Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070703b.jpg" width="353">
Factory inventories rose 0.4% during May after the moderate 0.4% gain in April. The gains left the y/y growth at 4.3%. Slower than the 6.4% rate of accumulation during all of 2006.
Much of the slowdown has occurred in inventories of computers &amp; electronic products slowed to 4.3% y/y from a 10.4% rise in 2006. The y/y gain in electrical equipment inventories at 13.3% also is half the 25.2% rise last year.
Slower inventory growth follows the weakness in factory shipments which are down 0.4% y/y. Less the transportation sector shipments also are down 0.1% y/y.
Total factory orders do not paint a hold much promise for a robust recovery in shipments as they reversed in May all of a 0.5% gain during April.
Unfilled orders nevertheless remained strong posting y/y growth of 20.1%, about the same as last year&#146;s strong rise. 

<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">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.3%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>6.4%</td>
<td>8.9%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>-0.5%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>5.1%</td>
<td>11.6%</td>
<td>6.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.0%</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>4.3%</td>
<td>10.3%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.9%</td>
<td>1.9%</td>
<td>20.1%</td>
<td>20.0%</td>
<td>15.0%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
</body>
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Factory inventories rose 0.4% during May after the moderate 0.4% gain in April. The gains left the y/y growth at 4.3%. Slower than the 6.4% rate of accumulation during all of 2006. Much of the slowdown has occurred in inventories of [...]

U.S. Factory Inventory Gain Slowed With Negative Shipment Growth

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070703a.jpg" width="353">
The ECB, like the Fed, prefers to talk in terms of a price measure broader than the PPI. The PPI is just domestically produced goods and therefore omit import prices and services prices - services are a big missing piece in any economy. But since it is goods inflation that has been lowest and services inflation that has been more stubborn we do learn something by looking at goods prices alone. 
The table below shows PPI on several different horizons. While the headline PPI is lower in March compared to April, the 3-month pace has not decelerated from the 6- month pace and ex-energy PPI has picked up and is accelerating compared to its Yr/Yr pace as well. 
Producer prices just seem to have all sorts of stubbornness to them when it comes to looking for trends with a pace that is clearly falling. 
The bottom half of the table provides country level data and the Yr/Yr patterns for those appear in the chart on the left. 
The ex-energy PPIs across key EU states show some disturbing patterns. Since end 2001 there have been three cycles of bulging PPI prices on this measure. Each time inflation went up, it made a new higher peak and each time it came down it made a new higher trough. This is creeping inflation pressure. 
This is the sort of pattern in prices that makes central bankers lose sleep. 
Is the new pattern turning lower? Well, yes but at a very stubborn rate and if you look at the pattern it looks more flat than round at the peak in recent months and is thereby begging the question of how much inflation will fall off. Clearly inflation is not falling in the post peak period as easily as it did in other episodes when it ultimately did not fall far enough. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Ezone and UK PPI Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">Ezone-13</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">Total excl Construction</td>
<td>0.3%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>3.3%</td>
<td>2.3%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.8%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>1.7%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Intermediate &amp; Capital Goods</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.8%</td>
<td>4.5%</td>
<td>4.1%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>0.5%</td>
<td>0.3%</td>
<td>6.3%</td>
<td>2.4%</td>
<td>-0.5%</td>
<td>18.6%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.4%</td>
<td>0.7%</td>
<td>6.7%</td>
<td>4.6%</td>
<td>2.5%</td>
<td>4.2%</td>
</tr>
<tr class="even">
<td class="firstcol">Germany</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.7%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.2%</td>
<td>0.5%</td>
<td>3.3%</td>
<td>2.8%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr class="even">
<td class="firstcol">France</td>
<td>0.0%</td>
<td>0.4%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.4%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>2.4%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.5%</td>
<td>5.5%</td>
<td>3.9%</td>
<td>3.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.3%</td>
<td>0.4%</td>
<td>4.2%</td>
<td>4.3%</td>
<td>3.7%</td>
<td>2.9%</td>
</tr>
<tr class="even">
<td class="firstcol">UK</td>
<td>-0.3%</td>
<td>-2.0%</td>
<td>-8.5%</td>
<td>-6.9%</td>
<td>-0.2%</td>
<td>11.3%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>3.3%</td>
<td>2.6%</td>
</tr>
<tr>
<td colspan="7">E-zone 13 Harmonized PPI excluding Construction</td>
</tr>
<tr>
<td colspan="7">The EA 13 countries are Austria, Belgium, Finland, France, Germany,</td>
</tr>
<tr>
<td colspan="7">Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
</body>
</html>

The ECB, like the Fed, prefers to talk in terms of a price measure broader than the PPI. The PPI is just domestically produced goods and therefore omit import prices and services prices - services are a big missing piece in any [...]

EU PPI and Core Rise by 0.3% in May. Should the ECB be Worried?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070703a.jpg" width="353">
The ECB, like the Fed, prefers to talk in terms of a price measure broader than the PPI. The PPI is just domestically produced goods and therefore omit import prices and services prices - services are a big missing piece in any economy. But since it is goods inflation that has been lowest and services inflation that has been more stubborn we do learn something by looking at goods prices alone. 
The table below shows PPI on several different horizons. While the headline PPI is lower in March compared to April, the 3-month pace has not decelerated from the 6- month pace and ex-energy PPI has picked up and is accelerating compared to its Yr/Yr pace as well. 
Producer prices just seem to have all sorts of stubbornness to them when it comes to looking for trends with a pace that is clearly falling. 
The bottom half of the table provides country level data and the Yr/Yr patterns for those appear in the chart on the left. 
The ex-energy PPIs across key EU states show some disturbing patterns. Since end 2001 there have been three cycles of bulging PPI prices on this measure. Each time inflation went up, it made a new higher peak and each time it came down it made a new higher trough. This is creeping inflation pressure. 
This is the sort of pattern in prices that makes central bankers lose sleep. 
Is the new pattern turning lower? Well, yes but at a very stubborn rate and if you look at the pattern it looks more flat than round at the peak in recent months and is thereby begging the question of how much inflation will fall off. Clearly inflation is not falling in the post peak period as easily as it did in other episodes when it ultimately did not fall far enough. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Ezone and UK PPI Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">Ezone-13</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">Total excl Construction</td>
<td>0.3%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>3.3%</td>
<td>2.3%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.8%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>1.7%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Intermediate &amp; Capital Goods</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.8%</td>
<td>4.5%</td>
<td>4.1%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>0.5%</td>
<td>0.3%</td>
<td>6.3%</td>
<td>2.4%</td>
<td>-0.5%</td>
<td>18.6%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.4%</td>
<td>0.7%</td>
<td>6.7%</td>
<td>4.6%</td>
<td>2.5%</td>
<td>4.2%</td>
</tr>
<tr class="even">
<td class="firstcol">Germany</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.7%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.2%</td>
<td>0.5%</td>
<td>3.3%</td>
<td>2.8%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr class="even">
<td class="firstcol">France</td>
<td>0.0%</td>
<td>0.4%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.4%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>2.4%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.5%</td>
<td>5.5%</td>
<td>3.9%</td>
<td>3.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.3%</td>
<td>0.4%</td>
<td>4.2%</td>
<td>4.3%</td>
<td>3.7%</td>
<td>2.9%</td>
</tr>
<tr class="even">
<td class="firstcol">UK</td>
<td>-0.3%</td>
<td>-2.0%</td>
<td>-8.5%</td>
<td>-6.9%</td>
<td>-0.2%</td>
<td>11.3%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>3.3%</td>
<td>2.6%</td>
</tr>
<tr>
<td colspan="7">E-zone 13 Harmonized PPI excluding Construction</td>
</tr>
<tr>
<td colspan="7">The EA 13 countries are Austria, Belgium, Finland, France, Germany,</td>
</tr>
<tr>
<td colspan="7">Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
U.S. Factory Inventory Gain Slowed With Negative Shipment Growth 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 3, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070703b.jpg" width="353">
Factory inventories rose 0.4% during May after the moderate 0.4% gain in April. The gains left the y/y growth at 4.3%. Slower than the 6.4% rate of accumulation during all of 2006.
Much of the slowdown has occurred in inventories of computers &amp; electronic products slowed to 4.3% y/y from a 10.4% rise in 2006. The y/y gain in electrical equipment inventories at 13.3% also is half the 25.2% rise last year.
Slower inventory growth follows the weakness in factory shipments which are down 0.4% y/y. Less the transportation sector shipments also are down 0.1% y/y.
Total factory orders do not paint a hold much promise for a robust recovery in shipments as they reversed in May all of a 0.5% gain during April.
Unfilled orders nevertheless remained strong posting y/y growth of 20.1%, about the same as last year&#146;s strong rise. 

<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">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.3%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>6.4%</td>
<td>8.9%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>-0.5%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>5.1%</td>
<td>11.6%</td>
<td>6.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.0%</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>4.3%</td>
<td>10.3%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.9%</td>
<td>1.9%</td>
<td>20.1%</td>
<td>20.0%</td>
<td>15.0%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
Chain Store Sales Fell Moderately 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 3, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070703c.jpg" width="353">
Chain store sales last week fell moderately for the second week, according to the International Council of Shopping Centers (ICSC)-UBS. That pulled sales for all of June 0.5% below the May average which fell 0.7% from April. 
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
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.
The leading indicator of chain store sales from ICSC-UBS conversely rose 0.2% (-0.5% y/y) last week after a 0.6% decline during the prior period. 
Stable Interest Rates Follow Stable Prices from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20070701/cover.pdf">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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">6/23/06</th>
<th scope="col">6/16/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>479.5</td>
<td>482.8</td>
<td>1.9%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>
Unemployment Rates in the European Union: Developed Vs. Emerging Countries 
by <a href="/comment/Curley.html">Louise Curley</a> July 3, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070703d.jpg" width="353">
The unemployment rates for both the twenty-seven countries in the Euro Union and the thirteen countries in the subdivision--the Euro Area--declined to 7.0% in May from 7.1% in April. These rates are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070703f.jpg" width="353">
The concepts of the Euro Area and the European Union are useful for institutional purposes, but, from an economic standpoint, a better breakdown of the twenty-seven countries of the EU would be between developed and emerging economies. Thus, the non Euro Area countries, Denmark, Sweden and the United Kingdom have more in common with the developed countries of the Euro Area countries and Slovenia of the Euro Area has more in common with the eleven emerging countries: Bulgaria, the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Romania, Slovakia.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070703e.jpg" width="353">
Among the developed countries unemployment rates currently vary from 3.2% in the Netherlands to 8.7% in France., both of which are Euro Area countries. Unemployment rates in Denmark, a non euro area country, have fallen within this range and have in recent years followed closely the same path at the unemployment rate in the Netherlands, as can be see in the second chart.
Among the emerging countries of the European Union, unemployment rates currently range from 4.2% in Cyprus to 10.8% in Slovakia. Unemployment rates in the emerging Slovenia, which is in the Euro Area, have tended to be near the lower limit of this range, as can be seen in the third chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UNEMPLOYMENT RATES&nbsp; (%)</th>
<th scope="col">May 07</th>
<th scope="col">Apr 07&nbsp;</th>
<th scope="col">May 06&nbsp;</th>
<th scope="col">M/M Dif&nbsp;</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
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<tr class="odd">
<td class="firstcol">European Union 27</td>
<td>7.0</td>
<td>7.1</td>
<td>8.0</td>
<td>-0.1</td>
<td>-1.0</td>
<td>7.9</td>
<td>8.6</td>
<td>8.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area 13</td>
<td>7.0</td>
<td>7.1</td>
<td>7.9</td>
<td>-0.1</td>
<td>-0.9</td>
<td>7.9</td>
<td>8.3</td>
<td>9.0</td>
</tr>
<tr>
<td colspan="9">Developed Countries</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Highest:&nbsp; France </td>
<td>8.7</td>
<td>8.8</td>
<td>9.6</td>
<td>-0.1</td>
<td>-0.9</td>
<td>9.5</td>
<td>9.7</td>
<td>9.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Lowest:&nbsp; The Netherlands</td>
<td>3.2</td>
<td>3.3</td>
<td>3.9</td>
<td>-0.1</td>
<td>-0.7</td>
<td>3.9</td>
<td>4.7</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Denmark</td>
<td>3.3</td>
<td>3.3</td>
<td>4.2</td>
<td>0.0</td>
<td>-0.9</td>
<td>3.9</td>
<td>4.8</td>
<td>5.5</td>
</tr>
<tr>
<td colspan="9">Emerging Countries</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Highest:&nbsp; Slovakia </td>
<td>10.8</td>
<td>10.8</td>
<td>13.6</td>
<td>0.0</td>
<td>-2.8</td>
<td>13.3</td>
<td>16.3</td>
<td>18.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Lowest:&nbsp; Cyprus</td>
<td>4.2</td>
<td>4.2</td>
<td>4.7.</td>
<td>0.0</td>
<td>-0.5</td>
<td>4.6</td>
<td>5.2</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Slovenia</td>
<td>5.1</td>
<td>5.2</td>
<td>6.2</td>
<td>-0.1</td>
<td>-1.1</td>
<td>6.0</td>
<td>6.5</td>
<td>6.3</td>
</tr>
</tbody>
</table>


</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702f.jpg" width="353">
The Bank of Japan&#39;s quarterly Tankan Survey, or short term business outlook, was released today. The Bank surveyed 2,469 large, 2.915 medium and 5,455 small-sized enterprises over the period from May 28 to June 29.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702e.jpg" width="353">
The headline series, a diffusion index for large manufacturing enterprises, rose from 20% in the March Survey to 22% in the current survey. The index has ranged between 20% and 22% since the second quarter of 2006 and has probably been the longest run of optimism manufactures have expressed since the late eighties. As noted in the Japan Data Base, major revisions in early 2004 have created a discontinuity in the time series data between December 2003 and March 2004. Pre revisions series are maintained in the data base and marked DISCONTINUED. Although they are not strictly comparable, we have plotted the DISCONTINUED and the current series in the first chart to place the current situation in a longer term perspective.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702g.jpg" width="353">
Caution on the part of the business men surveyed is evident in the fact that their forecasts have generally been below their appraisal of their actual results. The second chart compares the forecasts and appraisals of actual results for the large manufacturers. Optimists in medium-sized firms outweigh the pessimists by a margin of 10% in the current survey, but the margin has been rising as shown in the third chart. This chart also shows that medium-sized business owners, have also tended to forecast conditions below their appraisals of actual conditions. Small business owners are still pessimistic on balance. Although the degree of pessimism lessened significantly until mid 2006. it has since stagnated within a range of -2% to -4%%, as shown in the fourth chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702h.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN&#39;S TANKAN SURVEY&nbsp;</th>
<th scope="col">Q3 2007</th>
<th scope="col">Q2 2007&nbsp;</th>
<th scope="col">Q1 2007&nbsp;</th>
<th scope="col">Q4 2006&nbsp;</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006&nbsp;</th>
<th scope="col">Q1 2006&nbsp;</th>
<th scope="col">Q4 2005&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="9">Forecast (Diffusion Indexes %)</td>
</tr>
<tr class="odd">
<td colspan="9">&nbsp;Large firms</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing &nbsp;(HEADLINE SERIES)</td>
<td>22</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>22</td>
<td>19</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Non Manufacturing</td>
<td>23</td>
<td>23</td>
<td>20</td>
<td>21</td>
<td>21</td>
<td>19</td>
<td>17</td>
<td>16</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Medium-sized firms </td>
<td>10</td>
<td>8</td>
<td>6</td>
<td>7</td>
<td>9</td>
<td>8</td>
<td>5</td>
<td>3</td>
</tr>
<tr>
<td class="firstcol"> Small firms</td>
<td>-5</td>
<td>-4</td>
<td>-4</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-4</td>
<td>-5</td>
</tr>
<tr class="even">
<td colspan="9">Actual Results&nbsp; (Diffusion Indexes %)</td>
</tr>
<tr class="odd">
<td colspan="9">&nbsp;Large firms</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing &nbsp; (HEADLINE SERIES)</td>
<td>--</td>
<td>23</td>
<td>23</td>
<td>25</td>
<td>24</td>
<td>21</td>
<td>20</td>
<td>21</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Non Manufacturing</td>
<td>--</td>
<td>22</td>
<td>22</td>
<td>22</td>
<td>20</td>
<td>20</td>
<td>18</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Medium-sized firms </td>
<td>--</td>
<td>10</td>
<td>10</td>
<td>10</td>
<td>9</td>
<td>8</td>
<td>7</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol"> Small firms</td>
<td>--</td>
<td>5</td>
<td>7</td>
<td>8</td>
<td>9</td>
<td>10</td>
<td>10</td>
<td>10</td>
</tr>
</tbody>
</table>
</body>
</html>

The Bank of Japan's quarterly Tankan Survey, or short term business outlook, was released today. The Bank surveyed 2,469 large, 2.915 medium and 5,455 small-sized enterprises over the period from May 28 to June 29. The headline [...]

Japan's Tankan Survey: Confidence among Large Manufactures Remains Strong: Actual Results Continue Better than Forecast

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702d.jpg" width="353">
Tankan forward-looking survey shows some weakness. 
 In the Tankan Survey, size matters; Tankan index shows that the smaller the firm the less robust and &#145;lasting&#146; the recovery.
Japan&#146;s Tankan index was flat in June (Q2) and its index edged lower in its outlook for Q3. For large firms (the headline group) the Tankan was flat in Q2. But for medium sized firms responses faded to their weakest point since Q2 2006. For small firms the two-quarter slide in the index took them back to where they were in Q4 2006. The headline large company outlook index is off by one point for Q3; for the small and medium sized companies the drop-off is two points. Moreover the forecasting performance of the TANKAN is not very impressive.
The clear message from this report is that business activity in Japan has slowed and has done so across all types of business hurting small business the most. While other current indicators have been weak, Japanese officials set those reports aside, such as the drop in industrial production, and opting for looking at forecasts of gains for the months ahead.
It is not clear how strong the months&#146; ahead demand will be with weakness across sectors and reflected in consumer confidence readings as well as indicators such as the economy-watchers index.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Tankan Results Large Enterprises
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Q4-06</td>
<td>Q3-06</td>
<td>1-Y Avg</td>
<td>Since Q3&#39;03</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG</td>
<td>23.0</td>
<td>23.0</td>
<td>25.0</td>
<td>24.0</td>
<td>23.8</td>
<td>20.7</td>
</tr>
<tr class="grey4">
<td class="firstcol">Nonmanufacturing</td>
<td>22.0</td>
<td>22.0</td>
<td>22.0</td>
<td>20.0</td>
<td>21.5</td>
<td>15.6</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>22.0</td>
<td>22.0</td>
<td>22.0</td>
<td>20.0</td>
<td>21.5</td>
<td>15.6</td>
</tr>
<tr class="grey4">
<td class="firstcol">Construction</td>
<td>2.0</td>
<td>-1.0</td>
<td>3.0</td>
<td>4.0</td>
<td>2.0</td>
<td>-4.6</td>
</tr>
<tr class="grey4">
<td class="firstcol">Real Estate</td>
<td>53.0</td>
<td>53.0</td>
<td>46.0</td>
<td>45.0</td>
<td>49.3</td>
<td>31.8</td>
</tr>
<tr class="grey4">
<td class="firstcol">Wholesale</td>
<td>23.0</td>
<td>22.0</td>
<td>24.0</td>
<td>21.0</td>
<td>22.5</td>
<td>20.4</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail</td>
<td>11.0</td>
<td>13.0</td>
<td>13.0</td>
<td>15.0</td>
<td>13.0</td>
<td>7.1</td>
</tr>
<tr class="grey4">
<td class="firstcol">Transportation</td>
<td>24.0</td>
<td>22.0</td>
<td>21.0</td>
<td>15.0</td>
<td>20.5</td>
<td>13.9</td>
</tr>
<tr class="grey4">
<td class="firstcol">Services for Business</td>
<td>35.0</td>
<td>37.0</td>
<td>32.0</td>
<td>20.0</td>
<td>31.0</td>
<td>23.8</td>
</tr>
<tr class="grey4">
<td class="firstcol">Personal Services</td>
<td>10.0</td>
<td>19.0</td>
<td>10.0</td>
<td>13.0</td>
<td>13.0</td>
<td>9.7</td>
</tr>
<tr class="grey4">
<td class="firstcol">Restaurants &amp; Hotels</td>
<td>11.0</td>
<td>17.0</td>
<td>19.0</td>
<td>18.0</td>
<td>16.3</td>
<td>7.1</td>
</tr>
<tr class="grey3">
<td colspan="7">Forecast</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG - Outlook</td>
<td>20.0</td>
<td>22.0</td>
<td>21.0</td>
<td>22.0</td>
<td>21.3</td>
<td>17.9</td>
</tr>
<tr class="grey4">
<td class="firstcol">NonMFG - Outlook</td>
<td>23.0</td>
<td>20.0</td>
<td>21.0</td>
<td>21.0</td>
<td>21.3</td>
<td>14.5</td>
</tr>
<tr class="grey4">
<td class="firstcol">All Industry - Outlook</td>
<td>22.0</td>
<td>20.0</td>
<td>20.0</td>
<td>21.0</td>
<td>20.8</td>
<td>15.9</td>
</tr>
<tr class="grey2">
<td colspan="7">Tankan Results Medium Enterprises</td>
</tr>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Q4-06</td>
<td>Q3-06</td>
<td>1-Y Avg</td>
<td>Since Q3&#39;03</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG</td>
<td>13.0</td>
<td>16.0</td>
<td>17.0</td>
<td>14.0</td>
<td>15.0</td>
<td>11.0</td>
</tr>
<tr class="grey4">
<td class="firstcol">NonMFG</td>
<td>8.0</td>
<td>5.0</td>
<td>4.0</td>
<td>5.0</td>
<td>5.5</td>
<td>0.9</td>
</tr>
<tr class="grey3">
<td colspan="7">Forecast</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG - Outlook</td>
<td>12.0</td>
<td>12.0</td>
<td>11.0</td>
<td>13.0</td>
<td>12.0</td>
<td>6.9</td>
</tr>
<tr class="grey4">
<td class="firstcol">NonMFG - Outlook</td>
<td>4.0</td>
<td>2.0</td>
<td>4.0</td>
<td>6.0</td>
<td>4.0</td>
<td>-0.1</td>
</tr>
<tr class="grey4">
<td class="firstcol">All Industry - Outlook</td>
<td>8.0</td>
<td>6.0</td>
<td>7.0</td>
<td>9.0</td>
<td>7.5</td>
<td>2.9</td>
</tr>
<tr class="grey1">
<td colspan="7">Tankan Results Small Enterprises</td>
</tr>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Q4-06</td>
<td>Q3-06</td>
<td>1-Y Avg</td>
<td>Since Q3&#39;03</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG</td>
<td>6.0</td>
<td>8.0</td>
<td>10.0</td>
<td>6.0</td>
<td>7.5</td>
<td>4.6</td>
</tr>
<tr class="grey4">
<td class="firstcol">Nonmanufacturing</td>
<td>-7.0</td>
<td>-6.0</td>
<td>-6.0</td>
<td>-8.0</td>
<td>-6.8</td>
<td>-11.1</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>-7.0</td>
<td>-6.0</td>
<td>-6.0</td>
<td>-8.0</td>
<td>-6.8</td>
<td>-11.1</td>
</tr>
<tr class="grey3">
<td colspan="7">Forecast</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG - Outlook</td>
<td>7.0</td>
<td>5.0</td>
<td>7.0</td>
<td>7.0</td>
<td>6.5</td>
<td>2.4</td>
</tr>
<tr class="grey4">
<td class="firstcol">NonMFG - Outlook</td>
<td>-10.0</td>
<td>-10.0</td>
<td>-9.0</td>
<td>-9.0</td>
<td>-9.5</td>
<td>-13.9</td>
</tr>
<tr class="grey4">
<td class="firstcol">All Industry - Outlook</td>
<td>-4.0</td>
<td>-4.0</td>
<td>-3.0</td>
<td>-4.0</td>
<td>-3.8</td>
<td>-7.9</td>
</tr>
</tbody>
</table>


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Tankan forward-looking survey shows some weakness.

Tankan Shows Flatness Q to Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702a.jpg" width="353">
The national purchasing managers&#146; report for activity in July rose to 56 from an unrevised levels of 55 during June, according to the Institute of Supply Management. 
Strength in the sub-index of production was notable with a 4.6 point increase which was its largest monthly increase in two years. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702b.jpg" width="353">
New orders also rose but the gain was a moderate 0.7 points to a still high level of 660.3. Any reading above 50 indicates growth. 
Export orders slipped three points but still indicated expansion in order books with a reading of 56.0. For the quarter, the index was at its highest level since 1Q06. 
The employment index fell for the second consecutive month to 51.1. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702c.jpg" width="353">
To the downside also were the speed of vendor deliveries and the inventories index which fell for the third consecutive month. 
Pricing pressure eased for the second month but the index remained at a high 68.0. That is up from the lows just below 50 during the last quarter of 2006. 

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">June 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>56.0</td>
<td>55.0</td>
<td>54.0</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>68.0</td>
<td>71.0</td>
<td>76.5</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>


</html>

The national purchasing managers report for activity in July rose to 56 from an unrevised levels of 55 during June, according to the Institute of Supply Management. Strength in the sub-index of production was notable with a 4.6 point [...]

National PMI Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702a.jpg" width="353">
The national purchasing managers&#146; report for activity in July rose to 56 from an unrevised levels of 55 during June, according to the Institute of Supply Management. 
Strength in the sub-index of production was notable with a 4.6 point increase which was its largest monthly increase in two years. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702b.jpg" width="353">
New orders also rose but the gain was a moderate 0.7 points to a still high level of 660.3. Any reading above 50 indicates growth. 
Export orders slipped three points but still indicated expansion in order books with a reading of 56.0. For the quarter, the index was at its highest level since 1Q06. 
The employment index fell for the second consecutive month to 51.1. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702c.jpg" width="353">
To the downside also were the speed of vendor deliveries and the inventories index which fell for the third consecutive month. 
Pricing pressure eased for the second month but the index remained at a high 68.0. That is up from the lows just below 50 during the last quarter of 2006. 

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">June 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>56.0</td>
<td>55.0</td>
<td>54.0</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>68.0</td>
<td>71.0</td>
<td>76.5</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>
 Japan's Tankan Survey: Confidence among Large Manufactures Remains Strong: Actual Results Continue Better than Forecast 
by <a href="/comment/Curley.html">Louise Curley</a> July 2, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702f.jpg" width="353">
The Bank of Japan&#39;s quarterly Tankan Survey, or short term business outlook, was released today. The Bank surveyed 2,469 large, 2.915 medium and 5,455 small-sized enterprises over the period from May 28 to June 29.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702e.jpg" width="353">
The headline series, a diffusion index for large manufacturing enterprises, rose from 20% in the March Survey to 22% in the current survey. The index has ranged between 20% and 22% since the second quarter of 2006 and has probably been the longest run of optimism manufactures have expressed since the late eighties. As noted in the Japan Data Base, major revisions in early 2004 have created a discontinuity in the time series data between December 2003 and March 2004. Pre revisions series are maintained in the data base and marked DISCONTINUED. Although they are not strictly comparable, we have plotted the DISCONTINUED and the current series in the first chart to place the current situation in a longer term perspective.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702g.jpg" width="353">
Caution on the part of the business men surveyed is evident in the fact that their forecasts have generally been below their appraisal of their actual results. The second chart compares the forecasts and appraisals of actual results for the large manufacturers. Optimists in medium-sized firms outweigh the pessimists by a margin of 10% in the current survey, but the margin has been rising as shown in the third chart. This chart also shows that medium-sized business owners, have also tended to forecast conditions below their appraisals of actual conditions. Small business owners are still pessimistic on balance. Although the degree of pessimism lessened significantly until mid 2006. it has since stagnated within a range of -2% to -4%%, as shown in the fourth chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702h.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN&#39;S TANKAN SURVEY&nbsp;</th>
<th scope="col">Q3 2007</th>
<th scope="col">Q2 2007&nbsp;</th>
<th scope="col">Q1 2007&nbsp;</th>
<th scope="col">Q4 2006&nbsp;</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006&nbsp;</th>
<th scope="col">Q1 2006&nbsp;</th>
<th scope="col">Q4 2005&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="9">Forecast (Diffusion Indexes %)</td>
</tr>
<tr class="odd">
<td colspan="9">&nbsp;Large firms</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing &nbsp;(HEADLINE SERIES)</td>
<td>22</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>22</td>
<td>19</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Non Manufacturing</td>
<td>23</td>
<td>23</td>
<td>20</td>
<td>21</td>
<td>21</td>
<td>19</td>
<td>17</td>
<td>16</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Medium-sized firms </td>
<td>10</td>
<td>8</td>
<td>6</td>
<td>7</td>
<td>9</td>
<td>8</td>
<td>5</td>
<td>3</td>
</tr>
<tr>
<td class="firstcol"> Small firms</td>
<td>-5</td>
<td>-4</td>
<td>-4</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-4</td>
<td>-5</td>
</tr>
<tr class="even">
<td colspan="9">Actual Results&nbsp; (Diffusion Indexes %)</td>
</tr>
<tr class="odd">
<td colspan="9">&nbsp;Large firms</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing &nbsp; (HEADLINE SERIES)</td>
<td>--</td>
<td>23</td>
<td>23</td>
<td>25</td>
<td>24</td>
<td>21</td>
<td>20</td>
<td>21</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Non Manufacturing</td>
<td>--</td>
<td>22</td>
<td>22</td>
<td>22</td>
<td>20</td>
<td>20</td>
<td>18</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Medium-sized firms </td>
<td>--</td>
<td>10</td>
<td>10</td>
<td>10</td>
<td>9</td>
<td>8</td>
<td>7</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol"> Small firms</td>
<td>--</td>
<td>5</td>
<td>7</td>
<td>8</td>
<td>9</td>
<td>10</td>
<td>10</td>
<td>10</td>
</tr>
</tbody>
</table>


</html>

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

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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.

Economy in Brief: July 2007

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U.S. Factory Inventory Gain Slowed With Negative Shipment Growth

EU PPI and Core Rise by 0.3% in May. Should the ECB be Worried?

EU PPI and Core Rise by 0.3% in May. Should the ECB be Worried?

Japan's Tankan Survey: Confidence among Large Manufactures Remains Strong: Actual Results Continue Better than Forecast

Tankan Shows Flatness Q to Q

National PMI Up Slightly

National PMI Up Slightly