Tom Moeller

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<img align="left" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090706c.jpg" width="353">
Despite the week-to-week gyration, initial claims for unemployment insurance have moved sideways since April, trending slightly downward. Reported Thursday, claims edged down last week by 16,000 to 614,000 after an upwardly revised 18,000 increase during the week prior. The latest level was off from the March peak of 674,000. The four-week average of claims, which smoothes out some of the volatility in the weekly numbers, also fell slightly to 615,250 which was its lowest level since mid-February. The latest weekly level roughly matched Consensus expectations.
The Labor Department indicated that the largest increases in initial claims for the week ending June 20 were in California (+14,570), New Jersey (+3,170), Oregon (+3,062), Maryland (+2,342), and Michigan (+2,032), while the largest decreases were in Missouri (-5,753), Pennsylvania (-3,037), Texas (-2,759), Alabama (-1,926), and Florida (-1,894).<img align="right" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090706d.jpg" width="353">
Also suggesting improvement in the job market was a 53,000 decline in continuing claims for unemployment insurance which reversed all of the prior week&#39;s gain. Weekly claims were down slightly from their May high. Continuing claims provide an indication of workers&#39; ability to find employment. At 6,702,000, however, claims remained more than twice the year ago level. The four-week average of continuing claims again fell just slightly from their record high. The series dates back to 1966.
These improvements in the weekly claims figures have led to a leveling out of the insured unemployment rate. It slipped to 5.0% where it has been for the last seven weeks. Nevertheless, job market distress is evidenced by the fact that the level remained more than double that of June 2008 and the highest since 1983. During the last ten years there has been a 93% correlation between the level of the insured unemployment rate and the overall rate of unemployment published by the Bureau of Labor Statistics.
The highest insured unemployment rates in the week ending June 13 were in Michigan (7.5 percent), Oregon (6.7), Puerto Rico (6.6), Nevada (6.3), Pennsylvania (6.2), Wisconsin (5.7), California (5.4), South Carolina (5.3), Arkansas (5.2), Illinois (5.2), and North Carolina (5.2).
The unemployment insurance claims data is available in Haver&#39;s WEEKLY database and the state data is in the REGIONW database.
Reply to Generalizing the Taylor Principle: A Comment from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/RESWKPAP/PDF/rwp09-09.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">06/27/09</th>
<th scope="col">06/20/09</th>
<th scope="col">06/13/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>614</td>
<td>630</td>
<td>612</td>
<td>51.6%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,702</td>
<td>6,755</td>
<td>112.6%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
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Despite the week-to-week gyration, initial claims for unemployment insurance have moved sideways since April, trending slightly downward. Reported Thursday, claims edged down last week by 16,000 to 614,000 after an upwardly revised [...]

U.S. Initial Unemployment Insurance Claims Continue To Move Sideways

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090706a.jpg" width="353">
The service sector continued to show signs of improvement during June. The Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose to 47.0 from an unrevised reading of 44.0 during May. Though still below the break-even level of 50, the latest was the highest level since September of last year and it beat Consensus expectations for a reading of 46.0. A level of the ISM index below 50 indicates declining activity. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the business activity index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.
That latest rise came as the employment index jumped to its highest level (43.4) since September. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090706b.jpg" width="353">
The overall business activity index for the service sector rose to 49.8 which was its highest level since September. Also rising to a nine-month high was the new orders series. The gain to 48.6 pulled it well above from last November&#39;s low of 35.6. Continuing to suggest that some slack remains in the service sector was a decline in the supplier deliveries component which fell back to near the series&#39; lowest level.
With an upside breakout, the price index rose about as it did during May. The strong 6.8 point gain to 53.7 was also the highest level since last September. Since its inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
Beginning with the January 2008 Nonmanufacturing <cite>Report On Business</cite>&reg;, the composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm">here.</a>
ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997.
Lessons Learned from the Financial Crisis from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/newsevents/speeches/2009/dud090702.html">here.</a>

<table border="0" cellspacing="0" width="100%">
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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;08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>47.0</td>
<td>43.7</td>
<td>48.8</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Business Activity</td>
<td>49.8</td>
<td>42.4</td>
<td>50.7</td>
<td>47.4</td>
<td>56.0</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>43.4</td>
<td>39.0</td>
<td>45.2</td>
<td>43.8</td>
<td>52.0</td>
<td>53.8</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>53.7</td>
<td>46.9</td>
<td>82.1</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
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The service sector continued to show signs of improvement during June. The Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose to 47.0 from an unrevised reading of 44.0 during May. [...]

U.S. ISM Nonmanufacturing Index Improves To The Highest Level Since Last September

U.S. ISM Nonmanufacturing IndexImproves To The Highest Level Since Last September

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702e.jpg" width="353">
The Bureau of Labor Statistics indicated that the rate of job loss continued to moderate last month, just not by as much as had been anticipated. Nonfarm payrolls fell 467,000 during June after a 322,000 worker decline, revised from -345,000, during May. The June drop was deeper than the market&#39;s expectations for a 350,000 shortfall. During this recession so far employment has fallen by a total of 6.5 million, the record for an 18-month period. In percentage terms jobs are down 4.7% since the 2007 peak, also an 18-month record. The moderation is apparent in the 436,000 average monthly decline during the last three versus a peak three-month rate of 701,000 this past Winter.
The latest data from the payroll survey give insight into real GDP growth last quarter. Combined with the lessened decline in employment is a shorter length of the average workweek. Together, this measure of aggregate hours worked fell at a 7.9% annual rate versus an 8.9% 1Q drop. That drop was associated with negative 5.5% real GDP growth. Therefore the 2Q GDP rate of decline likely eased, perhaps sharply depending on productivity growth. During the last twenty years, there has been a 68% correlation between growth in hours worked and in real GDP.
Another indication of moderation in the economy&#39;s rate of decline was that the unemployment rate only ticked up slightly. The rise to 9.5% from 9.4% in May was, however, to the highest level since August of 1983. The rate&#39;s cycle low of 4.4% occurred in October 2006. Last month employment fell hard again, though here again the rate of decline eased. The 374,000 drop (-3.8% y/y) compared to a peak 1.2 million monthly decline this past January. The labor force fell 155,000 (0.3% y/y). Though the rate of job loss slowed, it also is increasingly difficult for the unemployed to find work. The average duration of unemployment rose during June to a new record of 24.5 weeks from an average of 17.8 weeks during 2008.
Also from the household survey was the continued indication that 5.9 million discouraged workers want a job now but are not in the labor force. That figure is up 19.5% from last June and near the highest since 1995. Finally, the labor force participation rate, i.e., the number of eligible workers who are in the labor force stands at 65.7%, down from the 2000 high of 67.1%.
Back in the establishment survey, the easing in the rate of job loss last month continued evident in slower declines in construction and in services jobs. The construction sector lost 79,000 workers last month after a 48,000 May decline. Monthly drops in excess of 100,000 were common during the prior six. Private service sector job loss also moderated, but just slightly. They fell 192,000 last month after a 97,000 decline May drop. These compare to declines between 196,000 and 399,000 since last September. Losses eased sharply in the retail trade area, in the financial sector and in leisure &amp; hospitality industries. The rate of job loss in the factory sector also eased, but just barely. Factory sector jobs fell 136,000 last month and by an average 147,000 during the last three. That compares with a 205,000 rate of job loss this Winter.
In the government sector there were 52,000 jobs lost last month and they&#39;re up just 4,000 this year. That&#39;s after the 162,000 worker increase during 2008.Jobs with the Federal government fell by 49,000 (+1.5% y/y) for the second consecutive monthly decline. The number of state gov&#39;t jobs fell 4,000 (+0.3% y/y) but local gov&#39;t jobs inched up 1,000. Nevertheless, local gov&#39;t jobs are down by 0.2% y/y, the first material decline since 1983. Should the federal government bail out the states? Lessons from past recessions from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflaugust2009_265.pdf">here</a>.
Not only is the labor market weak in the major categories, but the full breadth of decline shows even greater distress. Overall, only 28.6% of industries posted job gains last month, up from the March low of 19.6%. However, over the last six months just 18.1% of firms posted job growth, up little from the record low since 1990. In the factory sector 13.9% of firms posted job gains and only 6.0% did over the last six months. Both these figures were up from the lows, but just slightly.
Workers&#39; earning power continued to suffer last month from all the hiring distress. Average hourly earnings were unchanged in June for the second month in the last three. That weakness pulled the three-month rate of growth to a record low of just 0.7% (AR). Earnings in the factory sector slipped for the second month and the three-month growth rate dropped to -0.2%. That&#39;s versus a late-2008 growth rate of 5.0%. Growth in the durable sector&#39;s earnings (NSA) has turned negative over the last three months as have earnings in the private service sector.
The figures referenced above are available in Haver&#39;s USECON database. Additional detail can be found in the LABOR and in the EMPL databases.

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<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702f.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702g.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702h.jpg" width="353"></td>
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<colgroup><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">Employment: 000s</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-467</td>
<td>-322</td>
<td>-519</td>
<td>-4.1%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Previous</td>
<td>--</td>
<td>-345</td>
<td>-504</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-136</td>
<td>-156</td>
<td>-150</td>
<td>-12.2%</td>
<td>-3.3%</td>
<td>-2.0%</td>
<td>-0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-79</td>
<td>-48</td>
<td>-103</td>
<td>-13.7%</td>
<td>-5.5%</td>
<td>-0.8%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Service Producing</td>
<td>-244</td>
<td>-107</td>
<td>-252</td>
<td>-2.6%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Average Weekly Hours</td>
<td>33.0</td>
<td>33.1</td>
<td>33.1</td>
<td>33.6 (June &#39;08)</td>
<td>33.6</td>
<td>33.8</td>
<td>33.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Hourly Earnings</td>
<td>0.0%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>9.5%</td>
<td>9.4%</td>
<td>8.9%</td>
<td>5.6% (June &#39;08)</td>
<td>5.8%</td>
<td>4.6%</td>
<td>4.6%</td>
</tr>
</tbody>
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The Bureau of Labor Statistics indicated that the rate of job loss continued to moderate last month, just not by as much as had been anticipated. Nonfarm payrolls fell 467,000 during June after a 322,000 worker decline, revised from [...]

U.S. Payrolls Decline Another 467,000 As Jobless Rate Increases To 9.5%

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702a.jpg" align="right" border="0" height="265" width="353">There's no
breaking out from a sideways trend for sales of U.S. light vehicles.
Certainly that was the case last month as unit vehicle sales slipped
2.3% during June to 9.69 million units (AR). That followed a 6.4% rise
during May. Since February vehicle sales have risen all of 11.7% (3.0%
since January) and recouped just a fraction of last year's 35.6%
decline from December-to-December.&nbsp;Unit sales of
U.S. made light vehicles fell 3.7% to 6.99M units and
remained near the lowest since 1982 according to the Autodata
Corporation and Ward's Automotive News. (Seasonal adjustment of the
figures is provided by the U.S. Bureau of Economic Analysis). Sales of
domestically made light trucks fell 7.3% last month to 3.71M units
while auto sales ticked up 0.8% m/m to 3.27M units. Sales of domestic
vehicles YTD are down 17.3% following last year's 35.3% flop from
December-to-December.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702b.jpg" align="right" border="0" height="265" width="353">Imported
light vehicle sales
were a bit firmer and posted a 1.5% m/m June increase. Working the
other way versus domestic sales they are up 5.8% year-to-date after the
36.4% 2008 decline. Nevertheless, sales at 2.70M units remained near
their lowest level in roughly ten years. June sales of imported autos
rose 5.1% and were up by more than one-quarter from the December low
while sales of imported light trucks fell 5.3% and gave back most of a
May increase. Sales of imported vehicles YTD have increased 5.8% but
they more than halved last year Dec./Dec.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702c.jpg" align="right" border="0" height="265" width="353">Overall,
import's share of the U.S. light vehicle market increased to
27.9% last month after reaching 26.3% during all of last year.
(Imported vehicles are those produced outside the United States.)
Imports' share of the U.S. car market totaled 35.9%, up slightly from
the 2008 average, while the share of the light truck market was 18.9%,
roughly equal to last year.
The U.S. vehicle sales
figures can be found in Haver's USECON database.
A View of the Economic Crisis and the Federal
Reserve&#8217;s Response is yesterday's speech by
Janet L. Yellen, President of the Federal Reserve Bank of San Francisco
and it can be found <a href="http://www.frbsf.org/news/speeches/2009/0630.pdf">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><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">April</th>
<th scope="col">June Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>9.69</td>
<td>9.91</td>
<td>9.32</td>
<td>-29.2%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>5.11</td>
<td>4.99</td>
<td>4.81</td>
<td>-31.9</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>3.27</td>
<td>3.25</td>
<td>3.11</td>
<td>-30.5</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>1.83</td>
<td>1.74</td>
<td>1.70</td>
<td>-34.3</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>4.58</td>
<td>4.92</td>
<td>4.51</td>
<td>-25.9</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>3.71</td>
<td>4.01</td>
<td>3.67</td>
<td>-26.5</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>0.87</td>
<td>0.91</td>
<td>0.84</td>
<td>-23.3</td>
<td>1.18</td>
<td>1.47</td>
<td>1.37</td>
</tr>
</tbody>
</table>


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There's no breaking out from a sideways trend for sales of U.S. light vehicles. Certainly that was the case last month as unit vehicle sales slipped 2.3% during June to 9.69 million units (AR). That followed a 6.4% rise during May. [...]

U.S. Light Vehicle Sales In June Hold A Steady, Sideways Movement

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702a.jpg" align="right" border="0" height="265" width="353">There's no
breaking out from a sideways trend for sales of U.S. light vehicles.
Certainly that was the case last month as unit vehicle sales slipped
2.3% during June to 9.69 million units (AR). That followed a 6.4% rise
during May. Since February vehicle sales have risen all of 11.7% (3.0%
since January) and recouped just a fraction of last year's 35.6%
decline from December-to-December.&nbsp;
Unit sales of
U.S. made light vehicles fell 3.7% to 6.99M units and
remained near the lowest since 1982 according to the Autodata
Corporation and Ward's Automotive News. (Seasonal adjustment of the
figures is provided by the U.S. Bureau of Economic Analysis). Sales of
domestically made light trucks fell 7.3% last month to 3.71M units
while auto sales ticked up 0.8% m/m to 3.27M units. Sales of domestic
vehicles YTD are down 17.3% following last year's 35.3% flop from
December-to-December.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702b.jpg" align="right" border="0" height="265" width="353">Imported
light vehicle sales
were a bit firmer and posted a 1.5% m/m June increase. Working the
other way versus domestic sales they are up 5.8% year-to-date after the
36.4% 2008 decline. Nevertheless, sales at 2.70M units remained near
their lowest level in roughly ten years. June sales of imported autos
rose 5.1% and were up by more than one-quarter from the December low
while sales of imported light trucks fell 5.3% and gave back most of a
May increase. Sales of imported vehicles YTD have increased 5.8% but
they more than halved last year Dec./Dec.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702c.jpg" align="right" border="0" height="265" width="353">Overall,
import's share of the U.S. light vehicle market increased to
27.9% last month after reaching 26.3% during all of last year.
(Imported vehicles are those produced outside the United States.)
Imports' share of the U.S. car market totaled 35.9%, up slightly from
the 2008 average, while the share of the light truck market was 18.9%,
roughly equal to last year.
The U.S. vehicle sales
figures can be found in Haver's USECON database.
A View of the Economic Crisis and the Federal
Reserve&#8217;s Response is yesterday's speech by
Janet L. Yellen, President of the Federal Reserve Bank of San Francisco
and it can be found <a href="http://www.frbsf.org/news/speeches/2009/0630.pdf">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><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">April</th>
<th scope="col">June Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>9.69</td>
<td>9.91</td>
<td>9.32</td>
<td>-29.2%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>5.11</td>
<td>4.99</td>
<td>4.81</td>
<td>-31.9</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>3.27</td>
<td>3.25</td>
<td>3.11</td>
<td>-30.5</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>1.83</td>
<td>1.74</td>
<td>1.70</td>
<td>-34.3</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>4.58</td>
<td>4.92</td>
<td>4.51</td>
<td>-25.9</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>3.71</td>
<td>4.01</td>
<td>3.67</td>
<td>-26.5</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>0.87</td>
<td>0.91</td>
<td>0.84</td>
<td>-23.3</td>
<td>1.18</td>
<td>1.47</td>
<td>1.37</td>
</tr>
</tbody>
</table>


U.S. Payrolls Decline Another
467,000 As Jobless Rate Increases To 9.5% 
by <a href="/comment/Moeller.html">Tom
Moeller</a> July 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702e.jpg" align="left" border="0" height="265" width="353">
The Bureau of Labor Statistics indicated that the rate of job
loss continued to moderate last month, just not by as much as had been
anticipated. Nonfarm payrolls fell 467,000 during
June after a 322,000 worker decline, revised from -345,000, during May.
The June drop was deeper than the market's expectations for a 350,000
shortfall. During this recession so far employment has fallen by a
total of 6.5 million, the record for an 18-month period. In percentage
terms jobs are down 4.7% since the 2007 peak, also an 18-month record.
The moderation is apparent in the 436,000 average monthly decline
during the last three versus a peak three-month rate of 701,000 this
past Winter.
The latest data from the payroll survey give insight into real
GDP growth last quarter. Combined with the lessened decline in
employment is a shorter length of the average workweek. Together, this
measure of aggregate hours worked fell at a 7.9% annual rate versus an
8.9% 1Q drop. That drop was associated with negative 5.5% real GDP
growth. Therefore the 2Q GDP rate of decline likely eased, perhaps
sharply depending on productivity growth. During the last twenty years,
there has been a 68% correlation between growth in hours worked and in
real GDP.
Another indication of moderation in the economy's rate of
decline was that the unemployment rate only ticked
up slightly. The rise to 9.5% from 9.4% in May was, however, to the
highest level since August of 1983. The rate's cycle low of 4.4%
occurred in October 2006. Last month employment fell hard again, though
here again the rate of decline eased. The 374,000 drop (-3.8% y/y)
compared to a peak 1.2 million monthly decline this past January. The
labor force fell 155,000 (0.3% y/y). Though the rate of job loss
slowed, it also is increasingly difficult for the unemployed to find
work. The average duration of unemployment rose during June to a new
record of 24.5 weeks from an average of 17.8 weeks during 2008.
Also from the household survey was the continued indication
that 5.9 million discouraged workers want a job now but are not in the
labor force. That figure is up 19.5% from last June and near the
highest since 1995. Finally, the labor force participation rate, i.e.,
the number of eligible workers who are in the labor force stands at
65.7%, down from the 2000 high of 67.1%.
Back in the establishment survey, the easing in the rate of
job loss last month continued evident in slower declines in
construction and in services jobs. The construction sector lost 79,000
workers last month after a 48,000 May decline. Monthly drops in excess
of 100,000 were common during the prior six. Private service sector job
loss also moderated, but just slightly. They fell 192,000 last month
after a 97,000 decline May drop. These compare to declines between
196,000 and 399,000 since last September. Losses eased sharply in the
retail trade area, in the financial sector and in leisure &amp;
hospitality industries. The rate of job loss in the factory sector also
eased, but just barely. Factory sector jobs fell 136,000 last month and
by an average 147,000 during the last three. That compares with a
205,000 rate of job loss this Winter.
In the government sector there were 52,000 jobs lost last
month and they're up just 4,000 this year. That's after the 162,000
worker increase during 2008.Jobs with the Federal government fell by
49,000 (+1.5% y/y) for the second consecutive monthly decline. The
number of state gov't jobs fell 4,000 (+0.3% y/y) but local gov't jobs
inched up 1,000. Nevertheless, local gov't jobs are down by 0.2% y/y,
the first material decline since 1983. Should the federal
government bail out the states? Lessons from past recessions
from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflaugust2009_265.pdf">here</a>.
Not only is the labor market weak in the major categories, but
the full breadth of decline shows even greater distress. Overall, only
28.6% of industries posted job gains last month, up from the March low
of 19.6%. However, over the last six months just 18.1% of firms posted
job growth, up little from the record low since 1990. In the factory
sector 13.9% of firms posted job gains and only 6.0% did over the last
six months. Both these figures were up from the lows, but just slightly.
Workers' earning power continued to suffer last month from all
the hiring distress. Average hourly earnings were unchanged in June for
the second month in the last three. That weakness pulled the
three-month rate of growth to a record low of just 0.7% (AR). Earnings
in the factory sector slipped for the second month and the three-month
growth rate dropped to -0.2%. That's versus a late-2008 growth rate of
5.0%. Growth in the durable sector's earnings (NSA) has turned negative
over the last three months as have earnings in the private service
sector.
The figures referenced above are available in Haver's USECON
database. Additional detail can be found in the LABOR and
in the EMPL databases.

<table border="0" cellspacing="0" width="100%">
<tbody>
<tr>
<td><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702f.jpg" border="0" height="265" width="353"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702g.jpg" border="0" height="265" width="353"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090702h.jpg" border="0" height="265" width="353"></td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Employment:
000s</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-467</td>
<td>-322</td>
<td>-519</td>
<td>-4.1%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Previous</td>
<td>--</td>
<td>-345</td>
<td>-504</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-136</td>
<td>-156</td>
<td>-150</td>
<td>-12.2%</td>
<td>-3.3%</td>
<td>-2.0%</td>
<td>-0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-79</td>
<td>-48</td>
<td>-103</td>
<td>-13.7%</td>
<td>-5.5%</td>
<td>-0.8%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Service Producing</td>
<td>-244</td>
<td>-107</td>
<td>-252</td>
<td>-2.6%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Average Weekly Hours</td>
<td>33.0</td>
<td>33.1</td>
<td>33.1</td>
<td>33.6 (June '08)</td>
<td>33.6</td>
<td>33.8</td>
<td>33.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Hourly Earnings</td>
<td>0.0%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>9.5%</td>
<td>9.4%</td>
<td>8.9%</td>
<td>5.6% (June '08)</td>
<td>5.8%</td>
<td>4.6%</td>
<td>4.6%</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Light Vehicle Sales In JuneHold A Steady, Sideways Movement

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090701k.jpg" width="353">
Construction outlays fell 0.9% in May, reverting to a decline after April&#39;s limp 0.6% increase. That was revised from a 0.8% rise and March was revised to a 0.4% decrease from a 0.4% increase reported last month. This report included annual revisions, which began in January 2007; the level in 2007 was revised up slightly. For 2008, several months are lower than before, but the steepness of the late-year decline was moderated, leaving recent levels basically unchanged from previous reports.
Private nonresidential building outlays remain a main support to overall construction, with a 0.5% gain in May following 1.3% in April. However, the historical revisions cut earlier months, and the sector has shown year-to-year declines now since January. May was down 3.3% from a year ago.This masks divergent trends among divisions: communications are off 28.3% from May 2008 but transportation is now up 5.9%, its first year/year increase this year after a steep drop during the winter. Office construction, with a tiny 0.1% rise in May, may be stabilizing after a continuous month/month contraction since last September; year-on-year, it is off 18.2%. The most traditional forms of private nonresidential construction, power plants and manufacturing facilities, are expanding, with power up 12.0% from a year ago and manufacturing a strong 55.6%. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090701l.jpg" width="353">
Residential building activity continues weak. It fell 3.4% month-to-month in May and April&#39;s previously reported 0.7% increase was revised to a 0.3% cut. Year-on-year, it is off 33.9%. The best we can say is that this last figure is a bit less severe than April&#39;s initially reported 35% drop. Single-family home construction is down 54.1% y/y, although May&#39;s monthly performance was down &quot;just&quot; 4.5%, the smallest decline since last August.
Public construction edged down in May by 0.6%, while April&#39;s previously reported 0.6% decrease was revised to a 0.2% rise and March&#39;s 1.0% increase is now calculated at 2.2%. Year-on-year, public sector activity is up 3.4%, little different from the prior report of 3.3%. By type, spending on highways and streets is ratcheting lower, with May down 1.3% from April and 0.5% from May 2008. Education, the other big category, has, by contrast, been gaining in most months so far this year; May was up 0.4% on the month and 4.7% on the year. School-building has, with occasional interruption, sustained an uptrend through much of the last five or six years.
The construction put-in-place figures are available in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Construction (%)</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.9</td>
<td>0.6</td>
<td>-0.4</td>
<td>-11.6</td>
<td>-6.9</td>
<td>-1.6</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.0</td>
<td>0.8</td>
<td>-1.6</td>
<td>-17.4</td>
<td>-11.1</td>
<td>-5.7</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-3.4</td>
<td>-0.3</td>
<td>-4.6</td>
<td>-33.9</td>
<td>-29.1</td>
<td>-19.7</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.5</td>
<td>0.2</td>
<td>0.4</td>
<td>-3.3</td>
<td>13.2</td>
<td>23.1</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>-0.6</td>
<td>-0.6</td>
<td>2.2</td>
<td>3.4</td>
<td>5.6</td>
<td>13.1</td>
<td>9.3</td>
</tr>
</tbody>
</table>
</body>
</html>

Construction outlays fell 0.9% in May, reverting to a decline after April's limp 0.6% increase. That was revised from a 0.8% rise and March was revised to a 0.4% decrease from a 0.4% increase reported last month. This report included [...]

U.S. Construction Spending Holding Steady

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090701h.jpg" align="right" border="0" height="265" width="353">While
a turn to positive growth in employment still is not at hand, the June
report from the payroll processor ADP in their National Employment
Report again showed an easing in the rate of contraction. It indicated
that private nonfarm payrolls fell 473,000 last month after a revised
485,000 May decline that was shallower than reported initially. The
latest reading was the seventeenth consecutive monthly decline, but the
annualized rate of decline in payrolls eased somewhat to 5.2% during
the last three months from its peak of 7.1% in March.ADP compiled the estimate from its
database of individual companies' payroll information. Macroeconomic
Advisers, LLC, the St. Louis economic consulting firm, developed the
methodology for transforming the raw data into an economic
indicator.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090701i.jpg" align="right" border="0" height="265" width="353">The
U.S. Bureau of Labor Statistics will report June payroll employment
tomorrow. For comparison, May's
485,000 worker decline in ADP's measure of private nonfarm payrolls was
accompanied by 338,000 job losses in the BLS measure of private sector
payrolls.According to
ADP and Macro-Advisers, the correlation between the monthly percentage
change in the ADP estimate and that in the BLS data is 0.90.
ADP reported that last month smaller
medium-sized payrolls remained in forefront of monthly job loss and
fell another 205,000 (-5.6% y/y) followed by a 177,000 (-4.2% y/y)
worker decline in small-sized payrolls. Large payrolls fell by 91,000
(-5.5% y/y). In the goods producing sector there were 250,000 fewer
jobs in June (-12.7% y/y). Details in the goods sector show that
medium-sized payrolls fell 108,000 (-13.2% y/y) followed by a 90,000
(-12.0% y/y) shortfall in small-sized payrolls. Large payrolls fell
52,000 (-12.8% y/y). In the manufacturing sector alone, payrolls fell
146,000 (-12.5% y/y).
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090701j.jpg" border="0" height="265" width="353">Declines in employment in
the service producing industry continued to
lag just slightly the factory sector's workforce contraction with a
223,000 (-3.1% y/y) decline, the fifteenth consecutive monthly decline.
Medium-sized service payrolls fell 97,000 (-3.5% y/y) and small-sized
payrolls dropped 87,000 (-2.7% y/y). Large service producing payrolls
dropped by 39,000 (-3.4% y/y).
The
ADP National Employment Report data is maintained in Haver's USECON
database; historical figures date back to December 2000. The figures in
this report cover only private sector jobs and exclude employment in
the public sector, which rose an average 11,083 during the last twelve
months.
The full ADP
National Employment Report can be found <a href="http://www.adpemploymentreport.com/pdf/FINAL_Report_June_09.pdf">here</a>
,and the ADP methodology is
explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf" title="blocked::http://www.adpemploymentreport.com/PDF/ADPNERMethodology.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/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nonfarm Private Payroll
Employment (m/m Chg.)</td>
<td>-473,000</td>
<td>-485,000</td>
<td>-4.9%</td>
<td>-0.4</td>
<td>1.2%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


</body></html>

While a turn to positive growth in employment still is not at hand, the June report from the payroll processor ADP in their National Employment Report again showed an easing in the rate of contraction. It indicated that private [...]

ADP Report: Rate Of Job Loss Lessens A Bit

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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.

Economy in Brief: July 2009

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