Tom Moeller

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040827c.jpg" width="353"></p>
<p>The University of Michigan&#146;s consumer sentiment index for August rose to 95.9 from the mid-month reading of 94.0. That still was lower than 96.7 in July. Consensus expectations had been for 94.0.</p>
<p>During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.</p>
<p>The expectations sub-index improved to 88.2 versus the mid-month read of 84.7. The index of current economic conditions eased slightly to 107.9 from 108.4 mid-month.</p>
<p>The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.</p>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM"> University of Michigan</a></th>
<th scope="col"><u><b> Aug</b></u></th>
<th scope="col"><u><b> July</b></u></th>
<th scope="col"><u><b>Y/Y</b></u></th>
<th scope="col"><u><b> 2003</b></u></th>
<th scope="col"><b><u>2002</u></b></th>
<th scope="col"><u><b>2001</b></u></th>
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<td class="firstcol">Consumer Sentiment</td>
<td>95.9</td>
<td>96.7</td>
<td>5.3%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
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<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>107.9</td>
<td>105.2</td>
<td>8.7%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
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<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>88.2</td>
<td>91.2</td>
<td>2.7%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
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The University of Michigans consumer sentiment index for August rose to 95.9 from the mid-month reading of 94.0. That still was lower than 96.7 in July. Consensus expectations had been for 94.0. During the last ten years there has [...]

U.S. Consumer Sentiment Up Through August

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Andrew Cates

**The US economy**
Last week’s US economic data releases almost universally disappointed forecasters’ expectations and have more generally flagged a slightly higher probability of a recession outcome in the coming months. For example, both the manufacturing and services ISMs declined into contraction territory in April. Weaker employment growth and a small step-up in the unemployment rate also indicate that growth momentum may be flagging. An indicator of recession risk generated by the Sahm Rule has certainly been climbing to more worrying levels (see chart 1 below). For the record, that rule asserts that a recession has begun when the three-month moving average of the national unemployment rate rises by at least 0.5 percentage points relative to its low during the previous 12 months.

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**US economic momentum versus the rest of the world**
Looking more broadly at global developments, this week’s PMI surveys (published by S&P Global) suggested that economic growth picked up in April in most major developed and developing economies. Looking at momentum over the past three months, however, also reveals a noteworthy anomaly. Specifically, and in line with the messages above, the US economy has been losing momentum according to these surveys, while other major developed and developing economies have been gaining momentum (see chart 2).

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**Global inflation surprises**
One reason for these relative shifts in growth momentum could concern the starting position of each economy. Many major economies, including the euro area and UK, were either in, or close to, a recession toward the end of last year. In contrast, the US economy has experienced relatively robust growth momentum over the last few months and up until now. Another noteworthy takeaway, however, from the recent dataflow concerns the unexpected pick up in US inflation compared with elsewhere (see chart 3). This pick-up may have eroded purchasing power and tightened financial conditions (through its impact on interest rate expectations), thereby acting as a brake on the US economy relative to other areas.

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**Oil prices and US Treasury yields**
Another critical element in this discussion about growth and inflation is the oil price. That’s because oil price gyrations have played a big role in driving global inflationary pressures in recent years. And financial market participants appear to have noticed judging by the very tight correlation between the oil price and US Treasury yields over the last year or so (see chart 4). That oil prices have dropped back of late has accordingly been another factor driving the improvement in financial market sentiment in recent days.

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**Global supply chain pressures and inflation surprises**
An additional factor that’s worthy of mention in this discussion is global supply chain pressure. As measured by an index that’s calculated by the New York Fed, those pressures have also been a big driver of global inflation in the post-pandemic era. And even now, small shifts in the degree of easing or tightening of those pressures appear to chime quite closely with inflation outcomes (see chart 5).

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**Asian currencies**
Finally—and largely due to shifts in relative interest rate expectations—the US dollar has been strong for most of the year. This strengthening has adversely affected Asian currencies, which have, on average, weakened by 4.4% against the dollar so far this year. The degree of depreciation among Asian currencies against the dollar has varied, however, with the Japanese yen experiencing the most significant weakening, while the Indian rupee has shown relative resilience. Recently, there have been notable strengthening moves in the yen, spurring speculation that these were driven by intervention from authorities. Regarding the rupee, potential reasons for its continued resilience include India’s positive yield differentials with the US and sustained investor optimism about India's economic prospects, among other factors.

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Last week's softer-than-expected US data releases have sparked renewed hopes that the Federal Reserve may initiate an easing cycle in the coming months, and, in doing so, have reignited investors' appetite for risk. This week, our charts explore the messaging from some of those US data releases (see chart 1). We also examine the signals from this week’s final composite PMI data, and particularly how weaker US growth momentum currently contrasts with stronger growth momentum in many other major economies (chart 2). With inflation dynamics likely one of the drivers of this relative growth divergence, we next explore how a series of positive inflation surprises in the US recently contrasts with negative inflation surprises elsewhere (chart 3). Weaker oil prices in recent days may provide some relief to the US inflation outlook in the period ahead (chart 4), as could the further easing of global supply chain pressures that’s been signaled by latest data from the New York Fed (chart 5). Finally this week, and pivoting to Asia, we examine recent currency trends in some of the region's major economies (chart 6).

Charts of the Week: Inflation Still Holds the Key

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Initial claims for unemployment insurance increased to 231,000 in the week ended May 4 from 209,000 in the prior week, revised from 208,000. It was the highest level since the last week of August 2023 and compared to expectations for 210,000 initial claims in the Action Economics Forecast Survey. The four-week moving average of initial claims rose to 215,000 from 210,250 in the prior week. It was the highest level since the second week of February, up from a low of 200,750 early in January.

The number of continued claims for unemployment insurance, also called “insured unemployment,” rose to 1.785 million in the week ended April 27 from 1.768 million in the prior week, revised from 1.774 million. It was the highest level in three weeks. The four-week moving average edged lower to 1.781 million, the lowest level since the third week of January.

The insured unemployment rate, which is the number of unemployment benefits recipients as a percent of covered employment, held at 1.2% in the week of April 27. This rate has been steady at 1.2% since March 11, 2023.

Insured unemployment rates vary widely among individual states. In the week of April 20, the highest rates were in New Jersey (2.39%), California (2.28%), Rhode Island (2.24%), Massachusetts (1.90%), Minnesota (1.68%) and Illinois (1.65%). The lowest rates were in Kansas (0.31%), South Dakota (0.34%), Florida (0.37%), North Carolina (0.41%), Virginia (0.41%) and Alabama (0.43%). Rates in other prominent states include Arizona (0.79%), Texas (1.03%), Pennsylvania (1.48%), Connecticut (1.49%) and New York (1.66%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Unexpected rise is to highest level since August of last year.
- Continued claims increase to three-week high.
- Insured unemployment rate remains steady & low.

U.S. Initial Claims for Unemployment Insurance Jump in Latest Week

Robert Brusca

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Ireland continues to produce good inflation news in April. The HICP index rose by 0.1% in April logging a 1.6% increase from a year ago, well within the target set by the European Central Bank for inflation in the entire Monetary Union. Ireland also reported a 0.3% increase in April for its domestic CPI gauge; that gauge is up 2.8% over 12 months. Ireland's CPI core fell by 0.1% in April and it's higher by 3.5% over 12 months. The annual rate difference between the inflation rate for the European Monetary Union inflation index known as the HICP, and Ireland's domestic CPI appears wide at 1.6% versus 2.8%; yet, both year-over-year changes are at 33-month lows. The domestic CPI core inflation rate is at a 27-month low. While these three gauges measure inflation in slightly different ways, it's quite clear that for the measure that each chooses to assess inflation, each has made a substantial reduction from where it has been and that all three gauges are showing substantial as well as ongoing inflation progress.

**Different metrics but tracking the same forces**
However, since Covid stuck, the differences between the core and the HICP and HICP and CPI have become magnified. Much of that is because of the growing difference in inflation lags and developments between the core and the headlines when inflation accelerates due to different causes. Still, the CPI headline and the HICP headline are more inconsistent than they were prior to August 2021. In the earlier period, there would be a standard deviation between the headline readings of annual inflation of 0.2%; that has grown to 0.6% after August 2021. However, the difference has shown signs of declining recently. The correlation between the headline HIPC and core has actually improved in the Covid period. This reinforces the belief that inflation is a singular force being tracked by both methods with differences stemming from their methodologies and weights rather than there being different underlying inflation dynamics at work.

**Sequential results**
Sequentially the ECB inflation measure, the HICP, rises by 1.6% over 12 months, falls at a 0.5% annual rate over six months and then rises at a modest 1% annual rate over three months. The Irish CPI gauge shows at a 2.8% year-over-year increase, a 0.6% annual rate rise over six months and a 1.6% annual rate gain over three months. Ireland's CPI core rate rises 3.5% over 12 months, at a 1.6% annual rate over six months and at a 2% at an annual rate over three months. All three gauges show six-month inflation below 12-month inflation as well as 3-month inflation higher than 6-month inflation but also 3-month inflation below the pace of its 12-month gain. So once again, we can look at different inflation measures and the absolute reading on inflation is going to be different depending on what we mix into the pot. Regardless of that, it appears that the overall inflation pressures in Ireland are consistent and behaving in a similar fashion regardless of which of these metrics we look at.

**Inflation across categories**
The diffusion gauge for the domestic CPI, which looks at accelerations across the CPI categories, marks accelerations as the value of 1 and unchanged inflation as the value of 0.5. Summing these and presenting them are proportional results, produces a diffusion rating at 50% when inflation is accelerating and decelerating in equal proportions, a value above 50% when inflation is accelerating in more categories, and a value of below 50% when inflation is decelerating in more categories. Inflation diffusion for Ireland is at 33.3% over 12 months, 33.3% over six months, but rises to 54.2% over three months. This calculation shows us that 12-month inflation compared to 12-months ago is decelerating in nearly 70% of the categories; that, over six months compared to 12 months, inflation is also still decelerating in nearly 70% of the categories. But, over three months, the inflation rate accelerated in slightly over half of the categories. And that's not surprising. Look at how the headline inflation rate for the CPI and for the core performed over this period. Although the diffusion calculation doesn't necessarily agree in all cases with changes in the headline diffusion and the weighted inflation headlines show the same trends. Diffusion is a separate measure that looks at the breadth of the inflation trend by assessing whether inflation is rising or falling across the various categories and then toting up the results. The diffusion measure neither looks at the magnitude of the change in inflation nor imposes any weight across the categories; it is simply looking at the change in inflation across various categories.

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**Summing up**
Ireland's economy continues to struggle with growth. GDP is still declining, consumer spending remains modest, producer prices show slightly more pressure than what is being registering in the CPI. But the decline in inflation is present in all three of these major inflation metrics. And its path and force are also reinforced by assessing breadth using the diffusion indexes. Ireland looks like a case of successful inflation fighting where the new challenge for the economy is going to be to reestablish growth at this lower rate of inflation.

Ireland

Irish Inflation Trends Keep Pointing Lower

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Wholesale inventories fell 0.4% (-2.3% y/y) during March after increasing 0.2% in February, revised from 0.5%. The 0.2% January decline was unrevised and growth has moderated substantially since 2022. The latest decline matched expectations in the Informa Global Markets Survey.

In March, durable goods inventories eased 0.1 % (+2.1% y/y) after rising 0.7% in February. The value of metals inventories declined 1.6% (-8.4% y/y) while motor vehicles & parts inventories eased 0.1% (+9.5% y/y). Professional & commercial equipment inventories fell 0.2% (-0.3% y/y) including a 2.4% gain (3.4% y/y) in inventories of computer equipment. Electrical & electronic goods edged 0.1% lower (-6.0% y/y) but furniture inventories rose 1.0% (-8.1% y/y). Inventories of lumber & other construction materials rose 0.8% (0.3% y/y).

Nondurable wholesale goods inventories weakened 1.1% (-9.1% y/y) in March after a 0.5% February decline. Farm product inventories dropped 2.3% (-30.7% y/y) while grocery product inventories weakened 1.0% (5.8% y/y). Paper & product inventories fell 0.9% (-14.6% y/y). Working higher, inventories of petroleum & products rose 1.2% (-15.2% y/y) while chemicals & products inventories increased 0.5% (-9.9% y/y).

Wholesale sales of merchandise declined 1.3% (+1.4% y/y) in March after rising 2.0% in in February. A 1.0% rise had been expected in the Action Economics Forecast Survey.

Durable goods sales fell 1.0% in March (+1.4% y/y) after a 1.4% February rise. Metals & minerals sales dropped 4.4% (-12.6% y/y) and motor vehicle & parts sales decreased 1.9% (+6.8% y/y). Furniture sales declined 1.6% (-5.1% y/y) and machinery sales weakened 0.4% (-0.6% y/y). Electrical equipment sales weakened 0.7% (+3.9% y/y). To the upside, professional equipment sales increased 0.2% (1.9% y/y) with a 1.0% rise (-1.1% y/y) in computers. Hardware sales increased 0.6% (3.1% y/y).

Among nondurable goods wholesalers, sales fell 1.6% in March (+1.5% y/y) after rising 2.5% in February. Farm product sale were off 10.3% (-12.8% y/y. Petroleum sales weakened 5.6% (+0.5% y/y). Paper & product sales declined 0.5% (-4.1% y/y) and apparel sales fell 0.9% (-3.6% y/y). Chemical sales rose 2.6% (1.3% y/y) while grocery purchases improved 0.2% (1.3% y/y).

The wholesale inventory/sales ratio (I/S) edged up to 1.35 in March from 1.34 in February. For durable goods, the I/S ratio of 1.82 in March was increased from 1.80 in February. The nondurable goods I/S ratio was stable m/m at 0.93.

The wholesale trade figures are compiled by the U.S. Census Bureau and are available in Haver’s **USECON** database. The expectations figure for total inventories is contained in the **MMSAMER** database, and the sales expectations figure is in the **AS1REPNA** database.

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- Wholesale inventories reverse February increase.
- Sales decline also follows earlier strength.
- The I/S ratio increases slightly m/m after trending lower.

U.S. Consumer Sentiment Up Through August

Summary

Tom Moeller

More Economy in Brief

Charts of the Week: Inflation Still Holds the Key

U.S. Initial Claims for Unemployment Insurance Jump in Latest Week

Irish Inflation Trends Keep Pointing Lower

U.S. Wholesale Inventories & Sales Decline in March

University of Michigan	Aug	July	Y/Y	2003	2002	2001
Consumer Sentiment	95.9	96.7	5.3%	87.6	89.6	89.2
Current Conditions	107.9	105.2	8.7%	97.2	97.5	100.1
Consumer Expectations	88.2	91.2	2.7%	81.4	84.6	82.3