Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706a.jpg" width="353">
Total mortgage applications surged 9.6% in the opening week of July, according to the Mortgage Bankers Association, and began the month 6.4% above the June average which rose 9.9% versus May.
Purchase applications jumped 9.1% w/w and began the month 6.0% above June which rose 1.3% from May. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance recovered 10.2% w/w following two weeks of decline and opened the month 6.9% ahead of June.
The effective interest rate on a conventional 30-year mortgage rose to 5.81% following several weeks of decline from the peak of 6.34% in late March. The effective rate on a 15-year mortgage also rose to 5.47% after falling from the peak of 5.96%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">07/01/05</th>
<th scope="col">06/24/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>853.4</td>
<td>778.4</td>
<td>24.2%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>520.8</td>
<td>477.4</td>
<td>4.0%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,788.2</td>
<td>2,529.2</td>
<td>57.6%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
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Total mortgage applications surged 9.6% in the opening week of July, according to the Mortgage Bankers Association, and began the month 6.4% above the June average which rose 9.9% versus May. Purchase applications jumped 9.1% w/w and [...]

Mortgage Applications Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706b.jpg" width="353">
Chain store sales rose 0.5% during the opening week of July following a like-sized drop the prior week, according to the International Council of Shopping Centers (ICSC)-UBS survey. Sales began the month 0.2% above the June average which fell 0.4% versus May.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC ticked 0.1% higher w/w (+2.2% y/y) following a 0.2% decline the week prior.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">07/02/05</th>
<th scope="col">06/25/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>455.2</td>
<td>453.0</td>
<td>3.8%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
</body>
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Chain store sales rose 0.5% during the opening week of July following a like-sized drop the prior week, according to the International Council of Shopping Centers (ICSC)-UBS survey. Sales began the month 0.2% above the June average [...]

Chain Store Sales: July Began Firmer

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Job cut announcements jumped by more than one third in June and added to a sharp gain in May raising the level to the highest since January 2004. The three month average of job cut announcements also rose but just moderately.
During the last ten years there has been an 84% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements in the automotive industry increased roughly ten-fold m/m. Outside of autos job cut announcement fell m/m (+6.6% y/y). In June job cuts did rise sharply in the retail and pharmaceutical industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans improved sharply to the highest level since February. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706d.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>110,996</td>
<td>82,283</td>
<td>72.5%</td>
<td>1,039,175</td>
<td>1,236,426</td>
<td>1,431,052</td>
</tr>
</tbody>
</table>
</body>
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Job cut announcements jumped by more than one third in June and added to a sharp gain in May raising the level to the highest since January 2004. The three month average of job cut announcements also rose but just moderately. During [...]

Challenger Layoffs Jumped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706e.jpg" width="353">
The Business Activity Index for the non-manufacturing sector recovered in June all of the prior month&#39;s decline and rose to 62.2, reported the Institute for Supply Management. Consensus expectations had been for stability at 58.2.
Since the series&#39; inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
A higher employment index led the improvement last month. The rise to 57.4 was to the highest level since February. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
The index of new orders dipped slightly to 59.5 but pricing power recovered a bit.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>62.2</td>
<td>58.5</td>
<td>61.1</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>59.8</td>
<td>57.9</td>
<td>72.9</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>


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The Business Activity Index for the non-manufacturing sector recovered in June all of the prior month's decline and rose to 62.2, reported the Institute for Supply Management. Consensus expectations had been for stability at 58.2. [...]

ISM Non-Manufacturing Index Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706e.jpg" width="353">
The Business Activity Index for the non-manufacturing sector recovered in June all of the prior month&#39;s decline and rose to 62.2, reported the Institute for Supply Management. Consensus expectations had been for stability at 58.2.
Since the series&#39; inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
A higher employment index led the improvement last month. The rise to 57.4 was to the highest level since February. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
The index of new orders dipped slightly to 59.5 but pricing power recovered a bit.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>62.2</td>
<td>58.5</td>
<td>61.1</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>59.8</td>
<td>57.9</td>
<td>72.9</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>
Challenger Layoffs Jumped 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 6, 2005


Job cut announcements jumped by more than one third in June and added to a sharp gain in May raising the level to the highest since January 2004. The three month average of job cut announcements also rose but just moderately.
During the last ten years there has been an 84% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements in the automotive industry increased roughly ten-fold m/m. Outside of autos job cut announcement fell m/m (+6.6% y/y). In June job cuts did rise sharply in the retail and pharmaceutical industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans improved sharply to the highest level since February. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706d.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>110,996</td>
<td>82,283</td>
<td>72.5%</td>
<td>1,039,175</td>
<td>1,236,426</td>
<td>1,431,052</td>
</tr>
</tbody>
</table>
Chain Store Sales: July Began Firmer 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 6, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706b.jpg" width="353">
Chain store sales rose 0.5% during the opening week of July following a like-sized drop the prior week, according to the International Council of Shopping Centers (ICSC)-UBS survey. Sales began the month 0.2% above the June average which fell 0.4% versus May.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC ticked 0.1% higher w/w (+2.2% y/y) following a 0.2% decline the week prior.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">07/02/05</th>
<th scope="col">06/25/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>455.2</td>
<td>453.0</td>
<td>3.8%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
Mortgage Applications Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 6, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706a.jpg" width="353">
Total mortgage applications surged 9.6% in the opening week of July, according to the Mortgage Bankers Association, and began the month 6.4% above the June average which rose 9.9% versus May.
Purchase applications jumped 9.1% w/w and began the month 6.0% above June which rose 1.3% from May. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance recovered 10.2% w/w following two weeks of decline and opened the month 6.9% ahead of June.
The effective interest rate on a conventional 30-year mortgage rose to 5.81% following several weeks of decline from the peak of 6.34% in late March. The effective rate on a 15-year mortgage also rose to 5.47% after falling from the peak of 5.96%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">07/01/05</th>
<th scope="col">06/24/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>853.4</td>
<td>778.4</td>
<td>24.2%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>520.8</td>
<td>477.4</td>
<td>4.0%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,788.2</td>
<td>2,529.2</td>
<td>57.6%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
UK Corporations Achieve High Profitability in Q1, Led by Oil Companies and Service Industries 
by <a href="/comment/Stone.html">Carol Stone</a> July 6, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706f.jpg" width="353">
Net rates of return for UK corporations have run strong in the last several quarters. The first quarter&#39;s outcome, 13.3%, was the third highest in the 16-year history of these quarterly data. These figures on corporate profitability were reported yesterday, July 5, by the UK Office of National Statistics and have just recently been added to Haver&#39;s UK database. The information, called &quot;Profitability of UK Companies&quot;, is listed in both the Financial Data and National Accounts menus.
The rates of return are defined as the ratio of the net operating surplus to net capital employed. [The values in &quot;gross&quot; terms, i.e., before the deduction of capital consumption, are also published, but the &quot;net&quot; data get far more attention.] The factors in the ratio, net operating surplus and net capital employed, are published annually; rates of return are available quarterly for all private non-financial corporations and three categories: &quot;Continental Shelf&quot; companies, manufacturing firms and service sector companies. &quot;Continental Shelf&quot; refers to the UK petroleum industry.
In the first quarter, the 13.3% overall return represented a pick-up from the fourth quarter&#39;s 13.1% and was equal to the 2004 average of 13.3%. As might be expected, the Continental Shelf firms saw a boost in their return, to 29.6%, up from the prior quarter; the last five years have averaged 30.8%, the highest ever, with a range among individual quarters of 25.6%, right after 9/11, to 38.1% at the end of 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706g.jpg" width="353">
Non-financial service industries experienced their strongest returns in the late 1990s. We&#39;d speculate that computer software developers, internet companies and other tech firms led this high-profit time in the UK, when returns on capital peaked at 19.5% in the second quarter of 1998. The recent period, while lower, isn&#39;t &quot;bad&quot;, with profitability still running at about 16.5% on average and this latest quarter at 17.5%.
Manufacturing returns have lagged. This has been so for a long time, throughout the history of these data back to 1970. The worst performance was during the energy &quot;crisis&quot;/stagflation recessions of the late 1970s and early 1980s, when, for instance, the net return dipped to just 1.5% in 1981. More currently, manufacturing firms saw good results from 1994 to 1999, but since then have fallen back to single-digits. The 6.0% in Q1 is among the lowest since the 1991 recession. The ONS suggests that the lower returns in manufacturing reflect their higher capital intensity, compared with service firms. This is certainly true, but perhaps their greater cyclicality and variability also restrain their overall performance. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/UK.HTM">UK</a>:&nbsp; % except as noted</th>
<th scope="col">Q1 2005</th>
<th scope="col">Q4 2004</th>
<th scope="col">Q3 2003</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Net Rate of Return: All PNFCs*</td>
<td>13.3</td>
<td>13.1</td>
<td>13.4</td>
<td>13.3</td>
<td>12.9</td>
<td>12.5</td>
</tr>
<tr>
<td class="firstcol">Net Operating Surplus (&pound; Billions)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>152.2</td>
<td>140.2</td>
<td>132.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Capital Employed (&pound; Billions)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>1146.4</td>
<td>1089.4</td>
<td>1056.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Continental Shelf Companies**</td>
<td>29.6</td>
<td>27.6</td>
<td>30.5</td>
<td>29.1</td>
<td>29.2</td>
<td>30.4</td>
</tr>
<tr>
<td class="firstcol">Manufacturing </td>
<td>6.0</td>
<td>7.7</td>
<td>5.8</td>
<td>6.9</td>
<td>6.9</td>
<td>7.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Service Sector</td>
<td>17.5</td>
<td>15.9</td>
<td>16.4</td>
<td>16.5</td>
<td>16.5</td>
<td>16.1</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705f.jpg" width="353">
Retail sales provided another positive statistic for Germany in May. The volume of retail sales was up 1.2% in May on a seasonally adjusted basis from April and the value was up 1.8%. On a seasonally unadjusted basis, the volume of retail sales was 2.7% over May 2004 and the value was 3.2% over the same period.
The recently revised series for German retail sales shows a somewhat better picture over the past few years than that previously reported. For example the new data show that retail sales increased 1.2% in 2004 instead of declining 1.7% as reported earlier. For 2003 the difference was much smaller--a decline of 0.5% vs. one of 0.6% reported earlier.
The headline series excludes automobiles and gas stations and is shown seasonally adjusted and unadjusted for values and volumes. Data on automobiles and gas stations are released some weeks after the retail sales release. However, a memo item is included in the current release that shows total retail sales including estimated automobiles and gas stations on a seasonally adjusted bases in value and volume terms. The two value series are shown in the attached chart. It may seem strange that the total excluding automobiles and gas stations is at times higher than the total including these items. But these data are index numbers relative to the year 2003, not absolute levels. Except for the items just noted most of the data are not seasonally adjusted. .

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">German Retail Sales ex Automobiles and Gas Stations</th>
<th scope="col">May 05</th>
<th scope="col">Apr 05</th>
<th scope="col">May 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Value (2003=100)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Not seasonally adjusted</td>
<td>98.8</td>
<td>103.4</td>
<td>95.8</td>
<td>-4.45</td>
<td>3.13</td>
<td>101.4</td>
<td>100.0</td>
<td>100.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Seasonally adjusted</td>
<td>102.2</td>
<td>100.4</td>
<td>98.1</td>
<td>1.79</td>
<td>4.18</td>
<td>100.7</td>
<td>100.1</td>
<td>100.5</td>
</tr>
<tr>
<td class="firstcol">SA Value incl autos &amp; gas stations</td>
<td>102.2</td>
<td>100.8</td>
<td>98.9</td>
<td>1.39</td>
<td>3.34</td>
<td>101.0</td>
<td>100.2</td>
<td>99.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Volume 2000 Prices (2003=100)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Not seasonally adjusted</td>
<td>98.0</td>
<td>102.7</td>
<td>95.4</td>
<td>94.58</td>
<td>2.73</td>
<td>101.2</td>
<td>100.0</td>
<td>100.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Seasonally adjusted</td>
<td>101.3</td>
<td>100.1</td>
<td>98.0</td>
<td>1.20</td>
<td>3.37</td>
<td>100.7</td>
<td>100.1</td>
<td>100.5</td>
</tr>
<tr>
<td class="firstcol">SA Value incl autos &amp; gas stations</td>
<td>100.9</td>
<td>100.0</td>
<td>98.3</td>
<td>0.90</td>
<td>2.64</td>
<td>100.6</td>
<td>100.2</td>
<td>100.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

Retail sales provided another positive statistic for Germany in May. The volume of retail sales was up 1.2% in May on a seasonally adjusted basis from April and the value was up 1.8%. On a seasonally unadjusted basis, the volume of [...]

Revised German Retail Sales Data

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705d.jpg" width="353">
Factory inventories were unchanged in May following a downwardly revised slight decline in April. Three month growth in inventories fell to 2.7% (AR) from the peak rate of growth near 12% in March and that slowdown explains much of the slowdown in factory output growth.
Slower rates of inventory accumulation continue notable in the furniture industry where three month growth fell to 2.3% from versus the high of 28.4% and in the electrical equipment industry where growth in inventories fell to 6.0% with outright decumulation in May. The level of computer inventories has been declining this year with three month growth at -4.6% versus a peak of 13% last summer.
Factory shipments were roughly unchanged in May but three month growth improved to 9.2% due to rebounds in computers and heavy duty trucks.
Orders to the factory sector jumped 2.9% due to the unrevised 5.5% surge in durable goods orders.
Unfilled orders jumped 1.9% due to the 10.6% spike in unfilled orders for aircraft &amp; parts. Less transportation altogether backlogs fell 0.1% (+7.6% y/y). The ratio of unfilled orders to shipments outside of transportation has moved sideways since early last year. 
Trends in Hours, Balanced Growth and the Role of Technology in the Business Cycle from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf">here</a>.<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </a><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705c.jpg" width="353"> <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705e.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.0%</td>
<td>-0.0%</td>
<td>7.7%</td>
<td>7.5%</td>
<td>-1.3%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.9%</td>
<td>0.7%</td>
<td>9.3%</td>
<td>10.9%</td>
<td>3.7%</td>
<td>-1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.0%</td>
<td>0.7%</td>
<td>7.2%</td>
<td>10.5%</td>
<td>2.6%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>7.5%</td>
<td>9.1%</td>
<td>4.2%</td>
<td>-6.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

Factory inventories were unchanged in May following a downwardly revised slight decline in April. Three month growth in inventories fell to 2.7% (AR) from the peak rate of growth near 12% in March and that slowdown explains much of [...]

U.S. Factory Inventories Unchanged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705a.jpg" width="353">
US sales of light vehicles in June recovered all of recent months&#39; weakness and rose to the highest level in nearly four years, according to the Autodata Corporation. At 17.53M, sales rose 5.2% from May and rose 13.8% versus a depressed level one year ago.
Sales of light trucks surged 11.9% m/m to the highest level since 2001. The gain lifted the average level of truck sales so far this year 1.6% versus the first six months of 2004. Sales of US made trucks were notably strong, rising 13.2% m/m and 25.1% y/y. Domestics account for 88% of total light truck sales in the US.
Despite the drag on truck sales from higher gasoline prices, Bureau of Labor Statistics&#39; data indicates that truck prices firmed this year through May versus deflation from 2002 to 2004. Gasoline prices rose to an average $2.22 per gallon (15.3% y/y) during the latest week. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705b.jpg" width="353"> 
Car sales fell for the second consecutive month in June and for the fourth month this year. The 2.9% m/m decline left the average level of car sales 1.6% above last year.
Imports&#39; share of the US market for new vehicles fell sharply to 19.6% in June versus 20.2 during the first five months of 2005.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>17.53</td>
<td>16.67</td>
<td>13.8%</td>
<td>16.88</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.31</td>
<td>7.53</td>
<td>3.9%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>10.22</td>
<td>9.14</td>
<td>22.1%</td>
<td>9.39</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
</body>
</html>

US sales of light vehicles in June recovered all of recent months' weakness and rose to the highest level in nearly four years, according to the Autodata Corporation. At 17.53M, sales rose 5.2% from May and rose 13.8% versus a [...]

U.S. Vehicle Sales Led Higher By Truck Rebound

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

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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The U.S. trade deficit in goods and services (BOP basis) in March grew to $140.5 billion after narrowing slightly to $123.2 billion in February, revised from $122.7 billion, after widening to $130.7 billion in January according to the U.S. Census Bureau. A $136.7 billion deficit was expected by the Action Economics Forecast Survey. Exports rose 0.2% (6.7% y/y) in March after increasing 2.8% in February. This was accompanied by a 4.4% rise (27.1% y/y) rise in imports which came after m/m stability in February. In Q1’25, the deficit grew to an average $131.4 billion, after rising to an average $83.3 billion in Q4’24.

The trade deficit in goods (BOP basis) widened to a record $163.2 billion in March from $147.9	 billion in February, revised from $147.0 billion. Goods exports (customs value) rose 1.4% (7.0% y/y) in March, after increasing 3.6% in February. The latest increase reflected an 8.2% (8.4% y/y) surge in auto exports which came after a 12.7% strengthening. A 3.5% (4.0% y/y) gain occurred in industrial supplies & materials exports which followed a 5.1% rise. Foods, feeds & beverage exports rose 6.6% (1.4% y/y) after declining in four of the prior five month. Working lower, capital goods exports fell 2.5% (+13.9% y/y) in March after a 4.	8% increase and nonauto consumer goods exports were off 1.1% (+3.4% y/y) in March after a 2.4% gain.

Imports of goods increased 5.5% (31.4% y/y) in March after a 0.2% February easing. Imports of nonauto consumer goods imports surged 27.9% (56.0% y/y) following a 3.1% February gain. Auto imports rose 6.6% (8.7% y/y) after a 1.2% rise. Capital goods imports rose 4.2% (22.5% y/y) following a 1.1% rise. Foods, feeds & beverage imports eased 0.4% (+11.1% y/y) following a 2.0% weakening. Industrial supplies & materials imports declined 12.4% (+39.5% y/y) after weakening 4.6% in February. Petroleum imports by end-use fell 4.1% (-10.2% y/y) after a 2.9% decline. Nonpetroleum imports increased 6.0% (34.8% y/y) after holding steady in February.

The inflation-adjusted goods trade deficit (customs value) deepened to $150.9 billion in March from $136.9 billion in February. Real exports rose 1.6% (5.3% y/y) after a 3.0% February increase, while real imports rose 5.8% (29.8% y/y) in March following a 0.5% February slip.

The services trade surplus narrowed to $23.0 billion in March after decreasing to $23.8 billion in February. It reached a peak of $25.7 billion in November of last year. Service exports fell 0.9% (+5.7% y/y) after a 0.8% decline in February. Construction services exports rose 1.0% (37.7% y/y) after increasing 2.6% in February. Travel services exports fell 7.1% (-3.7% y/y) and financial exports increased 0.9% (7.3% y/y). Transport exports rose 3.1% (2.4% y/y). Service imports eased 0.1% (+10.8% y/y) in March following a 0.8% gain. Maintenance & repair services declined 1.5% (+32.1% y/y) while imported transport services increased 1.2% (1.7% y/y). Imported travel services fell 2.2% (5.3% y/y) while charges for use of intellectual property rose 1.0% (13.6 y/y).

The U.S. goods trade deficit with China narrowed to a seasonally adjusted $24.8 billion in March from $26.6 billion in February. Exports to China declined 8.2% (-10.5% y/y) while imports weakened 7.2% (-2.7% y/y). The deficit with the European Union deepened to a record $48.3 billion in March from $30.9 billion in February. Exports rose 10.9% (14.5% y/y) while imports soared 34.0% (65.4% y/y). The deficit with Japan deepened to $5.8 billion from $5.2 billion in February. Exports rose 1.8% (8.8% y/y) and imports rose 6.4% (9.9% y/y).

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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- Goods deficit grows as imports surge ahead of tariff imposition.
- Exports edge higher, led by autos.
- Petroleum product imports fall as crude oil prices decline.

U.S. Trade Deficit Deepens to Record in March

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Retail gasoline prices for all grades improved to an average $3.27 per gallon (-13.1% y/y) in the week ended May 5 and reversed the prior week’s easing to $3.26. Prices were $3.37 per gallon to begin the month but remained above their low of $3.13 in the week of December 9. An earlier high was $3.79 in the week ending April 22, 2024. The all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel eaed to $3.50 per gallon (-10.2% y/y) in the week of May 5 from $3.51 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil declined to $59.64 per barrel (-26.4% y/y) in the week ended May 2, after rising to $63.09 per barrel in the prior week. Prices remained below a high of $91.45 in the week of September 29, 2023. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $57.13 per barrel. The price of European Brent crude oil declined to $63.50 per barrel (-25.9% y/y) in the week of May 2 from $67.92 in the previous week. Prices remained well below a recent high of $95.61 in the week of September 29, 2023 and compared to a peak of $127.40 in the week of June 10, 2022.

Natural gas prices improved to an average $3.09 per mmbtu (+88.4% y/y) in the week ended May 2, after falling to $3.00/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday’s price was $3.26/mmbtu.

Gasoline demand rose 3.2% y/y in the four weeks ending April 25 following a 0.4% y/y decline in the prior four weeks. Demand for all petroleum products improved 0.3% y/y in the four weeks ending April 25 after a 0.4% y/y rise in the previous four-week period. Crude oil input to refineries eased 0.1% y/y in the four weeks ending April 25 after a 1.3% y/y decline in the prior four weeks.

Gasoline inventories slipped 0.7% y/y in the week ending April 25 after a 1.2% y/y rise in the week ending April 18. Residual fuel oil inventories fell 18.7% y/y in the week of April 25, after a 19.0% y/y fall in the prior week. Crude oil inventories rose 1.4% y/y in the week of April 25 after a 2.6% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories fell w/w to 25.5 days in the week of April 25 from 26.4 days in the prior. The recent low was 22.9 days in the week of November 8. The supply of crude oil eased w/w to 27.9 days in the week of April 25 after three weeks at 28.3 days, and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices edge higher.
- Crude oil prices decline.
- Natural gas costs rise.

U.S. Energy Prices Remain Mixed in Latest Week

Robert Brusca

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Not many respondents are showing absolute slowing. Only five this month. Only six over the last three months on average. The median total PMI score fell to 49.7 showing contraction in April from 51.1 in March. The average fared slightly better. The 12-months to 6-months to 3-months show a moderate but consistent slowing. The breadth of slowing is wide with 60.9% of survey respondents slowing over three months compared to six months.

The percentile standings show the most strength for the BRIC group with reading above 50% (that marks the median). All other groupings have standings below the 50% mark indicating that they are below their respective medians of the last four-plus years.

Over every horizon from 12-months to 6-months to 3-months, more than 50% of the respondents show a weakening (slowing) in their PMI responses.

Among the largest economies, only Italy has a composite PMI standing above its median (above 50%).

Only 9 of 24 respondents have PMI ranked percentile standings above the 50% mark. That underlines the weakness in composite conditions and the breadth of the weakness.
 
Services sectors no longer are providing the lift to offset ongoing weakness in manufacturing. The differences among countries are narrowing.

Economic conditions across countries may be narrowing for several reasons, one being that the COVID period and then the shock reaction to Russia's invasion from Ukraine put all countries on the same timeline as central banks have been leaning against the shockwaves from those 2 events. As a result of those events, inflation flared but has more recently been falling. Still, inflation continues to be over the top of targets with the European Monetary Union right now making the most progress and Japan facing more late cycle weakness with excessive inflation than other countries in the mix. More recently aggressive tariff policy the United States has put all countries on their back foot and puts everyone on notice that the future has become a lot more uncertain. Central banks that were progressing toward rate cuts now are worried about the possibility of more inflation from tariffs or from the possibility of recession from tariffs - tariffs up the ante on uncertainty as well as on risk. What we see in this month's PMI statistics is a gradual continued erosion as the perceived risk here is that things get steadily but slowly worse as firms, investors, and consumers began to pull in their horns and prepare for something bad to happen not knowing what that might be.

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Global Composite PMIs Erode

Tian Yong Woon

This week, we focus on trade developments between the US and major Asian economies. Early indications coming out of US-India trade talks seem encouraging, with terms such as “forward most-favoured-nation” for the US and “zero-for-zero” tariffs appearing in news reports — terms which, if enacted, would represent a significant win for the US. India stands to benefit greatly as well if key exports to the US, such as pharmaceuticals (chart 1), receive substantial tariff relief. The benefits could be strongly mutual if a deal also grants the US greater access to India’s large auto consumer market, particularly for major US electric vehicle (EV) producers, given that EV adoption in India remains at a very early stage (chart 2).

Turning to South Korea, discussions also appear to be progressing at a healthy pace, although details remain limited and ongoing domestic political challenges continue to hinder substantive breakthroughs. Nonetheless, the South Korean won has shown signs of stabilisation, while local equity markets have remained buoyant (chart 3). Recent trade data for April has also provided some investor relief, as weak exports to the US were more than offset by a strong performance in semiconductor shipments (chart 4).

In Japan, the race to secure a trade deal with the US is well underway, with automotive exports expected to be a key focal point given their significance to Japan’s economy and the US being a major export destination (chart 5). China, however, remains a notable outlier, with formal trade talks with the US not yet underway. Still, the US-China trade relationship continues to be the most closely watched, given its scale and potential impact on global growth and trade dynamics. While markets await China’s official April trade data, early indicators such as port activity already suggest a decline in bilateral trade flows (chart 6).

**US-India trade talks**
US-India trade discussions have reportedly been progressing rapidly, with both sides having already finalized in April the terms of reference for talks, setting the stage for formal negotiations. One early sign of favourable momentum is India’s possible offering of a “forward most-favoured-nation” clause to the US. This would ensure the US always receives the most favourable tariff terms, ahead of any other trade partner. If enacted, this would be a significant win for the US and a major leap forward in the US-India trade relationship. Another reported breakthrough involves India’s reported proposal of “zero-for-zero” tariffs on steel, auto components, and pharmaceuticals—offered on a reciprocal basis up to a certain quantity. If agreed, this would be mutually beneficial, especially as pharmaceuticals remain one of the US economy’s key imports from India, as shown in chart 1. On a separate note, and more recently, India’s phone exports to the US have reportedly gained prominence. With steep US tariffs on China, firms like Apple are increasingly incentivised to accelerate production shifts to India.

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Additionally, India’s proposed “zero-for-zero” tariff plan for auto parts may galvanise US access to India’s large domestic auto market, which has remained comparatively insulated due to high import tariffs. Another area to watch in the trade talks is electric vehicle (EV) imports, especially given US EV giant Tesla’s continued interest in expanding into the Indian market. That said, EV adoption in India remains in its early stages by many measures. While India has an immense middle class with future sales potential, EVs accounted for only about 2% of new cars sold in 2023, as shown in chart 2. This is well below levels seen in other Asian economies like China, or leaders in this space like Norway, where nearly all new cars sold are EVs. Challenges remain in unlocking the domestic Indian market—particularly around affordability and the underdeveloped state of EV infrastructure.

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**US-South Korea trade talks**
Discussions on the US-South Korea trade front also appear to be progressing at a steady pace, with technical talks reportedly having concluded in Washington last week. However, details remain limited, and full-scale negotiations have not yet begun. Complicating matters is South Korea’s domestic political landscape. With the country heading into a snap presidential election on June 3, Vice Industry Minister Park has said there is no chance of a comprehensive deal being reached before then. Still, both sides have committed to working toward an agreement before the expiration of Trump’s 90-day reciprocal tariff pause on July 8. In financial markets, the won continues to swing but remains above its year-to-date lows (chart 3). Meanwhile, South Korean equities have been lifted by a softening in trade rhetoric from both the US and China, as well as optimism around the US-South Korea talks.

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Turning to the hard trade data, South Korea’s more complete April numbers offered some initial relief to investors. The economy still managed to post moderate export growth, surprising many, despite a nearly 7% y/y decline in exports to the US, as shown in chart 4. One of the key drivers was semiconductors, which recorded double-digit y/y growth for the second consecutive month. However, these figures likely do not yet reflect the full initial impact of the steep mutual tariffs between the US and China. Firmer indications may emerge in the coming months. By then, though, attention will likely have shifted toward the outcome of US trade talks with key partners, as the end of its 90-day reciprocal tariff pause draws near.

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**US-Japan trade talks**
Turning to Japan, there is a sense of cautious optimism, with Japan’s chief trade negotiator Akazawa expressing hope for a US-Japan trade deal by June, following the second and most recent round of talks held in Washington last week. A key point of interest is whether Japan can negotiate an exemption from the current 25% automotive tariffs imposed by the US. This is especially significant given the importance of the US as a destination for Japanese auto exports, as shown in chart 5, and the central role the sector plays in Japan’s broader manufacturing economy. Also worth noting is a recent clarification by Japan’s Finance Minister Kato, who walked back earlier remarks and stated that Japan will not use the sale of US Treasuries as a bargaining tool. The clarification may help defuse a potential point of friction between the two sides as trade discussions continue.

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**US-China trade developments**
Turning to US-China trade developments — while progress here has lagged, this relationship remains the most closely watched, given its potentially large impact if meaningful movement occurs. Recent messaging from both sides has softened, stepping back from the fiery exchanges and tariff escalations seen earlier in April, offering some interim relief for investors. China has reportedly exempted certain US imports from tariffs, including specific pharmaceutical and industrial chemical products. However, on US-China trade talks, they remain at a very early stage, with China merely “evaluating” the prospect of negotiations with the US. This suggests we are still far from anything resembling a formal deal. Investors are now closely watching for first-round effects of US tariffs, which are expected to appear in China’s April trade numbers due later this week. Early signs point to a slowdown. For example, vessel traffic at the Los Angeles–Long Beach port remains at range lows, hinting at reduced shipments from China.

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Asia

Economic Letter from Asia: Art of the Deal

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The U.S. ISM Services PMI rose to 51.6 during April, after falling sharply to 50.8 in March from 53.5 in February, according to today’s report by the Institute for Supply Management. The reading indicated service sector expansion for the tenth consecutive month, although the rate of expansion has slowed significantly. The index hit a recent high of 55.8 in October of last year and remains below the all-time high of 67.5 in November 2021. The Action Economics Forecast Survey expected 50.2 for April.

Haver Analytics constructs a composite index combining the services index and the manufacturing index released on Thursday. This index rose to 51.2 in Apri from 50.6 in March. The latest figure remains above its June low of 49.1.

Amongst the services component series, the employment index led last month’s improvement in the overall index. It rose to 49.0 after falling sharply to 46.2 in March. Higher employment was reported by a slightly improved 14.6% (NSA) of respondents while a lessened 16.4% reported a decline. The new orders index rose to 52.3 after falling to 50.4 in March. A higher 22.4% (NSA) of respondents reported a rise in orders while a lessened 15.3% reported a decline. Reporting slower delivery speeds, the supplier delivery series edged up to 51.3 in April after falling to 50.6 in March. Working lower, the business activity series declined to 53.7 after rising to 55.9 in March. A higher 26.2% (NSA) of respondents reported improved activity while a lessened 14.0% reported deterioration.

On the inflation front, the prices index surged to 68.9 in April after easing to 62.8 in March. A greatly increased 39.6% (NSA) of respondents reported higher prices while a lessened 1.9% reported lower prices. The index was increased from its December 2022 low 53.1 and stood at its highest level since October 2022.

Additionally, the new export orders index increased to 48.6 (NSA) in April following a decline to 45.8 in March from 52.1 in February. Just 14.8% of survey respondents reported higher exports while an increased 17.7% reported a decline. The imports index plummeted to 44.3 last month from 52.6 in March. A greatly lessened 4.7% of respondents reported higher imports while a doubled 16.2% reported a decline. The inventory change index jumped to 53.4, a six-month high. The order backlog index edged up to 48.0 in April after falling sharply to 47.4 in March. A lessened 12.2% of respondents reported higher backlogs while a fewer 16.2% reported a decline. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while below 50 suggests	 contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Total index remains near nine-month low.
- Employment, new orders & supplier deliveries edge up. Business activity weakens. 
- Prices Index strengthens to roughly two-year high.

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