historic context using a ranking metrics, conditions look to be quite solid and strong. But the assessment of general domestic business conditions fails to respond as positively as business conditions and employment readings, especially on a ranking basis. These upbeat results are surprising given the tightening by the Bank of Japan as well as uncertainty surrounding, international trade given U.S. tariff policy, and ongoing weakness in China, Japan’s largest trade partner.

Japan

Japan’s MOF Business Outlook Survey- A Step back But with Optimism

Andrew Cates

**The Blue Chip growth consensus**
Our first chart this week depicting shifts in consensus growth expectations highlights significant divergences in the economic outlook over the past six months and the more recent one-month period. Major downward revisions over the past six months have prominently affected economies such as South Korea, Mexico, Australia and Canada, indicating heightened vulnerability to external shocks, particularly from disruptions linked to intensified US trade policies. Conversely, China has shown a slight improvement, possibly due to an effective policy response. The recent one-month adjustments, however, exhibit much smaller and generally modest upward revisions, suggesting some stabilization or cautious optimism amid ongoing uncertainties.

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**The Blue Chip inflation consensus**
This next chart tracking consensus forecasts for CPI inflation in 2025 across the US, Euro area, and China reveals a striking divergence in inflation expectations. In the US, inflation projections rose steadily through late 2024 and early 2025, peaking above 3% before easing slightly. This upward drift likely reflects the lagged impact of the US economy's relative strength in 2024, including robust consumer demand and tight labour markets, rather than more recent tariff-related pressures. By contrast, Euro area forecasts have remained relatively low and stable, suggesting more subdued domestic dynamics and tighter policy. Meanwhile, China's CPI forecast has fallen sharply over the same period pointing to deepening demand-side weakness and lingering deflationary risks.

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**Supply chain pressures** 
Looking ahead, the tight correlation between the New York Fed’s Global Supply Chain Pressure Index and producer price inflation for advanced economies underscores the risks posed by US trade policies. As supply chain pressures potentially intensify—partly due to renewed protectionist measures—global producer price pressures could again escalate, creating renewed inflationary challenges and complicating central bank policy calibration.

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**US policy uncertainty**
As the chart below illustrates, US monetary policy uncertainty remains elevated, even as it has eased from its recent peaks. This persistent uncertainty continues to drive market volatility, reflecting investor unease over the Federal Reserve’s future policy path in the face of tariff-related disruptions and inflationary pressures. The chart specifically shows a potentially valuable tool for tracking this uncertainty – the Kansas City Fed’s measure of Policy Rate Uncertainty (KC PRU). This index is constructed from the prices of financial options linked to future short-term interest rates—rates that closely track the federal funds rate—and captures one-year-ahead uncertainty at a daily frequency dating back to the late 1980s.

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**The UK labour market** 
The UK labour market data released this week revealed a sharp deterioration, with substantial job losses indicated by payroll data alongside a rising unemployment rate. This surprising weakness not only signals immediate economic challenges but also complicates the BoE’s monetary policy response at a time when policymakers face persistent inflationary pressures and broader macroeconomic uncertainty.

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**Energy and growth**
Over the longer term, the strong historical correlation between primary energy consumption and GDP growth in advanced economies underscores the critical role of energy in sustaining economic stability. Persistently high real energy prices and complex energy transition processes present significant obstacles, particularly for energy-intensive economies like the UK, which seek sustainable growth trajectories amid heightened geopolitical and trade uncertainties.

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Financial markets have experienced considerable gyrations in recent weeks, reflecting substantial shifts in investor expectations and heightened uncertainty, largely driven by ongoing US tariff policies. Over the past six months, consensus growth forecasts have seen notable downward revisions across most major economies, though these have been partially offset by modest upward revisions in the past month (chart 1). Concurrently, consensus inflation projections have diverged significantly, with upward pressures in the US contrasting with deflationary risks in China (chart 2). Compounding these US issues, renewed protectionism appears to be pressuring global supply chains again, potentially increasing inflation risks and sustaining elevated monetary policy uncertainty (charts 3 and 4). This week's particularly weak UK employment data highlight immediate domestic economic fragility, while longer-term economic stability remains challenged by persistently high real energy prices and complexities surrounding the energy transition (charts 5 and 6).

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German Ex-Energy PPI Shows Disconcerting Pressure!

Summary

Robert Brusca

More Economy in Brief

U.S. Producer Price & Core Price Indexes Edge Higher in May

U.S. Initial Jobless Claims Were Steady in Latest Week

Japan’s MOF Business Outlook Survey- A Step back But with Optimism

Charts of the Week: What’s Consensus?

Germany PPI
	%m/m			%-SAAR
	Feb-08	Jan-08	Dec-07	3-mo	6-mo	12-mo	12-moY-Ago
MFG	0.6%	0.5%	0.2%	5.0%	6.0%	3.7%	2.9%
Ex Energy	0.4%	0.4%	0.1%	3.6%	2.3%	2.6%	3.0%