Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041102c.jpg" width="353">
The downward trend in German retail sales that began in late 2003 continues. In September, the headline series--the value of retail sales excluding autos and gas stations--declined 0.41% from August and was 1.93% below September, 2003. Including autos and gas stations, the comparable figures were 0.20% and 2.39%.
In volume terms, retail sales, excluding autos and gas stations, declined 0.41% in September from August and were 1.93% below September 2003. The comparable figures for the volume of retail sales including autos and gas stations were 0.10% and 2.79%.
The rise in oil prices during this year has, no doubt, affected purchasing power adversely, but rising unemployment and reduction in welfare benefits associated with Chancellor Schroeder&#39;s reform program, Agenda 2010, have also played a significant role in reducing purchasing power and in lowering the propensity to consume. 

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<tr>
<th scope="col" class="firstcol">German Retail Sales Indexes (2000=100)&nbsp;</th>
<th scope="col">Sep 04</th>
<th scope="col">Aug&nbsp; 04</th>
<th scope="col">Sep&nbsp; 03</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">&nbsp;2002</th>
<th scope="col">&nbsp;2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Excluding Autos and Gas Stations&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Value</td>
<td>98.2</td>
<td>98.6</td>
<td>99.8</td>
<td>-0.41</td>
<td>-1.60</td>
<td>100.1</td>
<td>100.3</td>
<td>101.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Volume</td>
<td>96.7</td>
<td>97.1</td>
<td>98.6</td>
<td>-0.41</td>
<td>-1.93</td>
<td>98.7</td>
<td>98.9</td>
<td>101.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Including Autos and Gas Stations</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Value</td>
<td>99.4</td>
<td>99.6</td>
<td>101.8</td>
<td>-0.20</td>
<td>-2.39</td>
<td>101.8</td>
<td>101.3</td>
<td>102.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Volume</td>
<td>97.5</td>
<td>97.6</td>
<td>100.3</td>
<td>-0.10</td>
<td>-2.79</td>
<td>100.1</td>
<td>100.0</td>
<td>101.5</td>
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The downward trend in German retail sales that began in late 2003 continues. In September, the headline series--the value of retail sales excluding autos and gas stations--declined 0.41% from August and was 1.93% below September, [...]

The Disappointing Trend in German Retail Sales Continues

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Tom Moeller

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The rate of decline in Texas manufacturing activity ease in June, according to the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas. The General Business Activity index rose to -12.7% this month from -15.3% in May but remained below a high of +14.1 in January. A higher 17.9% of respondents reported improved business activity in June. The Future Business Activity index rose sharply to 14.4 this month to its highest level since January. The data was collected from June 13-21 from 85 manufacturing firms.

The employment index rose in June to 5.7, its best reading since July 2024 as a higher 17.8% of respondents reported higher employment this month. Also moving higher was the new orders index to -7.3, though the level still was negative. Improving sharply, the capital expenditures index surged to 10.9, the highest level since January. The production index of 1.3 was up from 0.9 in May as an increased 31.7% of respondents reported gains in output.

The shipments reading fell to -7.3 from +0.5. The hours-worked index declined to -8.4, its lowest point since in four months. The growth rate of new orders index dropped to -17.2; it hasn’t been positive since January. The wages & benefits index declined to 13.4, down from a high of 55.0 in March 2022.

Inflation indicators strengthened this month. The index for prices received for finished goods jumped to 26.1 from 15.1 in May. It was the highest level since July 2022. A higher 29.8% of respondents reported raising prices this month while 3.7% reported lowering prices. The index of prices paid for raw materials rose to 43.0 from 40.7 this month, up from a low of 1.0 in June 2023 but still below a high of 82.2 in June 2021.

The jump in the Future Manufacturing Activity Index reflected a strengthening in expected new orders growth to 15.3 and expected shipments to 27.3, though expected production fell to 22.6. The future wages & benefits reading jumped to 32.1, its highest level since February. The future employment index rose to 15.4 and the future wages & benefits reading doubled to 32.1. The future capital spending reading, however, fell to 16.9 and the future production weakened to 22.6 and remained below a November high of 45.2. The future capital spending reading declined to 16.9 and reversed half of its May improvement.

Each index is calculated by subtracting the percentage reporting a decrease in activity from the percentage reporting an increase. When all firms report rising activity, an index will register 100. An index will register -100 when all firms report a decrease. An index will be zero when the number of firms reporting an increase equals the number reporting a decrease. Data for the Texas Manufacturing Outlook, conducted by the Federal Reserve Bank of Dallas, can be found in Haver's **SURVEYS** database.

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- Weakness in general business activity index has diminished.
- Employment & capital spending readings improve.
- Expectations for shipments & new orders rise. 
- Current capital spending jumps but expectations weaken.

Texas Manufacturing Activity Improves Modestly in June; Expectations Jump

Robert Brusca

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Globally money growth has stabilized more in the month of May.  

**In the European Monetary Union** (EMU) over three months the annualized money growth rate ticked up to 2.9%, compared with 2.5% growth rate over six months and a 3.6% growth rate over 12 months; over two and three years the growth rate for money in EMU has been 2% for two years and 1.4% for three years. Compared to that, we have money growth sustaining itself at a stronger level.

**In the United States**, money growth continues to accelerate but slightly; the three-month growth rate for money is 6.2%; at an annual rate over six months it's 4.9%; over 12 months its pace is 4.5%. Money growth has steadily accelerated compared to a 0.4% growth over 3 years and a 2.7% pace over 2 years. The U.S. is the one exception where money growth rates are looking hot and where there has been steady acceleration in these growth rate; these calculations are in terms of M2.

**The United Kingdom** shows more variability as 12-month growth in U.K. for the money aggregate M4 is 3.5%. That moves up to 4.1% over 6 months and is back down to 1.7% annualized over 3 months. So, the 3-month growth rate in the U.K. is looking more like the 1.8% growth rate over 2 years, but even that stepped up from 1.1% over 3 years. In the case of the U.K., money growth rates have picked up and do seem to have steadied and they are off their top growth pace. However, at 1.7% the nominal growth rate of money over three months is on the light side

**Japan**, of course, is the central bank that is still engaged in raising rates and still has an acknowledged inflation problem. In Japan, the 3-month growth rate for M2 plus CDs is -1.3% annualized, weaker than 0.1% over 6 months which is weaker than 0.6% over 12 months; the Japanese money growth rates also decelerate from three-years to two-years and continue to decelerate on down to three-months. The Bank of Japan is still plotting its strategy for an inflation rate that appears to be both stubborn and slightly excessive. However, it's a welcome set of problems compared to the deflation that Japan dealt with the decade earlier.

**Real money balances**
Real money balances tend to show some step up in pace. In the case of the European Monetary Union, there's a steady acceleration of money growth from -2% at an annual rate over three years to +2.3% over 3 months and more or less steady pickups from period to period in between.

In the U.S., real money growth rates show a persistence acceleration from -2.8% at an annual rate over three years to the 5.2% annual rate over three months. Real money supply growth in the U.S. is cooking and strong, particularly over three months. However, over six months the growth rate is only 2.2% so the heat in terms of U.S. money supply growth is a relatively recent phenomenon.

In the U.K., real M4 growth continues to show contraction and M4 growth contracts over all horizons; over three years, two years 12 months, six months and three-months. However, the three-month contraction is at a -1.6% rate, deeper contraction than the 12-month rate (-0.4%) and pretty close to what it's done over two years on balance (-1.5%) although that's a step up in the pace of contraction compared to 12-months to six-months. U.K. growth has been running on the weak side in addition to its weak real and nominal money supply growth.

Japan shows contraction and money supply overall horizons and the contraction gets progressively larger over more recent periods; money growth is at a -4.1% annual rate over three months and that compares to -2.8% over 12 months, logging a declining rate of -1.4% at an annual rate over three years. Japan’s weak real money growth is a policy decision.

The background for real and nominal money growth is that oil prices are continuing to fall. They're falling in nominal terms and in real terms with year-over-year oil prices falling at about a 23% annual rate and in real terms the oil price is falling at about a 25% annual rate. The weakness in oil is helping central banks catch up on their inflation mandates at least four headline inflation.

**EU credit growth is lax**
And the European Monetary Union credit growth continues to expand but it is slowing. Private credit grows 2.4% at an annual rate over 12 months, but that slips to 1.5% annualized over three months and compares to the kind of growth that Europe had been seeing over two and three years where the growth rates averaged 1.4% and 1.7%. Real credit growth in the monetary union shows that there has been a pickup in the growth rates from 12 months to six months to three months; all show expansion although there's not steady acceleration there is steady positive growth. Those are good developments for the outlook for growth.

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**Global conditions**
Global inflation rates have begun to coalesce a little bit more around a 2% pace. Tariffs continue to be a sticking point as they haven't been sorted out yet and the U.S. and China continue to go back and forth while the U.S. and Canada appeared to have hit some sort of stalemate. Still, global geopolitics don't look quite as grim as they did a while ago. NATO has sided with the U.S. demand for them to spend more. More NATO countries have generally decided to spend 5% of GDP on military. In the Middle East, the attack on Iran's nuclear facilities has resulted in a ceasefire and a cooling off of the Iran-Israeli conflict although we can't report any such cooling that is extended to Ukraine-Russia. The global geopolitical situation remains touch and go, but the fact that NATO countries were able to cut a deal is good news; having a ceasefire between Israel and Iran is good news; and we're waiting to see if we can report any kind of news on the tariff front as deadlines approach.

**Money seems a less active force**
Money growth on its own has become more of a neutral factor with money generally not signaling growth that's too hot or too cold although with some very particular country level differences and especially with Japan continuing to try to reduce its domestic inflation rate. The main fly-in-the-ointment right now is excessive U.S. money growth. That's occurring while some U.S. statistics have been a little more touch and go and where the Federal Reserve is pursuing a wait-andsee attitude on future policy, but with the central bank still planning to tip the balance on the side of easing further.

Globally Money Growth Stabilizes Except in Japan

Tian Yong Woon

This week, we look at the state of US–Asia trade talks as the July 9 expiration of the US’ 90-day tariff pause approaches. Despite early activity, few deals have been finalized. So far, the US has reached only a limited agreement with the UK and rolled back mutual tariffs with China, alongside a framework on rare earth exports. Much of the action has focused on undoing previous measures rather than making new advances. Still, Asian markets have shown signs of stability (chart 1), though volatility may return as the tariff deadline nears. The outcome remains uncertain. President Trump has indicated flexibility on the deadline, and Treasury Secretary Bessent has suggested more deals may come only by Labor Day in September. Meanwhile, US effective tariff rates have already risen (chart 2), though inflation impacts have been muted, likely due in part to importers absorbing costs.

Among Asian partners, India shows the most near-term promise, with ongoing talks focused on mutual market access, though barriers remain in agriculture and dairy (chart 3). Japan has made no breakthroughs despite pressing concerns over auto and metal tariffs—sectors key to exports and GVA (chart 4). South Korea, just emerging from political transition, is only beginning substantive talks (chart 5). In Southeast Asia, Indonesia and Vietnam are among the most likely to reach agreements. Both face steep tariff hikes if talks fail, particularly Vietnam with a potential 46% rate. Indonesia has submitted proposals, while Vietnam remains optimistic. Thailand, still early in talks and politically distracted, is unlikely to meet the July 9 deadline (chart 6).

**US trade deals so far this year**
We have already reached the end of the first half of the year, and the US’ flurry of trade-related actions has so far yielded tangible outcomes with only a few countries. To date, the US has concluded a limited trade deal with the UK and reached an agreement with China to roll back many of the tariffs both sides imposed earlier this year. More recently, the US and China also established a framework concerning China’s rare earth export controls. That said, much of the world remains without new US trade deals. Most of the developments thus far have focused on partially reversing measures implemented earlier this year, rather than advancing beyond the pre-inauguration day baseline. Still, a measure of market calm has returned—at least in Asia—as reflected in recent rallies across some of the region’s equity indexes (chart 1). However, renewed volatility may lie ahead as the July 9 expiration of the US’ 90-day pause on reciprocal tariffs approaches.

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The situation, however, remains highly fluid. While US President Trump may reimpose his “Liberation Day” tariffs if no deals are reached by the July 9 deadline, he could also opt to extend the pause—especially if there appears to be potential for favourable trade agreements. This possibility was hinted at by Trump himself, who remarked that the US “could do whatever we want,” including extending or even shortening the deadlines. Also, US Treasury Secretary Scott Bessent has suggested that additional trade deals are more likely to materialize by Labor Day on September 1 instead of the July 9 deadline. Complicating progress on US trade talks with other countries is a string of recent geopolitical flashpoints—including US involvement, directly or indirectly, in the Israel-Iran, Israel-Hamas, and Russia-Ukraine conflicts. These crises have dominated headlines and may have also diverted the President’s attention. In the meantime, US effective tariff rates have already increased, as shown in chart 2, reflecting the impact of tariffs already in force. Interestingly, US inflation has not yet spiked as might have been expected. This could be partly due to importers absorbing some of the tariff costs by cutting prices.

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**India**
Setting aside the agreements already reached, the country that currently appears to hold the most promise for the next tangible US trade outcome is India. US President Trump has indicated that a “very big” trade deal with India is likely on the horizon. Whether a first phase of that deal can be finalized before the July 9 deadline remains uncertain, with just over a week to go. However, the progress made so far may be enough to earn India some additional breathing room before the reintroduction of the US’ “Liberation Day” tariffs. Of particular interest to the US is greater access to India’s domestic markets, which have traditionally been heavily protected by both tariff and non-tariff barriers (chart 3). So far, India has shown some reluctance to fully open certain key sectors—particularly dairy and agriculture. In turn, India is seeking expanded access to US markets, especially in labour-intensive sectors such as textiles and leather goods, which are important for its workforce.

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**Japan**
Turning to Japan, progress on a trade deal with the US appears more elusive than in the case of India. So far, there have been no reported breakthroughs in US–Japan talks. While Japan has put forward proposals, the US has yet to move forward on talks, and Japan still faces significant hurdles in resolving its key concerns—namely, US tariffs on autos, steel, and aluminium. The auto industry, in particular, is vital to Japan’s economy. Though it accounts for just under 3% of gross value added (GVA), it contributes substantially to export revenues (chart 4), with the US serving as Japan’s largest export market for vehicles. This underscores the economic weight of the US’ 25% auto tariffs. With time running short, final-hour efforts are ramping up. Following Prime Minister Ishiba’s inability to reach a deal with President Trump at the recent G7 summit, Japan’s chief negotiator, Akazawa, has extended his seventh visit to Washington to help push talks forward.

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**South Korea**
Like Japan, South Korea faces similar tariff-related pain points with the US—particularly on autos and steel—given the importance of these sectors to Korea’s economy (chart 5). However, unlike Japan, Korea’s trade discussions with the US have understandably been slowed by domestic political uncertainty. The country only recently concluded its elections after a prolonged period of instability, and its new Trade Minister, Yeo, only recently held his first meeting with US counterparts, having just assumed office. As a result, the pace, structure, and direction of Korea’s trade talks with the US remain at a very early stage, with significant progress yet to be made. Given this context, a substantive trade deal by the July 9 deadline appears unlikely, though a limited initial agreement may still be possible.

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**Southeast Asia**
Lastly, we turn to Southeast Asia, where reports of substantial progress on trade deals with the US have been limited. However, two countries—Indonesia and Vietnam—stand out as among the most likely to secure agreements before the July 9 deadline. Both have strong incentives to do so, as they face the steepest potential reversal of the US' “Liberation Day” tariff pause, with rates shown in chart 6, should no deal be reached and no extension granted. In mid-April, Indonesia and the US agreed to fast-track negotiations, targeting completion within 60 days. The Indonesian side has reportedly submitted all required documentation for its proposal and is now awaiting a response from the US. As part of its offer, Indonesia has pledged cooperation on critical minerals and committed to increasing energy imports from the US, among other concessions.

Vietnam, meanwhile, is also pushing to finalize a deal before the deadline. Its Prime Minister has expressed confidence that an agreement will be reached in time. Missing the deadline would trigger a steep 46% tariff on Vietnamese exports to the US—an outcome that would significantly impact the Vietnamese economy, given the importance of the US market. Thailand, another economy facing one of the highest prospective “Liberation Day” tariff rates, is in a less advanced position. It has only recently begun trade discussions with the US, making a substantial deal by July 9 unlikely. Additionally, domestic political uncertainty—intensified by the recent leak of Prime Minister Paetongtarn’s phone call—adds another layer of complexity.

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Asia

Economic Letter from Asia: Tariff Deadlines

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The PCE chain price index rose an expected 0.1% during May, the same as in April. The y/y rise, however, edged up to 2.3% following 2.2%. Energy prices declined 1.0% (-4.6% y/y) after rising 0.5% in April, while food prices rose 0.2% (2.0% y/y) following a 0.3% decline. The price index excluding food & energy rose 0.2%, after two straight 0.1% increases. Its y/y change of 2.7% last month followed April’s 2.6%. The y/y gain, nevertheless, remained near the slowest since March 2021, down from a 5.6% high in September 2022.

Durable goods prices held steady (+0.5% y/y) in May, after rising 0.5% in April. Home furnishings & appliance prices increased 0.6% (0.7% y/y), after increasing 0.4%. Motor vehicle & parts prices slipped 0.1% (+0.5% y/y), after no change in April. Recreational goods & vehicle costs eased slightly (-0.1% y/y) after strengthening 1.5% in April.

Prices of nondurable goods rose 0.1% (-0.2% y/y) last month after falling 0.1% in April. Lower gasoline & other energy prices held back the overall change and declined 2.2% (-12.0% y/y), after easing 0.3% in April. Clothing prices eased 0.4% (-1.1% y/y) after holding steady in April. Other nondurable goods prices rose 0.7% (1.5% y/y) after edging 0.1% higher.

Services prices rose 0.2% (3.4% y/y) in May, after rising 0.1% in April. Housing & utility prices rose 0.3% (4.3% y/y) after a 0.4% gain, and services prices excluding energy & healthcare gained 0.2% higher (3.7% y/y), after holding steady in April. Healthcare prices edged 0.1% higher (2.2% y/y), after a 0.2% gain. The cost of financial services & insurance eased 0.2% (+5.0% y/y) after falling 0.8% in April. Recreation services costs fell 0.3% (+3.5% y/y), following a 0.7% April decline. Transportation prices improved 0.1% (3.4% y/y), after rising 0.4% in April, while hotel & restaurant prices rose 0.3% (3.0% y/y), the same as in April.

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Personal consumption expenditures (PCE) eased 0.1% (+4.5% y/y) in May, after a 0.2% rise in April. The decline compared to expectations for a 0.2% increase in the Action Economics Forecast Survey. When adjusted for price changes, PCE fell 0.3% in April (+2.2% y/y) after increasing 0.1% in April.

Real spending on durable goods declined 1.8% (+3.8% y/y) in May, after declining slightly in April. Real spending on motor vehicles declined 6.0% (+4.0% y/y), after a 1.6% rise. Real outlays on furnishings & appliances eased 0.3% (+4.3% y/y) last month following a 0.3% decline. Real spending on recreational goods & vehicles increased 0.6% (4.0% y/y) last month, after falling 2.0% in April. Spending on “other” durable goods jumped 1.3% (1.8% y/y) after rising 0.8% in April.

Nondurable goods spending in real terms edged 0.3% lower (2.5% y/y) in May after edging 0.1% higher in March. Real clothing & footwear purchases rebounded 1.4% (5.1% y/y) last month, following a 0.4% April decline. Real food & beverage purchases were off 0.3% (+1.4% y/y) and reversed the 0.2% rise in the prior month. Real outlays on gasoline & other energy products declined 2.6% (-2.9% y/y), after rising 1.7%. Real spending on “other” nondurable goods slipped 0.2% (+4.2% y/y) last month, following a 0.3% decline during April.

Real spending on services was roughly steady (+1.8% y/y) last month, following a 0.1% April improvement. Real spending on housing & utilities rose 0.1% (1.1% y/y) in May, after rising 0.2%, while real health care spending rose 0.2% (4.5% y/y) after rising 0.3%. Real spending on food services & accommodations declined 1.0% (+0.5% y/y), after no change in April. Real spending on financial services & insurance fell 0.2% (+2.3% y/y) after rising 0.5%. Real spending on transportation services fell 0.5% (-1.1% y/y) in May, after edging 0.2% lower in April. Recreation spending improved 0.7% (0.2% y/y), the same as in April. A 0.1% slip (+2.7% y/y) in spending on “other” services followed a 0.3% April decline.

Personal income fell 0.4% (+4.5% y/y) after 0.7% gain. A 0.3% gain was expected. Wages & salaries rose 0.4% (4.7% y/y), the same as in April. Rental income declined 0.4% (+3.9% y/y), after easing slightly in April. Proprietors’ income tumbled 2.3% (2.5% y/y), following a 1.2% strengthening. Income from assets fell slightly (+1.1% y/y), after falling 0.5%, and current transfer receipts declined 2.2% (+7.5% y/y) following a 2.5% April rise. Government social benefits weakened 2.3% (+7.4% y/y) in May.

Disposable personal income decreased 0.6% (+4.1% y/y) during May following a 0.8% April rise. After adjusting for price changes, disposable income fell 0.7% (+1.7% y/y) after rising 0.6% in April.

The personal saving rate fell to 4.5% in May, after rising to 4.9% in April. It still stands well above low of 3.5% in December of last year. Personal saving fell 8.8% (-3.9% y/y) in May, after surging 12.8% in April.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Core price index increase reverses earlier weakening.
- Real spending moves lower.
- Disposable income’s decline lowers savings rate.


The Disappointing Trend in German Retail Sales Continues

Summary

Louise Curley

More Economy in Brief

Texas Manufacturing Activity Improves Modestly in June; Expectations Jump

Globally Money Growth Stabilizes Except in Japan

Economic Letter from Asia: Tariff Deadlines

U.S. Core PCE Price Inflation Strengthens in May; Real Spending Eases as Income Weakens

German Retail Sales Indexes (2000=100)	Sep 04	Aug 04	Sep 03	M/M %	Y/Y %	2003	2002	2001
Excluding Autos and Gas Stations
Value	98.2	98.6	99.8	-0.41	-1.60	100.1	100.3	101.9
Volume	96.7	97.1	98.6	-0.41	-1.93	98.7	98.9	101.0

Including Autos and Gas Stations
Value	99.4	99.6	101.8	-0.20	-2.39	101.8	101.3	102.1
Volume	97.5	97.6	100.3	-0.10	-2.79	100.1	100.0	101.5