Robert Brusca

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Asia area PMIs mostly improved in October as Indonesia and Vietnam were exceptions. The U.K., a Western nation with a finalized PMI, showed a drop off in October. The US (ISM) manufacturing PMI also was announced for October and it showed a slight upward tilt although it retained a low standing in its queue of data over the past six years (bottom 31%). Canada improved as well. In Latin America, Mexican conditions eased while Brazil improved but continued to contract. Turkey also improved but contracted.

Despite being good signals, they are weak signals 
Despite the widespread month-to-month improvement in manufacturing sector PMIs, the indices by and large are still low-valued and with a few exceptions are still quite weak or moderate even by the standards of the past six years or so when conditions have been unexceptional and for the most part trying. China and Russia both posted readings in the top 20% of this recent range. But China's PMI reading is only 51.2, a very low reading to have a top 15% standing as it does. Russia's index jumped this month. With the oil market in turmoil and Russia trying to wrestle some sort of deal with OPEC, I am frankly concerned about the veracity of the Russian numbers.

Manufacturing mostly shows growth and improved growth 
Among the 14 countries in the table, only four have manufacturing indices below 50 indicating a contraction in the sector. Those countries are Indonesia, South Korea, Brazil, and Turkey. Markets today reacted well to the release of the Chinese manufacturing PMI showing a stronger move into areas that indicates expanding output.

BOJ take path of least resistance 
The big economic news today was that Japan's central bank did not make any of the major alterations to policy that some had talked about. Japan played it 'safe' instead, keeping its bond purchase target in place, keeping its inflation target and keeping its policy rate but only pushing out the date by which it expects to meet its inflation objective. Of course, this is in some sense the same as cutting its inflation target near term. It is an admission that the BOJ will not hit its target on the timeline that previously was in place. But as policy changes go, it is the least obtrusive thing it could have done. Changing a schedule is different from a change in the objective of policy. Japan can argue that it has kept its objective but was forced to bend to the realities of near-term inflation resistance.

Aussies marking time 
In Australia, after several rate cuts in May and in August, the Reserve Bank of Australia has gone on hold.

Fed on hold for now 
Meanwhile, markets in the U.S. are focused on the two-day Fed meeting that will conclude with a policy statement on Wednesday. Because of the proximity to the U.S. general elections (presidential election cycle), the Fed is expected to stay on hold in November. But market watchers are still on alert for any signal that the Fed might give that might seem to commit it to action in December.

But Fed gets ready to fire up its Fleetwood Mac strategy and 'Go its own way' 
While other central banks are still being watched for signs of providing further stimulus, the Fed is expected to make another move to withdraw some degree of stimulus. The Fed began with a withdrawal using a single 25bp rate hike in December 2015 then its vice chairman spoke of the possibility of as many as four more hikes in 2016. Instead, that talk unnerved and unhinged markets and here we are late in the year and the Fed has not followed up its December hike with a single move. The lack of follow-up move in Fed policy speaks volumes of how premature the Fed's foray was into rate hiking in December 2015. And now, even without the proper justification, the Fed is on the verge of hiking rates again and largely for the same reason it hiked rates in 2015: because so many members have said they would even though conditions do not strongly warrant it or even support it under the Fed's current policy plan.

Central banks: breaking bad? 
Central bank policies around the globe have moved into a realm of rarity in which they are not very straightforward to understand. One needs to resort of all sorts of complex thoughts to explain why certain unusual things are being done in the various monetary centers. The simple notion is that central banks are trying to 'do good' but have gone so far from their normally acceptable policy actions that they may be on the verge of 'doing bad.'


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Asia area PMIs mostly improved in October as Indonesia and Vietnam were exceptions. The U.K., a Western nation with a finalized PMI, showed a drop off in October. The US (ISM) manufacturing PMI also was announced for October and it [...]

Finalized Manufacturing PMIs Largely Improve in Asia and Elsewhere

Tom Moeller

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Natural gas prices declined to the lowest level since
August. At $2.69 per mmbtu last week, prices have fallen from $3.15 just two
weeks ago, and equaled the lowest level since mid-August. They remained up,
however, by nearly one-third y/y. Prices recovered to $2.80 yesterday.

WTI crude oil prices fell to $49.45 per barrel last
week (+9.9% y/y). Yesterday, prices fell further to $46.86 per barrel, but
remained up versus a daily low of $26.21 per barrel in February. Brent crude oil
prices declined to $50.49 per barrel last week, then were $48.53 yesterday.

Regular gasoline prices eased to $2.23 per gallon (+0.3%
y/y) last week, but remained near their highest level since early July. Prices
remained down, however, versus a 2014 high of $3.71 per gallon. Haver Analytics
constructs factors adjusting for the seasonal variation in pump prices. The
adjusted price increased to $2.30 per gallon, the highest level in twelve months.

Last week, gasoline demand eased 0.1% y/y, while
demand for all petroleum products improved 4.3% y/y. Gasoline inventories
rose 3.4% y/y and inventories of all petroleum products increased 3.2% y/y.
Crude oil production (input to refineries) gained 1.9% y/y in the last four weeks.

The energy price data are reported by the U.S. Department of
Energy. The petroleum demand and inventory figures are from the Oil &amp; Gas
Journal Weekly. These data can be found in Haver's WEEKLY database. The
daily figures are in DAILY and greater detail on prices, demand and
production, along with regional breakdowns, are in OILWKLY.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th scope="col" >10/31/16</th>
 <th scope="col" >10/24/16</th>
 <th scope="col" >10/17/16</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Retail Gasoline ($ per Gallon, Regular)</td>
 <td >2.23</td>
 <td >2.24</td>
 <td >2.26</td>
 <td >0.3</td>
 <td >2.03</td>
 <td >2.30</td>
 <td >3.33</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl.,
 WSJ)</td>
 <td >49.45</td>
 <td >50.58</td>
 <td >50.42</td>
 <td >9.9</td>
 <td >48.90</td>
 <td >93.64</td>
 <td >97.96</td>
 </tr>
 <tr>
 <td class="firstcol" >Natural Gas ($/mmbtu, LA, WSJ)</td>
 <td >2.69</td>
 <td >3.10</td>
 <td >3.15</td>
 <td >29.9</td>
 <td >2.62</td>
 <td >4.37</td>
 <td >3.73</td>
</tr>
 </tbody>
 </table>
 
</body></html>

Natural gas prices declined to the lowest level since August. At $2.69 per mmbtu last week, prices have fallen from $3.15 just two weeks ago, and equaled the lowest level since mid-August. They remained up, however, by nearly one- [...]

U.S. Energy Prices Fall

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

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Tian Yong Woon

This week, we look at the latest US trade developments and their implications for Asia, as President Trump unveiled new tariff rates on 14 countries (chart 1). Though some rates were lower and implementation delayed to August 1, the move signals the US tariff pause is ending and deepens investor uncertainty in Asia. Market sentiment has weakened, reflecting both renewed policy risks and stalled trade negotiations in the region (chart 2). 

Vietnam stands out as a rare exception, having secured a deal with the US that reduced its tariff rate from 46% to 20%. However, the agreement includes a 40% tariff on “transshipments,” aimed at curbing indirect exports from third countries, such as China. In return, the US has gained tariff-free access to Vietnamese markets—an offsetting benefit for American firms. Nonetheless, the 20% rate remains high and could raise costs for US consumers if passed through supply chains (chart 3). Japan, by contrast, faces a more delicate balancing act. A 25% tariff was confirmed, while pressure persists over access for US agricultural exports—particularly rice (chart 4). Domestic sensitivities remain elevated amid a rice shortage and looming upper house elections, limiting Tokyo’s room to manoeuvre. 

Regional central banks are responding cautiously. The Reserve Bank of Australia held rates steady, defying expectations of a cut and citing a need for more information (chart 5). Rate decisions from South Korea, New Zealand, and Malaysia are due this week, with South Korea’s central bank seen likely to hold, amid rising home prices and mortgage growth (chart 6).

**Latest US tariff developments**
As previously signalled, US President Trump on Monday unveiled a new round of tariff rates targeting 14 countries, confirming initial fears that the US would move forward with reciprocal tariffs following its 90-day pause. While investor concerns—renewed late last week—have begun to materialize, there are two modest sources of relief. First, as shown in chart 1, many of the newly announced US tariff rates are actually lower than those initially unveiled on “Liberation Day,” April 2. Second, President Trump has delayed the effective date of the tariffs to August 1, offering a temporary window for countries that have not yet done so to negotiate trade deals with the US. However, while the extension allows more time for dialogue, it does not constitute a formal delay in implementation—at least for now. That said, progress in trade negotiations with the US remains limited across most Asian economies. In some cases, such as Japan, talks may have even come to an impasse—this will be explored further in subsequent sections. Vietnam, however, stands out as an exception, having secured a trade agreement with the US late last week; this development will also be discussed in more detail later on.

250708T1.jpg

Understandably, the earlier sense of relief—when tariffs appeared to have been delayed—has faded, giving way to renewed uncertainty. As this shift in sentiment takes hold, equity performance across advanced Asia has weakened slightly in recent days, as shown in chart 2. This likely reflects not only rising investor caution but also the lack of substantial progress in trade talks with the US, which contributed to the unveiling of tariff rates on Monday—unlike the more favourable treatment seen in Vietnam’s case. Looking ahead, investors focused on Asia will turn their attention to several country-specific trade discussions with the US for further cues. Growth and inflation outlooks are also likely to be revised, as not only first-round but also second- and subsequent-round effects of the tariffs are increasingly factored in. Another noteworthy development is US Treasury Secretary Bessent’s recent statement that around 100 economies and territories will now face a baseline tariff of 10%. If accurate—and if the 10% rate holds as the minimum—it suggests that many of the roughly 20 or more economies originally assigned that baseline rate have now been excluded. In effect, their relative trade position has worsened. In the Asia-Pacific region, key economies to watch in this context include Australia, New Zealand, and Singapore. 

250708T2.jpg

**Vietnam**
While trade deals with the US have been few and far between since the beginning of the tariff pause, Vietnam has stood out following the announcement of a new trade agreement with the US late last week. Originally facing a reciprocal tariff rate of 46%, Vietnam has reached a deal to reduce that rate to 20%. However, the agreement also includes a 40% tariff on so-called “transshipments”—a measure aimed at addressing US concerns that goods may be routed through Vietnam from other economies, possibly China, to circumvent higher tariffs or trade restrictions. In return, the US has secured tariff-free access to Vietnamese markets. While the 20% rate is a significant improvement over the initially proposed 46%, it remains relatively high—especially compared to the 10% reprieve level. This will likely translate into higher costs for American consumers unless the increase is absorbed by producers or suppliers. On the positive side, tariff-free access to Vietnam offers some offset, particularly for US input goods sent to Vietnam for further processing, which would avoid additional tariffs on that leg of trade. That said, there is still uncertainty around how the “transshipment” clause will be defined and enforced in practice. Given Vietnam’s role as a major supplier of electronics—including smartphones—to the US (chart 3), the increase from the 10% pause rate to 20% is significant. If the added costs are passed through the supply chain, it could lead to a noticeable impact on US consumer prices.

250708T3.jpg

**Japan**
Turning to Japan, the country is delicately balancing two competing pressures: minimising the economic fallout of renewed US tariffs while resisting trade concessions that could be seen as damaging to its domestic interests. A key sticking point is Washington’s push for greater access to Japan’s agricultural market—particularly for US rice. President Trump has criticized Japan as “spoiled” for resisting such demands and previously threatened tariffs of 30–35%. On Monday, however, a 25% tariff on Japanese goods was announced—slightly above the 24% rate first unveiled on “Liberation Day,” April 2. Meeting US demands would carry significant political risks for the Japanese government. Any perceived concession on rice would likely spark backlash from Japanese farmers, a core constituency of Prime Minister Ishiba’s political base. The issue is especially sensitive with upper house elections on the horizon. Complicating matters further, Japan is currently facing a domestic rice shortage that has been driving up prices. Given rice’s central role in the Japanese diet, the shortage is a growing cost-of-living concern. In response, Japan has already ramped up rice imports, as shown in chart 4, including by moving forward a tariff-free tender—originally scheduled for September—for 30,000 tons from the US, Australia, and Thailand. However, compared to Japan’s overall consumption needs, this added supply is little more than a drop in the bucket.

250708T4.jpg

**Central bank decisions this week**
This week’s renewed US trade uncertainty threatens to complicate a busy calendar of central bank decisions across the region. First among the major announcements was the Reserve Bank of Australia (RBA), which defied consensus expectations by leaving its policy rate unchanged, rather than delivering the widely anticipated 25 bps cut. While the RBA acknowledged significantly cooled inflation—as shown in chart 5—it also pointed to a still-tight labour market and market sentiment suggesting that the most extreme US trade scenarios are likely to be avoided. Citing the need for more information before considering its next steps, the RBA opted to maintain its policy rate at 3.85% following its July meeting. Other key central banks set to announce decisions this week include those of New Zealand, South Korea, and Malaysia—the latter two of which are facing 25% US tariffs starting August 1, absent a trade agreement, as announced by President Trump on Monday.

250708T5.jpg

Lastly, turning to South Korea, the central bank (BoK) has already lowered rates four times since beginning its easing cycle last October and maintained a dovish tone at its most recent meeting in response to weakening growth momentum. However, the BoK is widely expected to hold rates steady this week. It is aiming to strike a balance between supporting growth—particularly with the potential reinstatement of US tariffs looming—and avoiding overheating in segments of the domestic economy. In particular, the BoK remains concerned about the property market, where housing prices have resumed their upward trend, and the household loan sector—especially mortgage lending—where loan growth has once again accelerated, as shown in chart 6.

250708T6.jpg

Asia

Economic Letter from Asia: The Final Countdown?

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) jumped 2.3% (0.2% y/y) during the four weeks ended July 4, 2025. The improvement followed declines since early spring.

Prices in the Metals group surged 4.0% (-2.3% y/y) over the most recent four weeks. Price strength was broad-based. Tin prices jumped 7.9% (2.2% y/y) while aluminum costs surged 5.6% (4.2% y/y). Copper scrap prices rose 3.8% (5.0% y/y) in four weeks as lead prices surged 3.4% in four weeks (-7.4% y/y). The cost zinc rose 3.0% (-6.0% y/y) and steel scrap rose 1.4% (-11.4% y/) in four weeks.

Crude Oil & Benzene group prices moved 3.1% higher (-15.7% y/y) in the latest four week period. The cost of West Texas Intermediate crude oil rose 5.2% higher to $65.86 per barrel and remained 20.6% 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 6.0% (-35.3% y/y). Excluding crude oil, the industrial commodity price index rose 2.1% (1.6% y/y) during the last four weeks.

Miscellaneous group prices increased 1.5% (9.8% y/y) in the latest period. The price of tallow (used in the soap industry) rose 5.9% (15.7% y/y) in four weeks. Framing lumber prices gained 4.3% (38.3% y/y) while natural rubber prices improved 0.3% (12.5% y/y) in four weeks.


Prices in the Textile group edged 0.8% higher (1.7% y/y) during the last four weeks. Cotton prices rose 4.4% and also 4.4% y/y. Burlap costs rose 1.3% in four weeks and 10.1% y/y.

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.

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- Prices increase broadly after earlier declines.
- Metals prices lead upturn.
- Textile price rise but rubber prices are little changed.

FIBER: Industrial Commodity Prices Surge in Latest Four Weeks

250707E.jpg

German industrial production rose by a sharp 1.2% in May but only after a 1.6% plunge in April which followed a 2.3% surge in March. This has been an unusually turbulent period for industrial production. However, on balance, German IP shows acceleration (from 12-months to 6-months to 3-months) for headline IP, for consumer goods output, for capital goods output, as well as for manufacturing overall and for real manufacturing orders.

**Data trends**
This collected pattern of accelerating trends is exceptionally good news and tends to push the volatility in output into the background. Typically, volatility tends to reduce the meaning of any trend since depending on where you are in a volatility, up-vs-down pattern, the trend will be not just exaggerated but even switched in direction. However, with not just growth but acceleration in play and with accelerating trends in play for so many categories- including real orders- the uptrend appears to be solidly established even in the face of volatility. And the chart seems to confirm that (drawn on year-over-year sector trends).

**Knowledge beyond data**
In addition, we know that there are other conditions stirring in Europe that give us cause to think that output solidifying is a real event not just the luck of the draw on one month’s volatility. The shift is to get NATO countries to pay for more of their own defense and to pay more period. At the recent NATO meeting, member countries pledged to spend 5% of GDP on defense that should help to light a fire of demand across Europe. At the same time, the good news is that inflation headlines in the EMU and across major member countries are mostly on target while core inflation remains stubborn at an elevated pace near 2.5%, mostly across the EMU.

**Quarter-to-date (QTD)**
The volatility leaves German IP growing at less than a 1% annual rate in Q2 over the Q1 average (quarter-to-date, or QTD)– a far less portent reading than the three-month rate of 7.7% (saar). But manufacturing, unimpeded by the weakness in construction, shows a QTD annual rate rise of 2.9%. Real manufacturing orders are advancing at a 16.4% annual rate in the quarter while real sales are declining.

Surveys show improvements over three months compared to six-months, but all of them also show some slippage over six months compared to 12-months. Yet, all of the three-month averages are above the 12-month averages. Survey data generally show momentum is turning higher, but not markedly.

**Queue standings – longer term comparisons**
The queue standing data compare current growth rates (Y/Y) or (in the case of surveys) levels to past performance. Total IP, consumer goods, capital goods, manufacturing output, and real orders all have May readings above their historic median growth rates/or levels (rankings over 50%). But construction and intermediate goods sectors lag badly. Real sales are weak, and the surveys all show weak signal compared to all levels since January 2000. This tells us that the momentum in German industry (12-month growth) is solid and strong, but that the level of activity is weak – and quite weak- compared to past performance. This is also clear from the far-right column that measures current output relative to output in January 2020, just before Covid. These are aggregate changes. Germany’s output is still 1.7% lower in May 2025 than it was in January 2020 – nearly five- and one-half years down the road. This has been a very weak period for Germany. Only capital goods output among sectors is higher, rising by 4.9% over a period of five-plus years and making most of that in the last 12 months. The surveys show conditions have weakened on balance over this period as well.

**Some other Europe**
Portugal and Norway give us a look at two other European economies. Both show growth in May as well as QTD. Norway is supercharged with the strong oil market in play as a tailwind. Its queue standing for growth has a 99-percentile reading. Both Portugal and Norway are stronger relative to January 2020; Portugal by 11.8% and Norway by 8.3%.

250707.jpg

**Summing up**
The production situation in the EMU and in Germany appears to be solidifying. However, supply needs demand. Retail sales in May fell in the EMU for the first time since December. German retail sales volume has been up by 2% or more by months in its year-over-year growth rates since May 2024… until this month. The 1.6% rise in real German retail sales (ex-autos) in May 2025 is the weakest rise since German retail sales fell year-over-year in May 2024. Six of ten early reporting countries in Europe show real retail sales drops in May as well. So, just as one series begins to look solid another begins to raise question marks. It has been like that for a while in Europe.

Germany

German IP Is Making Progress Across Most Sectors

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Nonfarm payrolls increased 147,000 (1.1% y/y) during June after rising 144,000 in May, revised from 139,000, and 158,000 in April, revised from 147,000. Expectations had been for a 113,000 rise in the Action Economics Forecast Survey. The three-month average change of 150,000 in June compared to 232,000 in January.

Average hourly earnings rose 0.2% during June after an unrevised 0.4% May gain, and a 0.2% April increase. Earnings growth of 3.7% y/y is down from a high of 4.2% last November, and has been trending lower from the 5.9% high in March 2022. A 0.3% increase expected for June.

The unemployment rate, measured in the household survey, fell m/m to 4.1%. It compared to 4.2% in May where it had been for three straight months. A rise to 4.3% was expected. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, eased to 7.7% last month from 7.8% In May. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in June rose 74,000 (1.0% y/y) after a 137,000 May increase. Factory sector jobs declined 7,000 (-0.7% y/y) for the second consecutive month. Construction sector employment increased 15,000 (1.4% y/y), after rising 6,000 in May.

Private service-producing sector employment increased 68,000 (1.2% y/y) in June after improving 141,000 in May. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 51,000 (3.3% y/y) last month while leisure & hospitality employment rose 20,000 (1.4% y/y). Trade, transportation & utilities employment gained 3,000 (0.6% y/y) and financial activities employment improved 3,000 (1.0% y/y).

Government sector payrolls strengthened 73,000 (1.5% y/y) last month following a 7,000 rise in May. State government employment increased 47,000 (2.8% y/y) while the number of local government jobs rose 33,000 (1.7% y/y). Federal government payrolls fell 7,000 (-2.1% y/y), the fifth straight monthly decline.

Private-sector average hourly earnings rose 0.2% (3.7% y/y) in June following unrevised increases of 0.4% in May and 0.2% in April. Earnings in the goods-producing sector edged 0.1% (3.6% y/y) higher. In construction earnings rose 0.4% (3.9% y/y) but factory sector earnings eased 0.1% (+3.5% y/y). In the private services-sector, earnings rose 0.2% (3.7% y/y) in June.

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The length of the average workweek shortened to 34.2 hours in June from 34.3 hours in May. The workweek in the goods-producing sector was unchanged at 39.8 hours. The construction sector average workweek eased to 38.9 hours while the factory sector workweek held steady at 40.1 hours. The average workweek in the private service sector eased to 33.1 hours.

In the **household survey**, the unemployment rate dipped to 4.1% in June from 4.2% in May as employment rose 96,000 and the size of the labor force declined 130,000, off for the second straight month. The labor force participation rate eased to 62.3% last month and remained below the high of 63.3% early in 2020. The rate for teenagers plunged to 35.1%, a five-year low. For workers aged 20-24, the rate declined to 71.0%. For workers aged 25-54, the participation rate edged up to 83.5%. For individuals 55 and over, the rate eased to nearly a 20-year low of 38.0% in June.

The employment/population ratio for all workers held steady at 59.7% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Job growth improves with strength in state & local gov’t hiring.
- Earnings gain decelerates.
- Jobless rate falls to four-month low.

U.S. Employment Growth Firms in June, While Earnings Growth & Jobless Rate Decline

Sandy Batten

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The U.S. trade deficit in goods and services (BOP basis) widened to $71.5 billion in May from a downwardly revised $60.3 billion in April (previously -$61.6 billion), according to the U.S. Census Bureau. The actual widening met the Action Economics Forecast Survey expectation. Exports fell 4.0% m/m (+5.3% y/y), the first monthly decline in five months, led by a 5.7% m/m decline in goods exports. Imports edged down 0.1% m/m (+3.3% y/y) in May after a 16.3% m/m plunge in April. Imports of goods have cooled markedly in the past two months after surging during Q1 as importers attempted to front run expected increases in tariffs.

The real (inflation adjusted) goods trade deficit widened to $92.5 billion (2017$) in May from $84.4 billion in April. The real trade deficit had widened to record levels during the first quarter with net exports subtracting 4.6%-points from Q1 GDP. The April/May figures put the real balance on course to narrow by roughly $150 billion in Q2 (at a quarterly rate), which would mean that net exports in the national accounts could add 2-1/2 to 3%-points to Q2 GDP.

The trade deficit in goods widened to $97.5 billion in May from $86.3 billion in April. Goods exports fell 5.7% m/m, the first monthly decline in five months. Exports of nonmonetary gold fell $5.5 billion (-56.4% m/m) while exports of finished metal shapes (which includes other forms of nonmonetary gold) fell $1.0 billion (-10.0% m/m). Both of these had surged in April, reflecting re-exports of previous nonmonetary gold imports that had risen markedly in Q1 in an attempt to front run expected tariff increases. More generally, exports of industrial supplies and materials slumped 13.3% m/m in May after a 16.1% m/m jump in April. Capital goods ex autos declined 3.1% m/m, and food exports fell 2.5% m/m, the fifth monthly decline in the past six months. In contrast, auto exports rebounded, rising 3.6% m/m, but failed to come close to reversing the 21.5% plunge in April. Exports of nonfood consumer goods ex autos posted a solid 6.9% monthly gain after having declined in each of the preceding two months.

Imports of goods edged down 0.1% m/m (+2.8% y/y) in May on top of a 19.9% monthly plunge in April, indicating that the surge in imports in Q1 ahead of expected tariff hikes has run its course. Auto imports jumped 10.3% m/m after a 19.9% monthly decline in April. Imports of “other” goods rebounded 8.4% m/m in May following a 3.3% m/m decline in April. In contrast, imports of industrial supplies and materials fell 1.8% m/m, the fourth consecutive monthly decline. Imports of nonfood consumer goods ex autos fell 5.7% m/m on top of a 32.0% drop in April. Food imports posted a small monthly decline while imports of capital goods ex autos posted a small increase.

The services trade surplus narrowed marginally to $25.99 billion in May from $26.05 billion in April. Exports of services slid 0.2% m/m after a 2.2% monthly increase in April. Exports of transport services fell 2.0% m/m, the third monthly decline in the past four months. Travel exports declined 1.8% m/m, the fourth monthly decline in the past five months. In contrast, maintenance services exports rose 2.1% m/m; exports of insurance services increased 1.5% m/m; exports of intellectual property rose 0.9% m/m; and construction service exports gained 1.4% m/m. Services imports declined 0.2% m/m in May, the first monthly decline in three months. Imported transport services fell 3.3% m/m, the fourth monthly decline in the past five months. Travel imports declined 1.0% m/m, also the fourth monthly decline in the past five months. In contrast, imported construction services jumped 3.9% m/m and imported intellectual property rose 1.6% m/m.

The U.S. goods trade deficit with China narrowed markedly to a seasonally adjusted $14.0 billion from $19.7 billion in April and $24.2 billion March. This is the smallest monthly deficit with China in the history of the series, which dates back to 2009. Exports to China plunged 19.9% m/m while imports from China plummeted 26.3% m/m. The trade deficit with the European Union widened to $22.5 billion from $17.9 billion in April. The trade deficit with Japan narrowed marginally to $5.77 billion in May from $5.81 billion in April.

The international trade data, including relevant data on oil prices, can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Trade deficit widened in May on decline in goods exports.
- Still, the real deficit in April/May points to net exports making a meaningful positive contribution to Q2 GDP.
- Both exports and imports declined in May.
- Series low trade deficit with China.

U.S. Trade Deficit Widened in May

Economy in Brief: November 2016

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