Kritika Jain

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Today’s estimates of the UK services PMI suggest that business activity continued to expand during May, thanks to a strong rise in output and incoming new orders.

The key details were as follows: 

•	The S&P Global / CIPS UK Services PMI Business Activity Index was 55.2 in May, a modest decline from 55.9 in April and upwardly revised from the earlier flash estimate of 55.1. 

•	New export orders expanded as a result of an increase in tourist numbers, alongside solid demand for business services from US and Europe. Job creation also continued as firms recruited more staff to meet business needs, while wage pressures also persisted. 

•	Input price inflation rose to a three-month high due to elevated wage levels and ongoing supplier price hikes for items such as food. 

•	The composite PMI-which weighs the manufacturing and services sectors combined- fell to 54.0 in May, down from 54.9 in April.



United Kingdom

UK services sector remained robust in May

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Tom Moeller

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The U.S. Leading Economic Index fell 0.3% (-5.5% y/y) during March after a 0.2% February increase, revised from 0.1%, according to a report by The Conference Board. These two changes followed a 0.5% January decline. A 0.1% slip in March had been expected in the Action Economics Forecast Survey.

Five of ten components contributed negatively to the overall index in March including average weekly claims for unemployment insurance, the ISM new orders index, building permits, the spread between the 10-year Treasury and the Fed funds rate, and consumer expectations for business/economic conditions. The length of the average workweek, stock prices and the leading credit index contributed positively. New orders for capital goods and new orders for consumer goods made minimal positive contributions to the index change.

A 0.3% increase in the Coincident Economic Index in March followed a 0.1% February rise. These gains came after a 0.3% January decline. All four of the components made positive contributions to the coincident index in March, including personal income less transfers, industrial production, nonagricultural payroll employment and real manufacturing & trade sales.

The Lagging Economic Index held steady last month (+1.0% y/y) after increasing 0.3% in February and 0.6% in January. Two of the index’s seven components made slightly negative contributions last month, the average duration of unemployment and commercial & industrial loans outstanding. The six-month change in business inventories and the six-month change in labor costs made minimally negative contributions. The six-month change in the services CPI contributed positively, while banks’ prime rate and the ratio of consumer credit-to-income were unchanged.

The ratio of the coincident index to the lagging index is also viewed as a leading indicator of economic activity. This measure rose 0.2% in March, following two straight monthly declines. It was 0.7% below its most recent peak in December of last year.

The Conference Board figures are available in Haver's **BCI** database; the components are available there, and most are also in **USECON**. The expectations are in the **AS1REPNA** database. Visit the Conference Board's [website](https://www.conference-board.org/) for coverage of leading indicator series from around the world.

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- Drop in leading index follows first rise in two years.
- Coincident Indicators exhibit strength.
- Lagging index holds steady after two monthly increases.

U.S. Leading Economic Indicators Resume Decline in March

Robert Brusca

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Global inflation trends have been in concert for major money center countries/areas- excluding Japan, of course. Inflation flared after Covid struck and in the wake of the Russian invasion of Ukraine. It continued to ramp up more than central bankers thought. Interest rates were raised from very low levels- the U.S. led the pack in terms of rate hike speed, getting its key rate up to its prevailing inflation rate in record time after a long period of being asleep at the switch. It said it stood prepared to hold rates ‘higher longer.’ Then the next unexpected thing happened; inflation fell sooner and more sharply than expected and it did this globally, not just in the U.S.  However, we are now into phase three of this process: inflation went up more and longer, inflation then fell more and faster and now inflation is off peak but not back were we want it—and it is looking stubborn. This is more or less a global money center country/area description of inflation. Inflation that went through its boom-bust phase, as you clearly see from the sequential growth rates of the German PPI is now up from its lows. The headline price level is falling but losing momentum. The core PPI is only falling in its ‘legacy’ 12-month rate.

German PPI inflation falls by 2.8% over 12 months, falls at a 3.4% annual rate over six months, and falls at a 1.2% rate over three months. Core PPI inflation falls by 0.7% over 12, months then rises at a 0.7% annual rate over six months and three months. The core points the way for trend.

The NSA (not seasonally adjusted) sequential data show acceleration across and three major PPI sectors: consumer goods, investment goods and intermediate goods. Prices only fall over 12 months for intermediate goods. All other sectors trends show increases by period and all show acceleration in progress.

German CPI data show higher inflation over three months than over 12 months for the headline and the core with a dip in between – not a steady state acceleration but a clear hint at where things are headed and with German inflation rates clearly above the EMU-wide 2% mark.

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**Summing up**
Inflation is now a major issue. Growth is struggling but depending on the country it is limping by and showing some signs of improving. While that is good for growth, it can’t be good for over-the-top inflation. Inflation does not just need to stabilize; it needs to fall. PPI inflation is running below the ECB target pace for the euro area (a target that applies to the HICP), but PPI inflation does not include the service sector where the inflation problem resides in its greatest intensity. The PPI does not have a target or even a specific benchmark. The key to the future will be service sector inflation that is high and falling slowly. The trends for inflation in the PPI and CPI are going to be trends we will have to watch closely. Of course, the official target is for the HICP and for the euro area-wide HICP; the ECB has no targets by country or for other price indexes. But every new report matters. The German HICP report carries a great weight in the ECB scheme of things. Right now, it appears that inflation progress is slowing and may even be backtracking. If so, the outlook for rate cuts, that is still widely held, could be in jeopardy.

Germany

German PPI Stops Falling and Flatlines – Is That Good Enough?

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Sales of existing homes fell 4.3% (-3.7% y/y) during March to 4.19 (SAAR) million from an unrevised 4.38 million in February. January sales also were unrevised at 4.0 million. Sales remained increased from the low of 3.85 million in October 2023. The Action Economics Forecast Survey expected March sales of 4.13 million units. The sales figures are based on closings of sales signed in earlier months.

The median price of all existing homes (NSA) improved 2.5% (4.8% y/y) to $393,500 after rising to $383,800 in February. Prices remained 4.9% below the June 2022 peak of $413,800. The median price of an existing single-family home in March improved 2.4% (4.7% y/y) to $397,200 after rising 1.3% in February. The median price for condos & co-ops surged 4.2% (5.8%) to $357,400 after rising 1.0% in February.

Single-family home sales fell 4.3% (-2.8% y/y) last month to 3.80 million units after rising 10.3% February. Sales remained 35.0% below their high of 5.85 million in October 2020. Condo and co-op sales declined 4.9% (-11.4% y/y) to 390,000 after rising 2.5% in February. Sales have declined 47.3% since the January 2021 high of 740,000.

Sales declined throughout most of the country last month. Sales in the West fell 8.2% (-3.7% y/y) to 780,000 after rising 16.4% in February. Sales in the Midwest weakened 1.9% (-1.0% y/y) to 1.01 million last month after rising 8.4% in February. Sales in the South declined 5.9% (-5.0% y/y) in March to 1.90 million after rising 9.8% in February. Sales in the Northeast rose 4.2% (-3.8% y/y) to 500,000 after holding steady for three straight months.

The number of existing homes for sale (NSA) rose 4.7% (14.4% y/y) to 1.1 million in March after rising 5.0% in February. The supply of homes on the market at the current selling rate (NSA) rose to 3.2 months from 2.9 months in February. The record low in supply of 1.6 months was reached in January, 2022. These figures date back to January 1999.

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. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- Sales retreat from twelve-month high.
- Home prices rebound to seven-month high.
- Sales decline in much of country.

U.S. Existing Home Sales Decline in March

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The Federal Reserve Bank of Philadelphia reported in its April survey of manufacturing activity that the Current Activity Diffusion Index jumped to 15.5 this month from 3.2 in March and 5.2 in February. An index reading of 0.9 had been expected in the Action Economics Forecast Survey. The Philly Fed survey responses were collected from April 8 to April 15.

The ISM-Adjusted Composite Index, calculated by Haver Analytics from the survey results, improved to 49.8 this month from 48.0 in March. It was the highest level since August 2022, but remaining below 50, it still suggests a net contraction in activity. It compared to a March 2023 low of 39.6.

Changes in the individual series were mixed this month. New orders surged to 12.2 from 5.4 in March. An improved 32.5% of respondents reported an increase in new orders while a lessened 20.3% reported a decline. The shipments index rose to 19.1 from 11.4, as a higher 36.5% reported increased shipments and a steady 17.4% reported declines. The delivery time reading rose to -9.4 from -16.7 as 10.0% reported faster delivery speeds, while 19.4% reported slower speeds.

Working lower, the unfilled orders measure eased to 0.8 in April from 1.0 in March. A lessened 13.6% reported an increase in order backlogs while 12.8% reported a decline. The inventories reading dropped to -8.9 from 4.4, negative for the sixth month in the last seven.

Job market conditions deteriorated this month as indicated by an employment reading which fell to -10.7 from -9.6 in March. Six percent of respondents reported more hiring while 16.4% reported less. Also weakening, the average workweek figure declined to -18.7 from -0.2.

The index of prices paid surged this month to 23.0 after a March decline to 3.7. This reflected 25.9% of respondents reporting increased prices and 2.8% reporting a decline. The prices received index improved to 5.5 from 4.6 and remained up from a low of -2.7 in May of last year. A steady 11.6% of respondents reported price increases and a lessened 6.2% reported declines.

Expectations for business conditions in the next six months deteriorated slightly with the April reading of 34.3 down from 38.6 in April. It remained up, however, from -4.0 in January. Expected shipments & new orders eased but employment expectations rose to the highest level in nine months. The expected workweek reading surged to the highest level since October 2021. Expectations for prices paid also strengthened to the highest level since June 2022. The prices received index eased, however, after strengthening in April.

The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The Philadelphia Fed data can be found in Haver's **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Composite index moves to highest level in two years as new orders & shipments strengthen.
- Prices paid measure jumps; prices received increases as well.
- Expectations ease slightly but remain positive.