Robert Brusca

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810f.jpg" width="353">
Industrial production in Japan has clearly been slowing down. But the three-month pace is showing more lift. Still, this is the volatile measure and its greater lift does not mean that will remain force. For the time being Japan appears to be doing better, but its momentum remains uncertain. By sector, manufacturing is strong over three months but still lower over 6 months and one year and its gain is based on the first monthly rise in four months. Investment and mining categories have a bit more of an uptrend in place; mining is up over 3-month, 6-month and one-year period. This sector does not look solid enough to justify a rate hike anytime soon. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Japan Industrial Production Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Mining &amp; Manufacturing</td>
<td>1.3%</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>3.4%</td>
<td>-2.0%</td>
<td>2.3%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>1.2%</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>3.4%</td>
<td>-2.7%</td>
<td>2.3%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>1.3%</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>3.4%</td>
<td>-1.8%</td>
<td>2.3%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Food &amp; Tobacco</td>
<td>-1.5%</td>
<td>0.7%</td>
<td>-0.6%</td>
<td>-5.4%</td>
<td>-0.9%</td>
<td>-0.7%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>1.1%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>5.3%</td>
<td>-1.6%</td>
<td>-3.7%</td>
<td>-2.9%</td>
</tr>
<tr>
<td class="firstcol">Transportation</td>
<td>0.7%</td>
<td>4.2%</td>
<td>-2.4%</td>
<td>9.5%</td>
<td>-5.4%</td>
<td>5.8%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td colspan="8">Product</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>3.5%</td>
<td>-3.4%</td>
<td>0.6%</td>
<td>2.4%</td>
<td>-2.5%</td>
<td>0.8%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>1.3%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>1.7%</td>
<td>-0.7%</td>
<td>4.4%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">Investment Goods</td>
<td>0.1%</td>
<td>2.0%</td>
<td>0.6%</td>
<td>11.4%</td>
<td>0.0%</td>
<td>-1.2%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>4.1%</td>
<td>0.6%</td>
<td>0.4%</td>
<td>21.9%</td>
<td>18.5%</td>
<td>9.1%</td>
<td>5.5%</td>
</tr>
<tr>
<td class="firstcol">Electricity &amp; Gas</td>
<td>0.3%</td>
<td>-2.6%</td>
<td>2.0%</td>
<td>-1.4%</td>
<td>-1.7%</td>
<td>2.9%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
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Industrial production in Japan has clearly been slowing down. But the three-month pace is showing more lift. Still, this is the volatile measure and its greater lift does not mean that will remain force. For the time being Japan [...]

Japan IP Rebounds in June but still has Uncertain Momentum

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810e.jpg" width="353">
For the second quarter as whole, industrial production is off in France at a 1% pace. This drop is led by weakness in auto output that has fallen at a 9.2% annual rate in the quarter. But the output of consumer goods and intermediate goods has gone flat in the quarter. Capital goods output is still expanding at a slightly slower 1.3% annual rate in Q2 over Q1. IP had risen by 3.8% (saar) in Q1 with auto output up by 10.7 (saar) in the quarter.
For June itself the intermediate goods sector is the most surprising with output falling by 1.4% adding to the weakness in often volatile autos where output is off by an even sharper 2.3%. For autos it is the second monthly drop in a row. For intermediate goods the drop comes after a gain of 0.7% in May. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
French IP Excluding construction
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>-0.5%</td>
<td>0.5%</td>
<td>-1.0%</td>
<td>-3.8%</td>
<td>-0.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer goods</td>
<td>0.2%</td>
<td>1.0%</td>
<td>-1.1%</td>
<td>0.0%</td>
<td>2.7%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital goods</td>
<td>0.9%</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>1.1%</td>
<td>3.3%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Intermediate goods</td>
<td>-1.4%</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>-4.8%</td>
<td>-2.4%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Auto</td>
<td>-2.3%</td>
<td>-2.7%</td>
<td>0.7%</td>
<td>-16.2%</td>
<td>-4.4%</td>
<td>-6.9%</td>
</tr>
</tbody>
</table>
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For the second quarter as whole, industrial production is off in France at a 1% pace. This drop is led by weakness in auto output that has fallen at a 9.2% annual rate in the quarter. But the output of consumer goods and intermediate [...]

Industrial Production Slips and Slows in France

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810d.jpg" width="353">
Upswing is widespread.
The OECD area is on an upswing led by the United States. That is the message from the OECD leading indicators. It is a reassuring one in the face of global credit concerns and equity market meltdown. Indicators show the upswing in the US is the clearest and strongest. It is nearly as strong as the expansion signaled in early 2006. Europe is in an upswing but its acceleration is very mild. Japan has recovery from a very weak set of showings early in 2006 and is now more clearly on the upswing. The OECD prefers its six month signal as the most reliable. Six-month percent changes are plotted in the chart on the left. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
OECD Trend-Restored Leading Indicators
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="5">Growth Progression-SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>3Mos</td>
<td>6Mos</td>
<td>12mos</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>5.1%</td>
<td>3.4%</td>
<td>2.3%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">OECD7</td>
<td>5.5%</td>
<td>3.1%</td>
<td>1.8%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>1.5%</td>
<td>1.2%</td>
<td>1.1%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td>3.4%</td>
<td>0.3%</td>
<td>0.5%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td>8.2%</td>
<td>4.9%</td>
<td>2.9%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
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Upswing is widespread. The OECD area is on an upswing led by the United States. That is the message from the OECD leading indicators. It is a reassuring one in the face of global credit concerns and equity market meltdown. Indicators [...]

OECD Leading Indicators Point the Way Higher

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810a.jpg" width="353">
A jump in petroleum prices, last month by 7.0%, again was the strength behind a 1.5% surge in overall July import prices. The surge was the largest since March and was ahead of Consensus expectations for a 1.1% increase. 
An 8.2% (4.2% y/y) rise in crude oil prices was behind the strength in petroleum prices, overall. Higher fuel oil prices also contributed with an 11.5% (9.3% y/y) spike. Early in August, a decline yesterday in the price of Brent crude oil to $69.97 from an average $76.97 during July promises a reversal of perhaps all the strength during that month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810b.jpg" width="353">
Less petroleum, import prices rose a modest 0.2% after a 0.1% uptick during June which was lower than the initial report of a 0.2% gain. 
 During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a reduced 47% against a broader basket of currencies. Why a Dollar Depreciation May Not Close the U.S. Trade Deficit from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci13-5/ci13-5.html">here</a>
Prices for industrial supplies &amp; materials excluding petroleum fell 0.1% (+8.3% y/y). Paper &amp; paper base stock prices fell 0.3% (-1.3% y/y) and metal prices fell 0.3% (+16.4% y/y). Building material prices rose 2.7% (-0.6 y/y). These detailed import price series can be found in the Haver USINT database. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810c.jpg" width="353">
Capital goods prices rose 0.2% (0.1% y/y) for the second month, led down again by a 0.2% (-5.9% y/y) drop in computers, peripheral and semiconductors. Less the high tech sector, capital goods prices rose a strong 0.4% (2.6% y/y) for the second month.
Prices for imported non-manufactured consumer goods were firm with a 0.5% ( 3.2% y/y) rise. Prices for most other nonauto consumer goods were little changed, except apparel prices which rose 0.3% (1.2% y/y).
Overall export prices rose 0.2% and the 3.9% y/y gain was the weakest since November of last year. Agricultural prices rose 1.5% (17.8% y/y) but nonagricultural export prices were unchanged (+2.8% y/y). 
Today&#39;s statement by the Federal Reserve on Providing Liquidity to Financial Markets can be found <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070810/default.htm"> 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/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">July</th>
<th scope="col">June</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">Import - All Commodities</td>
<td>1.5%</td>
<td>0.9%</td>
<td>2.8%</td>
<td>4.8%</td>
<td>7.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>7.0%</td>
<td>4.4%</td>
<td>4.1%</td>
<td>20.6%</td>
<td>37.6%</td>
<td>30.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.8%</td>
<td>1.7%</td>
<td>2.7%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.9%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>


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A jump in petroleum prices, last month by 7.0%, again was the strength behind a 1.5% surge in overall July import prices. The surge was the largest since March and was ahead of Consensus expectations for a 1.1% increase. An 8.2% (4.2% [...]

U.S. Import Prices Boosted in July By Oil

Carol Stone, CBE

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<div align="left" style="width: 971; height: 976"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810g.jpg" width="353">
It&#39;s just past noon in New York as we&#39;re writing today and news services tell us stock markets have just turned positive on the day&#39;s trading. Current conditions in financial markets and among financial institutions suggest that we might benefit from a look at more of Haver&#39;s short-term financial data offerings besides the yield spreads we examined here about a week ago.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810h.jpg" width="353">
Yesterday - Thursday - the federal funds rate spiked well above the Federal Reserve&#39;s target, with an effective rate for the day of 5.41%. Generally, as seen in the table and the first graph, this rate runs just a few basis points either side of the target. So even the seemingly modest 16 basis points was a major move and indicative of tightening conditions in money markets. At the same time, this very market stress was reflected in rising prices of federal funds rate futures. These higher prices correspond to lower rates, signaling that market participants are starting to price in an easing by the Fed, through a reduction in their target funds rate. Again, we see in the graph that the nearby contract has hardly budged since July 2006, when markets were still anticipating more tightening. So the little blip we see over the very last few days is the most movement there&#39;s been in a year and it shows markets are starting to look seriously for the Fed to ease. The performance of the December contract, pushing up through 95 yesterday, indicates that traders expect the rate to be moved to 5% by December and with a non-trivial chance for 4.75%. These series, along with other Fed funds futures contracts, are in the &quot;Interest Rates&quot; menus of Haver&#39;s DAILY database.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810i.jpg" width="353">
In the WEEKLY database, we can find some information about altered trading patterns and credit aggregates. The Federal Reserve collects data on transactions volume from the group of security dealers it trades with, known as &quot;primary dealers&quot;. This dataset includes US Government securities, federal agency debt, the so-called &quot;agency&quot; mortgage-backeds (those issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation), and corporate securities. We show here the dealers&#39; trading volume in MBS and Governments. That in MBS has declined noticeably in the last three weeks. These figures are highly variable, but even using a four-week moving average, we see that the recent experience has the lowest turnover since January, which is typically a slow month. In contrast, trading in Governments has increased; the latest week, ended August 1, averaged $513.1 billion a day with customers (&quot;Others&quot; in this dataset, in contrast to inter-dealer brokers). This is a record by far, but with variability here, the four-week average does not yet exhibit such an extreme. It seems unlikely, though, that trading in Treasuries would have been much reduced in the subsequent periods. We&#39;ll watch that data closely next week to be sure.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810j.jpg" width="353">
Finally, some packaged bonds and loans are financed in the short-term money markets through the vehicle of asset-backed commercial paper. Traditionally, commercial paper was unsecured debt issued by businesses to finance inventories or other aspects of daily operations. In the last several years, though, asset-backed paper has grown rapidly and is now larger than the more customary type of paper. The risks, even if only perceived risks, in asset-backed credit now involve this segment of the money markets, as well as the bond markets.</div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">DAILY</th>
<th scope="col">Aug 9</th>
<th scope="col">Aug 8</th>
<th scope="col">Aug 7</th>
<th scope="col">Week Ago</th>
<th scope="col">Month Ago</th>
<th scope="col">3 Mos. Ago</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Fed Funds Rate</td>
<td>5.41</td>
<td>5.27</td>
<td>5.26</td>
<td>5.24</td>
<td>5.22</td>
<td>5.21</td>
</tr>
<tr class="odd">
<td class="firstcol">Fed FundsFutures Price: Sept</td>
<td>94.875</td>
<td>94.775</td>
<td>94.755</td>
<td>94.785</td>
<td>94.760</td>
<td>94.795</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Dec</td>
<td>95.100</td>
<td>94.940</td>
<td>94.965</td>
<td>94.965</td>
<td>94.765</td>
<td>94.920</td>
</tr>
<tr>
<td colspan="7">&nbsp;</td>
</tr>
<tr>
<td class="firstcol">WEEKLY</td>
<td>Aug 8</td>
<td>Aug 1</td>
<td>July 25</td>
<td colspan="3">4-Week Averages ending</td>
</tr>
<tr>
<td class="firstcol">June 27</td>
<td>May 30</td>
<td>Jan 3</td>
</tr>
<tr class="odd">
<td class="firstcol">Primary Dealer Transactions in Gov&#39;t Securities</td>
<td>--*</td>
<td>513.1</td>
<td>290.1</td>
<td>371.4</td>
<td>270.3</td>
<td>246.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Primary Dealer Transactions in MBS</td>
<td>--*</td>
<td>205.1</td>
<td>135.7</td>
<td>312.3</td>
<td>248.1</td>
<td>167.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Commercial Paper Outstanding</td>
<td>2223.5</td>
<td>2212.7</td>
<td>2224.6</td>
<td>2127.4</td>
<td>2092.4</td>
<td>1970.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Asset-Backed</td>
<td>1182.9</td>
<td>1180.8</td>
<td>1177.7</td>
<td>1143.5</td>
<td>1113.8</td>
<td>1038.6</td>
</tr>
</tbody>
</table>
Japan IP Rebounds in June but still has Uncertain Momentum 
by <a href="/comment/Brusca.html">Robert Brusca</a> August 10, 2007


<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810f.jpg" width="353">
Industrial production in Japan has clearly been slowing down. But the three-month pace is showing more lift. Still, this is the volatile measure and its greater lift does not mean that will remain force. For the time being Japan appears to be doing better, but its momentum remains uncertain. By sector, manufacturing is strong over three months but still lower over 6 months and one year and its gain is based on the first monthly rise in four months. Investment and mining categories have a bit more of an uptrend in place; mining is up over 3-month, 6-month and one-year period. This sector does not look solid enough to justify a rate hike anytime soon. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Japan Industrial Production Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Mining &amp; Manufacturing</td>
<td>1.3%</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>3.4%</td>
<td>-2.0%</td>
<td>2.3%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>1.2%</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>3.4%</td>
<td>-2.7%</td>
<td>2.3%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>1.3%</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>3.4%</td>
<td>-1.8%</td>
<td>2.3%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Food &amp; Tobacco</td>
<td>-1.5%</td>
<td>0.7%</td>
<td>-0.6%</td>
<td>-5.4%</td>
<td>-0.9%</td>
<td>-0.7%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>1.1%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>5.3%</td>
<td>-1.6%</td>
<td>-3.7%</td>
<td>-2.9%</td>
</tr>
<tr>
<td class="firstcol">Transportation</td>
<td>0.7%</td>
<td>4.2%</td>
<td>-2.4%</td>
<td>9.5%</td>
<td>-5.4%</td>
<td>5.8%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td colspan="8">Product</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>3.5%</td>
<td>-3.4%</td>
<td>0.6%</td>
<td>2.4%</td>
<td>-2.5%</td>
<td>0.8%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>1.3%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>1.7%</td>
<td>-0.7%</td>
<td>4.4%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">Investment Goods</td>
<td>0.1%</td>
<td>2.0%</td>
<td>0.6%</td>
<td>11.4%</td>
<td>0.0%</td>
<td>-1.2%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>4.1%</td>
<td>0.6%</td>
<td>0.4%</td>
<td>21.9%</td>
<td>18.5%</td>
<td>9.1%</td>
<td>5.5%</td>
</tr>
<tr>
<td class="firstcol">Electricity &amp; Gas</td>
<td>0.3%</td>
<td>-2.6%</td>
<td>2.0%</td>
<td>-1.4%</td>
<td>-1.7%</td>
<td>2.9%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
Industrial Production Slips and Slows in France 
by <a href="/comment/Brusca.html">Robert Brusca</a> August 10, 2007


<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810e.jpg" width="353">
For the second quarter as whole, industrial production is off in France at a 1% pace. This drop is led by weakness in auto output that has fallen at a 9.2% annual rate in the quarter. But the output of consumer goods and intermediate goods has gone flat in the quarter. Capital goods output is still expanding at a slightly slower 1.3% annual rate in Q2 over Q1. IP had risen by 3.8% (saar) in Q1 with auto output up by 10.7 (saar) in the quarter.
For June itself the intermediate goods sector is the most surprising with output falling by 1.4% adding to the weakness in often volatile autos where output is off by an even sharper 2.3%. For autos it is the second monthly drop in a row. For intermediate goods the drop comes after a gain of 0.7% in May. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
French IP Excluding construction
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>-0.5%</td>
<td>0.5%</td>
<td>-1.0%</td>
<td>-3.8%</td>
<td>-0.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer goods</td>
<td>0.2%</td>
<td>1.0%</td>
<td>-1.1%</td>
<td>0.0%</td>
<td>2.7%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital goods</td>
<td>0.9%</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>1.1%</td>
<td>3.3%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Intermediate goods</td>
<td>-1.4%</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>-4.8%</td>
<td>-2.4%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Auto</td>
<td>-2.3%</td>
<td>-2.7%</td>
<td>0.7%</td>
<td>-16.2%</td>
<td>-4.4%</td>
<td>-6.9%</td>
</tr>
</tbody>
</table>
U.S. Import Prices Boosted in July By Oil 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 10, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810a.jpg" width="353">
A jump in petroleum prices, last month by 7.0%, again was the strength behind a 1.5% surge in overall July import prices. The surge was the largest since March and was ahead of Consensus expectations for a 1.1% increase. 
An 8.2% (4.2% y/y) rise in crude oil prices was behind the strength in petroleum prices, overall. Higher fuel oil prices also contributed with an 11.5% (9.3% y/y) spike. Early in August, a decline yesterday in the price of Brent crude oil to $69.97 from an average $76.97 during July promises a reversal of perhaps all the strength during that month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810b.jpg" width="353">
Less petroleum, import prices rose a modest 0.2% after a 0.1% uptick during June which was lower than the initial report of a 0.2% gain. 
 During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a reduced 47% against a broader basket of currencies. Why a Dollar Depreciation May Not Close the U.S. Trade Deficit from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci13-5/ci13-5.html">here</a>
Prices for industrial supplies &amp; materials excluding petroleum fell 0.1% (+8.3% y/y). Paper &amp; paper base stock prices fell 0.3% (-1.3% y/y) and metal prices fell 0.3% (+16.4% y/y). Building material prices rose 2.7% (-0.6 y/y). These detailed import price series can be found in the Haver USINT database. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070810c.jpg" width="353">
Capital goods prices rose 0.2% (0.1% y/y) for the second month, led down again by a 0.2% (-5.9% y/y) drop in computers, peripheral and semiconductors. Less the high tech sector, capital goods prices rose a strong 0.4% (2.6% y/y) for the second month.
Prices for imported non-manufactured consumer goods were firm with a 0.5% ( 3.2% y/y) rise. Prices for most other nonauto consumer goods were little changed, except apparel prices which rose 0.3% (1.2% y/y).
Overall export prices rose 0.2% and the 3.9% y/y gain was the weakest since November of last year. Agricultural prices rose 1.5% (17.8% y/y) but nonagricultural export prices were unchanged (+2.8% y/y). 
Today&#39;s statement by the Federal Reserve on Providing Liquidity to Financial Markets can be found <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070810/default.htm"> 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/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">July</th>
<th scope="col">June</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">Import - All Commodities</td>
<td>1.5%</td>
<td>0.9%</td>
<td>2.8%</td>
<td>4.8%</td>
<td>7.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>7.0%</td>
<td>4.4%</td>
<td>4.1%</td>
<td>20.6%</td>
<td>37.6%</td>
<td>30.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.8%</td>
<td>1.7%</td>
<td>2.7%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.9%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>


</html>

It's just past noon in New York as we're writing today and news services tell us stock markets have just turned positive on the day's trading. Current conditions in financial markets and among financial institutions suggest that we [...]

Fed Funds Futures Price in Easing, Dealer Trading Volume Favors Treasuries: More on Haver's Short-Term Financial Data

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070809d.jpg" width="353">
Yesterday the Bureau of Economic Analysis of the Commerce Department released the annual revision of the capital stock data, known more formally as &quot;Fixed Assets and Consumer Durable Goods&quot;. There is new data for year-end 2006 and revision of 2004 and 2005. All these series, at current, historical and real costs, plus associated data on investment and depreciation are contained in Haver&#39;s CAPSTOCK database. It is roughly the case that for any item in real terms, that is, chained 2000 dollars, the change in the capital stock each year equals investment minus depreciation.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070809e.jpg" width="353">
We select here for highlight a single line-item, Private Residential Fixed Assets. This measure of the housing stock on a current cost basis expanded just 5.3% in 2006, less than half the pace of the two prior years and the smallest annual increase since 1995. In recent years, the largest increase was 11.9% in 2004. Historically, the largest single increase in this 82-year-long dataset was in 1946, the first year after World War II, when it increased more than 23%. In the late 1970s as the Baby Boomer generation were forming their own households and having their children, the housing stock expanded at an average annual rate just over 16%. These figures are all in current cost terms<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070809f.jpg" width="353">
In the last few years, we&#39;ve come to talk informally about &quot;McMansions&quot;: the building of enormous houses in great quantity that makes them seem somewhat mass produced. In some cases, homebuyers have bought an existing house and had it demolished to build their new home in some desired location where no vacant property is readily available. In looking at these capital stock data, we think we see some evidence of this in the substantial increases in the real values of both investment and depreciation in 2004 and 2005. Investment increased by 18% in 2004 and nearly 14% in 2005; last year, investment decreased 0.4%. Depreciation barreled ahead 11% and 24% in those years, respectively; it then dropped off last year by 21%. The long history of these data show how much out of line the recent developments in homebuilding are with more traditional patterns.
Basic demand for housing of course has its origin in household formation. Is this responsible for the recent huge increases in the housing stock? Actually only a little. The growth in the number of households has actually been quite modest: the Census Bureau&#39;s annual count shows an increase of 1.3% annually from 2000 to 2004, when the real housing stock rose 2.9%. In 2005, households increased 1.2% and the housing stock, 3.0%. In 2006, the comparison was 0.9% households and 3.0% real stock. Thus, the amount of house per household is increasing. In the last graph here, we see it up 2.1% last year, reaching $109,000 in chained 2000 prices; since 2000, this has gained at a 1.7% annual pace. Bigger houses seem still to be the vogue. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Stock, Year-End, Bil.$</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003*</th>
<th scope="col">2000*</th>
<th scope="col">1995*</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total @ Current Cost</td>
<td>17,103.5</td>
<td>16,245.3</td>
<td>14,802.5</td>
<td>13,224.7</td>
<td>10,675.7</td>
<td>7,839.8</td>
</tr>
<tr>
<td class="firstcol">% Change</td>
<td>5.3%</td>
<td>9.7%</td>
<td>11.9%</td>
<td>7.4%</td>
<td>6.4%</td>
<td>5.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total @ Real Cost</td>
<td>12,488.9</td>
<td>12,115.4</td>
<td>11,763.3</td>
<td>11,401.4</td>
<td>10,487.8</td>
<td>9,174.2</td>
</tr>
<tr>
<td class="firstcol">% Change</td>
<td>3.1%</td>
<td>3.0%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>2.7%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Dollar Change</td>
<td>373.5</td>
<td>352.1</td>
<td>361.9</td>
<td>304.5</td>
<td>262.7</td>
<td>190.2</td>
</tr>
<tr>
<td class="firstcol">Real Investment</td>
<td>565.1</td>
<td>593.5</td>
<td>556.7</td>
<td>476.2</td>
<td>416.4</td>
<td>327.6</td>
</tr>
<tr>
<td class="firstcol">Real Depreciation</td>
<td>256.9</td>
<td>310.4</td>
<td>234.7</td>
<td>184.8</td>
<td>144.0</td>
<td>111.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Yesterday the Bureau of Economic Analysis of the Commerce Department released the annual revision of the capital stock data, known more formally as "Fixed Assets and Consumer Durable Goods". There is new data for year-end 2006 and [...]

2006 Housing Stock Has Smallest Gain in 11 Years, But Housing Stock per Household Continues To Grow

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070809c.jpg" width="353">
The UK trade balance has remained fairly stable through all this volatility. 
The shorter growth horizons show that export growth has started to pick up at a fast pace than import growth. Yr/Yr exports are off a bit more than imports, but over the past 3-6 months they are up at a much faster pace and accelerating. Export growth is stronger across road vehicles, basic materials and firmer for capital goods. For food, beverages and tobacco, flows are still weak and dropping. 
For imports, basic materials are strong and so are road vehicles, but vehicle imports have slowed somewhat. Food, beverages and tobacco imports are steady. Capital goods imports have slowed their decline. Overall imports are lower over three months at a 1% pace and up over six months by just 1.8%. 
The slowing in imports has allowed the strength in exports to bolster the trade position in general. In June the deficit improved slightly to -&pound;6.27bln compared to -&pound;6.44bln in May. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK Trade trends for goods
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">m/m%</td>
<td colspan="3">% Saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance*</td>
<td>-&pound;&pound; 6.27</td>
<td>-&pound;&pound; 6.44</td>
<td>-&pound;&pound; 6.61</td>
<td>-&pound;&pound; 6.78</td>
<td>-&pound;&pound; 6.72</td>
</tr>
<tr>
<td colspan="6">Exports</td>
</tr>
<tr>
<td class="firstcol">All Exports</td>
<td>4.9%</td>
<td>4.6%</td>
<td>19.3%</td>
<td>10.6%</td>
<td>-13.3%</td>
</tr>
<tr>
<td class="firstcol">Capital goods</td>
<td>3.2%</td>
<td>4.3%</td>
<td>3.3%</td>
<td>-21.0%</td>
<td>-52.0%</td>
</tr>
<tr>
<td class="firstcol">Road Vehicles</td>
<td>5.3%</td>
<td>0.2%</td>
<td>32.8%</td>
<td>17.1%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Basic Materials</td>
<td>-1.4%</td>
<td>5.7%</td>
<td>67.9%</td>
<td>41.0%</td>
<td>15.4%</td>
</tr>
<tr>
<td class="firstcol">Food Beverages &amp; Tobacco</td>
<td>-9.1%</td>
<td>9.5%</td>
<td>-21.0%</td>
<td>-4.4%</td>
<td>-0.8%</td>
</tr>
<tr>
<td colspan="6">IMPORTS</td>
</tr>
<tr>
<td class="firstcol">All Imports</td>
<td>2.9%</td>
<td>0.5%</td>
<td>-1.0%</td>
<td>1.8%</td>
<td>-11.9%</td>
</tr>
<tr>
<td class="firstcol">Capital goods</td>
<td>4.0%</td>
<td>-1.7%</td>
<td>-9.7%</td>
<td>-26.3%</td>
<td>-52.7%</td>
</tr>
<tr>
<td class="firstcol">Road Vehicles</td>
<td>3.7%</td>
<td>6.9%</td>
<td>18.8%</td>
<td>36.6%</td>
<td>12.3%</td>
</tr>
<tr>
<td class="firstcol">Basic Materials</td>
<td>1.2%</td>
<td>2.7%</td>
<td>46.3%</td>
<td>15.3%</td>
<td>22.7%</td>
</tr>
<tr>
<td class="firstcol">Food Beverages &amp; Tobacco</td>
<td>-1.5%</td>
<td>-0.4%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td colspan="6">*Stg Blns; mo or period average</td>
</tr>
</tbody>
</table>
</body>
</html>

The UK trade balance has remained fairly stable through all this volatility. The shorter growth horizons show that export growth has started to pick up at a fast pace than import growth. Yr/Yr exports are off a bit more than imports, [...]

After a SURGE, UK Export and Import Growth Plummeted and Has Begun to Recover

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<div align="left"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070809a.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070809b.jpg" width="353">
Initial claims for unemployment insurance rose again last week, to 316,000. The 7,000 w/w increase followed a 6,000 rise during the prior week that was revised up slightly. Consensus expectations had been for 310,000 claims in the latest period.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims rose slightly to 307,750 (-1.2% y/y).
Continuing claims for unemployment insurance rose 39,000 after a revised 21,000 decline during the prior week. The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment remained at 1.9%. </div>

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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></th>
<th scope="col">08/04/07 </th>
<th scope="col">07/28/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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<td class="firstcol">Initial Claims</td>
<td>&nbsp;316</td>
<td>309</td>
<td>-0.9%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,52559</td>
<td>3.7%</td>
<td>2,545</td>
<td>3.3%</td>
<td>2,459</td>
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Initial claims for unemployment insurance rose again last week, to 316,000. The 7,000 w/w increase followed a 6,000 rise during the prior week that was revised up slightly. Consensus expectations had been for 310,000 claims in the [...]

U.S. Claims for Jobless Insurance Exceed Expectations

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

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

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

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

U.S. Trade Deficit Widened in May

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance were 233,000 in the week of June 28, down 4,000 from 237,000 in the week ending June 21, revised from 236,000. The Action Economics Forecast Survey expected 240,000. These data are seasonally adjusted by the Department of Labor. The 4-week moving average was 241,500, a decrease of 3,750 from the previous week’s average of 245,250, revised from 245,000.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended June 21 was 1.964 million, unchanged from the prior week’s level, which was revised down from 1.974 million. The 4-week moving average was 1.954 million, up from 1.938 million in the previous week, revised from 1.941 million. This is the highest level for this average since November 20, 2021, when it was 2.004 million.

The insured unemployment rate for the week ending June 21, that is, the number of unemployment beneficiaries as a % of covered employment, was unchanged at 1.3% for the fourth consecutive week.

Economic conditions vary widely across states and territories. In the week ended June 14, the highest unemployment rates were in New Jersey (2.23%), Minnesota (2.22%), Puerto Rico (2.20%), California (2.16%), Washington (1.98%), and Rhode Island (1.95%). The lowest rates were in South Dakota (0.27%), Florida (0.41%), North Carolina (0.47%), and Alabama (0.48%). Rates in other notable states include Pennsylvania (1.71%), Illinois (1.67%), New York (1.55%), and Texas (1.26%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims for unemployment insurance declined by 4,000 in the week ended June 28.
- Total number of beneficiaries was unchanged in the week of June 21 week.
- The insured unemployment rate was unchanged at 1.3%.

U.S. Initial Jobless Claims Decreased in Latest Week

Andrew Cates

**The Blue Chip interest rate consensus**
The latest Blue Chip Financial Forecasts survey suggests that monetary policy across most major advanced economies is expected to loosen modestly over the next six months. Central banks in the US, Canada, UK, Australia, and the euro area are all forecast to cut rates to varying degrees, with Australia expected to deliver the largest reduction. In contrast, Japan continues to stand out as the only major economy where forecasters see scope for a slight increase in rates, highlighting its unique position in the global policy cycle. Overall, the chart reflects a broad but uneven tilt towards monetary easing as policymakers respond to softer inflation and growth signals.

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**The US dollar and data surprises** 
This next chart shows that the recent bout of US dollar weakness has coincided with a period in which US economic data surprises have turned more negative relative to the euro area. The surprise index differential between the US and euro area —measuring US growth surprises minus euro surprises—has declined, pointing to a run of weaker-than-expected US data and stronger euro area outturns. Historically, this has tended to pull the euro higher relative to the dollar. However, the scale of the dollar’s recent slide appears larger than the data surprises alone would imply, suggesting that other forces are potentially weighing on the currency as well.

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**US stagflation risk**
Latest ISM manufacturing survey data highlight a worrying decoupling between input costs and underlying demand that points to potential stagflation pressures in the US economy. Historically, the ISM New Orders Index and the Prices Paid Index have tended to move broadly in sync, reflecting cycles where stronger demand drives both production and cost pressures higher. However, the chart shows that while prices paid have recently rebounded sharply, new orders have remained subdued and stuck near contractionary territory. This breakdown suggests that firms are facing rising input costs without a corresponding pickup in demand—an imbalance that could be amplified by US tariff measures, which tend to push up costs for imported materials and components while weighing on new orders through weaker trade flows.

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**US Supply Chain Risks** 
Added to this, the number of vessels queuing at the Los Angeles and Long Beach harbours has climbed to elevated levels in recent weeks, highlighting supply chain bottlenecks on the US West Coast. While various factors may be driving this congestion—including seasonal trade patterns and shifts in global shipping routes—recent tariff measures could be contributing as well. New or increased tariffs sometimes distort normal trade flows by prompting importers to front-load shipments ahead of cost increases or reroute sourcing strategies in ways that strain particular ports.

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**Global warming** 
Pivoting to more structural issues, the next chart highlights the persistent upward trend in global surface temperature anomalies over the past century, with both land and ocean temperatures now averaging well over one degree Celsius. This long-term warming signal continues to manifest in extreme weather events and record-breaking heat waves, including the unusually high temperatures that have swept parts of Europe in recent days, pushing June readings to historic highs in several regions.

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**Climate change and productivity** 
This final chart illustrates the projected impact of heat stress on labour productivity in Europe under current climate policy scenarios, highlighting how rising temperatures could steadily erode worker efficiency over the coming decades. As shown, the median estimates from the Climate Analytics group suggest that productivity losses could deepen from around 0.3 percentage points today to nearly 0.9 percentage points by mid-century if climate conditions remain unchanged. These figures reflect the physical limits of the human body’s capacity to perform work in increasingly hot and humid environments, a challenge that will become more acute if climate change continues on its current path. With recent record-high June temperatures across parts of Europe underscoring the reality of more frequent heat extremes, these projections serve as a clear reminder of the economic stakes involved in addressing climate risks and investing in adaptation measures to protect labour productivity and economic resilience.

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Financial markets have remained generally buoyant in recent days, with global equity indices advancing on the back of relatively upbeat global growth data, benign European inflation readings and the prospect of further policy easing from major central banks. At the same time, the US dollar has continued to weaken, reflecting a run of disappointing US economic data and rising investor concerns about the fiscal outlook, even as European growth surprises have turned more positive. This divergence, combined with the prospect of lower US policy rates relative to some (though not all) peers, has added to the dollar’s drift lower (charts 1 and 2). Supply chain strains—highlighted by elevated vessel queues at US West Coast ports—also feed into the narrative that US tariff measures may be contributing to sticky input costs and stagflation risks (charts 3 and 4). Meanwhile, record temperatures in parts of Europe this week have reinforced the climate challenge facing policymakers, with the final two charts illustrating how rising global temperatures and heat stress could increasingly weigh on productivity and growth potential if left unchecked. With trading volumes light ahead of the July 4th holiday and markets awaiting tomorrow’s US non-farm payrolls report, the interplay between softer US data, resilient equities, a weaker dollar, and climate-related risks remains firmly in focus.

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Charts of the Week: Headwinds and Heatwaves

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The ADP National Employment Report reported that nonfarm private sector payrolls declined 33,000 (+1.1% y/y) during June after rising 29,000 in May, revised from 37,000 and increasing an unrevised 60,000 in April. It was the first monthly decline since March 2023. A 110,000 June rise had been expected in the in the Action Economics Forecast Survey.

Small business hiring (less than 50 employees) declined 47,000 (+0.4% y/y), after falling 13,000 in May. These were the first back-to-back monthly declines since the end of 2023. Employment at medium-sized firms (50-499,000 employees) declined 15,000 (1.1% y/y), after rising 46,000 in May, revised from 49,000. Large business hiring (500+ employees) increased 30,000 (2.7% y/y) after easing 4,000 in May.

Goods-producing employment rose 32,000 (1.4% y/y) in June after falling a minimally revised 3,000 in May. Manufacturing jobs increased 15,000, unchanged y/y, following a 6,000 decline in May. The number of construction sector jobs rose 9,000 (2.8% y/y) after increasing 6,000 in May. Natural resources & mining jobs rose 8,000 (4.3% y/y) in June after falling 3,000 in May.

The decline in payrolls overall reflected weakness in the service sector where the number of service-producing jobs declined 66,000 last month (+1.1% y/y) after increasing 32,000 in May, revised from 36,000. Professional & business services employment fell 56,000 (+0.2% y/y), after declining 13,000 in May. These weak readings came after a 1,000 April gain and a 46,000 March increase. Education & health services employment declined 52,000 (+0.8% y/y), the third consecutive month of decline. Employment in the financial industry weakened 14,000 (+1.8% y/y) last month, after rising 17,000 in May.

Offsetting these declines, leisure & hospitality employment increased 32,000 in June (3.2% y/y), following a 43,000 May gain. Monthly increases have averaged 36,000 this year. Trade, transportation & utilities employment increased 14,000 (0.3% y/y) after falling 8,000 in May. Information sector employment rose 5,000 (0.2% y/y) after a 4,000 May increase and a 10,000 April decline. Employment in “other” services sectors rose 5,000 in June (2.9% y/y), the same as in May.

Growth in median annual pay for "job stayers" slipped to 4.4% y/y in June, down from a high of 7.8% in September 2022. Manufacturing sector pay grew 4.6% y/y, steady with May. Construction sector pay also rose a steady 4.6% y/y. Natural resource & mining sector pay grew 4.5% y/y last month. Financial sector earnings rose an improved 5.2% y/y, while education & health services pay rose a lessened 4.6% y/y. Leisure & hospitality pay increased 4.7% y/y in June. Professional & business service sector pay increased a lessened 4.2% y/y as did trade, transportation & utilities pay, up 4.2% y/y. Information pay rose a lessened 4.1% y/y. Median annual pay for “job changers” rose 6.8% y/y in June, down from a high of 16.1% y/y in April 2022.

By region, employment in the Midwest declined 24,000 (+1.3% y/y) to 28,761 million after a 17,000 rise in May. Employment in the West, declined 20,000 to 31,363 million (+0.5% y/y) last month, and reversed a 31,000 rise during May. Employment in the Northeast fell 3,000 to 24,116 million (+1.4% y/y) in June, following a 23,000 decline in May. Partially offsetting these declines, in the South employment increased 13,000 to 50,092 million (1.0% y/y) in June, after rising 2,000 in May.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Employment declines in several service industries; factory & building industry jobs rise.
- Wage growth moderates further.
- Small- & medium-sized shed jobs.

Economy in Brief: August 2007

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