Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080820e.jpg" align="left" border="0" height="265" width="353">
The all industries index dropped in June, its first drop in
four months. The index still stands in the 88th
percentile (top 12 percent) of its range. Construction fell again
dropping to the bottom of its range. The all important tertiary (or
services) index is in the 92nd percentile of its
range. It has fallen in four of the past seven months and in each of
the past two.
The construction index has been weak for some time. The
tertiary and overall indices are weakening for the second time since
early in 2008. The tertiary sector is where most of the jobs are.

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<thead><tr>
<th colspan="10" scope="col"> Up-to-date
Japan Industry Surveys</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jun 08</td>
<td>May 08</td>
<td>Apr 08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">All Industry</td>
<td>106.5</td>
<td>107.5</td>
<td>107.1</td>
<td>107.0</td>
<td>106.8</td>
<td>107.1</td>
<td>108.1</td>
<td>93.8</td>
<td>88.8%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>69.9</td>
<td>70.5</td>
<td>71.8</td>
<td>70.7</td>
<td>71.3</td>
<td>72.5</td>
<td>122.9</td>
<td>69.9</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>109.5</td>
<td>110.4</td>
<td>110.6</td>
<td>110.2</td>
<td>109.6</td>
<td>110.0</td>
<td>110.9</td>
<td>92.0</td>
<td>92.6%</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">Ranges,
Max, Min since 1993</td>
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The all industries index dropped in June, its first drop in four months. The index still stands in the 88th percentile (top 12 percent) of its range. Construction fell again dropping to the bottom of its range. The all important [...]

Japan Sector Indices are Weakening…

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Retail gasoline prices for all grades averaged $3.25 per gallon (-9.5% y/y) last week for the third straight week. Prices remained above their low of $3.13 in the week of December 9. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel rose to $3.81 per gallon (0.9% y/y) in the week of July 21 after rising slightly to $3.76 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil fell to $66.95 per barrel (-18.8% y/y) in the week ended July 18. The decline followed the prior week’s rise to $67.93 per barrel, but prices remained above a $59.04 low in the second week of May. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $67.20 per barrel. The price of European Brent crude fell to $70.66 per barrel (-17.9% y/y) in the week of July 18 after rising to $71.77 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. The price was $71.92 yesterday.

Natural gas prices jumped to an average $3.39/mmbtu (67.8% y/y) in the week ended July 18, the highest level since the second week of April, after easing to an average $3.17/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $3.50 per mmbtu.

Gasoline demand declined 1.6% y/y in the four weeks ending July 11 following a 1.0% y/y easing in the prior four weeks. Demand for all petroleum products weakened 1.1% y/y in the four weeks ending July 11 after a 1.6% y/y decline in the previous four-week period. Crude oil input to refineries rose 0.9% y/y in the four weeks ending July 11 after a 1.1% y/y gain in the prior four weeks.

Gasoline inventories eased 0.1% y/y in the week ending July 11 after a 0.1% y/y dip in the prior week. Residual fuel oil inventories fell 27.0% y/y in the week of July 11, after a 20.5% y/y fall in the prior week. Crude oil inventories rose 1.3% y/y in the week of July 4 after the same y/y rise in the previous week.

Measured in days’ supply, gasoline inventories rose to 25.9 days in the week of July 11 from 25.0 days in the prior week. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil eased to 24.9 days in the week of July 11 from 25.1 days in the prior week, and remained below a high of 31.9 days in the week of March 3, 2023.

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** & **USENERGY** database.

- Gasoline prices hold steady.
- Crude oil prices decline.
- Natural gas prices strengthen.

U.S. Energy Prices Are Mixed in Latest Week

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The **Industrial Materials Price Index** from the Foundation for International Business and Economic Research (FIBER) increased 0.6% (0.4% y/y) during the last four-week period after rising 1.6% in the prior four weeks.

**Miscellaneous** group prices increased 1.7% (9.7% y/y) in the latest four week period. The price of tallow (used in the soap industry) jumped 10.6% (15.7% y/y) in four weeks. Framing lumber prices gained 5.8% (37.6% y/y) but natural rubber prices fell 2.9% (+13.0% y/y) in four weeks.

Prices in the **Metals** group strengthened 1.4% (-2.9% y/y) over the most recent four weeks. Zinc prices jumped 4.0% (-4.6% y/y) and tin prices rose 2.7% (0.4% y/y). Aluminum prices increased 2.4% (8.4% y/y) over four weeks while steel scrap prices gained 1.8% (-11.2% y/y). Lead prices rose 0.4% (-8.7% y/y) and copper scrap prices fell 1.8% (+0.2% y/y) during the last four week period.

Prices in the **Textile** group edged 0.3% higher (1.6% y/y) during the last four weeks. Cotton prices rose 0.8% in that same period and 2.5% y/y. Burlap costs improved 2.0% in four weeks and 11.4% y/y.

**Crude Oil & Benzene** group prices weakened 2.4% (-13.8% y/y) in the latest four week period. The cost of West Texas Intermediate crude oil fell 9.2% to $67.27 per barrel and remained 18.0% lower y/y. It fell to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 6.2% (-31.7% y/y). Excluding crude oil, the industrial commodity price index rose 1.3% (1.6% y/y) during the last four weeks.

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.

**Summer of ’25: The Data** from N.Y. Federal Reserve President & CEO John C. Williams is available [here](https://www.newyorkfed.org/newsevents/speeches/2025/wil250716).

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- Prices movement by category is mixed.
- Lumber & metals prices strengthen.
- Crude oil prices decline.

FIBER: Industrial Commodities Prices Continue to 	Rise in Latest Four Weeks

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Total housing starts increased 4.6% (-0.5% y/y) in June to 1.321 million units (SAAR) after falling a little-revised 9.7% in May to 1.263 million, revised from 1.256 million, and rising 3.2% in April to 1.398 million, revised from 1.392, according to the U.S. Census Bureau. Total starts in June were 27.4% below their peak of 1.820 million units reached in April 2022. The Action Economics Forecast Survey expected 1.30 million starts in June.

Single-family starts in June fell 4.6% (-10.0% y/y) to 883,000 after declining 2.3% in May to 926,000, revised from 924,000, and holding steady at 948,000 in April, revised from 920,000. Multi-family starts rebounded 30.0% in June (26.6% y/y) to 438,000 after declining 25.1% in May to 337,000, revised from 332,000, and increasing 10.6% to 450,000 in April, revised from 472,000.

All of the increase in starts last month was due to a 73.3% surge (52.9% y/y) in the Northeast to 182,000 units, following a decline of 42.6% in May. Offsetting this increase, starts in the South weakened 0.7% (-9.0% y/y) to 674,000 after falling 9.0% in May. Starts in the West declined 1.4% (-1.7% y/y) to 286,000 after rising 22.4% in May. Housing starts in the Midwest declined 5.3% (+1.7% y/y) to 179,000 after falling 18.5% in May.

Building permits improved 0.2% (-4.4% y/y) last month to 1.397 million after falling 2.0% in May and declining 4.0% in April. Single-family permits fell 3.7% (-8.4% y/y) in June to 866,000 after weakening 2.6% in May. Multi-family permits rose 7.3% (+2.9% y/y) after easing 0.8% in May. Building permits fell 11.4% (-7.6% y/y) in the Northeast and in the West, permits fell 5.1% (-9.2% y/y). In the South, building permits rose 4.4% (-4.2% y/y), while in the Midwest, building permits held steady (+4.1% y/y).

The housing starts and building permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Increase recovers half of prior month’s drop.
- Multi-family starts surge but single-family starts fall.
- Building permits rise negligibly after two months of decline.

U.S. Housing Starts Rebound in June

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No one will be critical of Japan’s efforts to free itself of its torpor into disinflation and deflation that it suffered for many years. The Bank of Japan struggled long and hard to remove the contraction in prices from its economy since falling prices can have a pernicious effect on growth and investment. Japan still faces challenges: it has a contracting population and faces dealing with tariff demands from the United States as negotiations on that front continue to drag and have become harder to settle than Japan had expected. Despite the current inflation overshoot, on data back to January 2011, Japan’s to-date inflation is only averaging 1%; that is still well below its 2% target and ample reason for the Bank of Japan to continue to move carefully to corral inflation especially if inflation has stopped accelerating – as it seems to have done. Against this background, we look at Japan’s CPI report.

**Current inflation: June**
Japan has dispatched deflation and currently faces an inflation problem. In June, the BOJ’s preferred gauge for the CPI excluding fresh foods & energy rose 0.4% month-to-month for the second month in a row; it rose by 0.2% in April. Japan’s headline inflation rate seems to have fallen into line A traditional ‘core reading’ excluding all food & energy flies under the BOJ’s target pace. But the BOJ’s preferred inflation gauge shows a 3.4% rise over 12 months and then gains at a pace of 3.7% over both six months and three months. All of those numbers are too hot to handle.

**Line-items**
Education costs in Japan are falling sharply and sequentially. Medical care costs are deescalating too. And while food & beverage prices continue to overshoot, 2% by a wide margin, the pace of total food & beverage inflation has been falling. No broad category has steadily accelerating inflation. But the BOJ’s preferred gauge of inflation, a specialized core measure excluding energy & fresh foods, sees inflation ramping up and staying high over three months and six months.

**Diffusion/breadth**
Among the eight major categories, year-on-year inflation has accelerated compared to where it was one-year ago in four of the eight. Inflation is above the 2% benchmark for four of eight categories as well.

**Acceleration or not...**
The chart on sequential inflation for the BOJ’s preferred core gauge shows that this measure has accelerated since August or December of last year and since then has more or less marked time oscillating without any clear trend.

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**BOJ policy and communication**
With interest rates having been elevated, this may be the peak for inflation rates in the wake of past interest rate increases- but the BOJ moves to-date have been more about communication and signaling than about actual restraint. These sorts of determinations about the impact of policy are always preliminary and never made clear until time passes and we are able to observe how the trend unfolds. Has inflation really peaked or not?

**BOJ actions**
The BOJ has raised its policy rate in very small and careful steps with an eye to not disrupt markets. Until early 2024, the BOJ has promoted a negative policy rate coupled with policy of yield curve control. However, in early 2024 the BOJ switched the -0.1% target rate to +0.1% and then moved it up to 0.25% just after mid-year 2024, then, early in 2025, it hiked it again to 0.5%. These have been cautious step-wise moves that after three hikes leave the official rate higher by less than one percentage point. But it also reversed an eight-year period of having a negative policy rate and one coupled with yield curve control policy. The BOJ’s careful steps may owe to some learning from the Federal Reserve’s SNAFU when it announced a coming end to its policy of QE for the first time creating a ‘taper tantum.’   

**The environment**
While Japan’s economy is growing, it has logged four quarters of negative growth in the past seven quarters (Q/Q). Year-on-year growth is positive for three quarters in a row after two in a row that logged declines. The economy is not strong, but it is growing in Q1; it grew by 1.7% over the past four quarters even though the Q/Q change was -0.2%, annualized.

**Summing up**
The BOJ is taking policy steps slowly with national elections hovering in the background, keeping monetary policy out of the way of election discussions. So far, we would regard the BOJ’s anti-inflation steps as being more about communicating an end to a period of super easy policy than as a frontal-attack on rising inflation. Given that, Japan’s prices declined for many months from August 2020 to March 2020; the BOJ is being careful to try to arrest inflation increases without pummeling prices and restarting deflation. From January 2011 to September 2022, Japan had only 12 (out of 141) months of inflation above 2% on its preferred gauge. It is now on a run of 33 (well 32 out of 33) months in a row with year-on-year inflation at or above 2%. It is understandable that the BOJ is walking on eggshells when it comes to hiking rates. If its inflation requires a monetary brake, the BOJ has more to do. If inflation merely needs to be ‘reminded’ that the period of excess is over, the recent flattening of inflation could be a sign that the message has been heard. A turn lower for inflation may still be achievable without draconian monetary steps.

Japan

Japan’s Ex-Fresh-Food Ex-Energy Inflation Runs Hot

Japan Sector Indices are Weakening…

Summary

Robert Brusca

More Economy in Brief

U.S. Energy Prices Are Mixed in Latest Week

FIBER: Industrial Commodities Prices Continue to Rise in Latest Four Weeks

U.S. Housing Starts Rebound in June

Japan’s Ex-Fresh-Food Ex-Energy Inflation Runs Hot

Up-to-date Japan Industry Surveys
	Recent Months			Moving Averages			Extremes; Range
	Jun 08	May 08	Apr 08	3-Mo	6-Mo	12-Mo	Max	Min	%-Tile
All Industry	106.5	107.5	107.1	107.0	106.8	107.1	108.1	93.8	88.8%
Construction	69.9	70.5	71.8	70.7	71.3	72.5	122.9	69.9	0.0%
Tertiary	109.5	110.4	110.6	110.2	109.6	110.0	110.9	92.0	92.6%
Ranges, Max, Min since 1993