Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206d.jpg" width="353">
Factory inventories in October rose 0.6% following an upwardly revised 0.1% up tick in September. Less petroleum, the 0.4% (3.9% y/y) rise in factory inventories was the strongest since February.
The October inventory gain was led by a 11.4% rise in motor vehicles but additionally reflected a 0.4% (4.1% y/y) increase in electrical equipment and a 0.5% (-1.1% y/y) rise in computers &amp; electronic products. Nondurables inventories rose 0.9% (4.9% y/y) and less petroleum, the 0.5% (+2.7% y/y) rise in nondurable inventories was the first in four months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206e.jpg" width="353">
Factory shipments recovered 1.0% and factory sector orders surged 2.2%. The advance report of a 3.4% jump in durables goods orders was revised to 3.7%.
Unfilled orders jumped 1.6% and pulled the year to year gain to a near record 12.1%. Less the transportation sector backlogs continued strong and surged 1.1% (9.8% y/y) while the ratio of total unfilled orders to shipments rose further to the highest level since 2002.<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.6%</td>
<td>0.1%</td>
<td>4.7%</td>
<td>7.7%</td>
<td>-1.1%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.2%</td>
<td>-1.4%</td>
<td>9.0%</td>
<td>9.3%</td>
<td>3.5%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>6.5%</td>
<td>9.5%</td>
<td>1.5%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.6%</td>
<td>0.6%</td>
<td>12.1%</td>
<td>8.4%</td>
<td>8.0%</td>
<td>-8.5%</td>
</tr>
</tbody>
</table>
</body>
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Factory inventories in October rose 0.6% following an upwardly revised 0.1% up tick in September. Less petroleum, the 0.4% (3.9% y/y) rise in factory inventories was the strongest since February. The October inventory gain was led by [...]

U.S. Factory Inventories Back on the Rise, Order Backlogs Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206a.jpg" width="353">
Non-farm labor productivity growth for 3Q was revised higher to 4.7% versus the initial estimate of a 4.1% gain. Consensus expectations had been for a revision to 4.5%. The strength of these increases is impressive given that three hurricanes hit the Gulf Coast last quarter. Further evidence of strength is the comparison to the five year average of 3.4% growth. The recent trend rate of increase is the strongest since the mid 1960s.
Notable is that the trend in productivity exceeds average output growth of 2.9% during the last five years. For 3Q, output growth was revised up to 4.8% (4.4% y/y) from 4.2% reported initially. The estimate of hours worked last quarter was unrevised at 0.1% (1.2% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206b.jpg" width="353">
Compensation costs were little revised for 3Q at 3.7% (5.0 y/y) but the 2Q gain was revised sharply lower to 0.9%. As a result, unit labor costs fell 1.0% following a revised 1.2% decline in 2Q.
Factory sector productivity growth was revised lower for 3Q to 3.4% (4.5% y/y) from 4.5%. Compensation growth was little revised at 3.1% (6.2% y/y) and the 0.3% (+1.7% y/y) decline in unit labor costs followed a revised 2Q drop.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206c.jpg" width="353">
Productivity in the nonfinancial corporate sector for 3Q, reported for the first time, grew 3.2% (4.7% y/y) versus 4.3% growth in 2Q which was revised down. In fact, the estimate of y/y productivity growth through 2Q was lowered substantially to 4.3% from 6.3% due to a lowered estimate of output, however, compensation growth was lowered as well. Unit labor costs rose 1.3% in 3Q (0.7% y/y) as output grew 4.0% (6.0% y/y). Nonfinancial corporate sector output is gleaned from the income side of the National Income &amp; Product Accounts (NIPA) as opposed to the non-farm output figures which are derived from the output side of the NIPA. Factory sector output is derived from the industrial production measures compiled by the Federal Reserve Board.
The implicit price deflator for nonfarm business was little revised at 3.1% (2.8% y/y). The increase lifted the ratio of prices to unit labor costs to its highest since 1997. During the last ten years there has been a 60% correlation between the ratio and the y/y growth in operating corporate profits.

<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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>4.7%</td>
<td>4.1%</td>
<td>2.1%</td>
<td>3.1%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.7%</td>
<td>3.6%</td>
<td>0.9%</td>
<td>5.0%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-1.0%</td>
<td>-0.5%</td>
<td>-1.2%</td>
<td>1.8%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
</body>
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Non-farm labor productivity growth for 3Q was revised higher to 4.7% versus the initial estimate of a 4.1% gain. Consensus expectations had been for a revision to 4.5%. The strength of these increases is impressive given that three [...]

3Q U.S. Productivity Revised Up, 2Q Compensation Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206a.jpg" width="353">
Non-farm labor productivity growth for 3Q was revised higher to 4.7% versus the initial estimate of a 4.1% gain. Consensus expectations had been for a revision to 4.5%. The strength of these increases is impressive given that three hurricanes hit the Gulf Coast last quarter. Further evidence of strength is the comparison to the five year average of 3.4% growth. The recent trend rate of increase is the strongest since the mid 1960s.
Notable is that the trend in productivity exceeds average output growth of 2.9% during the last five years. For 3Q, output growth was revised up to 4.8% (4.4% y/y) from 4.2% reported initially. The estimate of hours worked last quarter was unrevised at 0.1% (1.2% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206b.jpg" width="353">
Compensation costs were little revised for 3Q at 3.7% (5.0 y/y) but the 2Q gain was revised sharply lower to 0.9%. As a result, unit labor costs fell 1.0% following a revised 1.2% decline in 2Q.
Factory sector productivity growth was revised lower for 3Q to 3.4% (4.5% y/y) from 4.5%. Compensation growth was little revised at 3.1% (6.2% y/y) and the 0.3% (+1.7% y/y) decline in unit labor costs followed a revised 2Q drop.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206c.jpg" width="353">
Productivity in the nonfinancial corporate sector for 3Q, reported for the first time, grew 3.2% (4.7% y/y) versus 4.3% growth in 2Q which was revised down. In fact, the estimate of y/y productivity growth through 2Q was lowered substantially to 4.3% from 6.3% due to a lowered estimate of output, however, compensation growth was lowered as well. Unit labor costs rose 1.3% in 3Q (0.7% y/y) as output grew 4.0% (6.0% y/y). Nonfinancial corporate sector output is gleaned from the income side of the National Income &amp; Product Accounts (NIPA) as opposed to the non-farm output figures which are derived from the output side of the NIPA. Factory sector output is derived from the industrial production measures compiled by the Federal Reserve Board.
The implicit price deflator for nonfarm business was little revised at 3.1% (2.8% y/y). The increase lifted the ratio of prices to unit labor costs to its highest since 1997. During the last ten years there has been a 60% correlation between the ratio and the y/y growth in operating corporate profits.

<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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>4.7%</td>
<td>4.1%</td>
<td>2.1%</td>
<td>3.1%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.7%</td>
<td>3.6%</td>
<td>0.9%</td>
<td>5.0%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-1.0%</td>
<td>-0.5%</td>
<td>-1.2%</td>
<td>1.8%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
U.S. Factory Inventories Back on the Rise, Order Backlogs Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 6, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206d.jpg" width="353">
Factory inventories in October rose 0.6% following an upwardly revised 0.1% up tick in September. Less petroleum, the 0.4% (3.9% y/y) rise in factory inventories was the strongest since February.
The October inventory gain was led by a 11.4% rise in motor vehicles but additionally reflected a 0.4% (4.1% y/y) increase in electrical equipment and a 0.5% (-1.1% y/y) rise in computers &amp; electronic products. Nondurables inventories rose 0.9% (4.9% y/y) and less petroleum, the 0.5% (+2.7% y/y) rise in nondurable inventories was the first in four months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206e.jpg" width="353">
Factory shipments recovered 1.0% and factory sector orders surged 2.2%. The advance report of a 3.4% jump in durables goods orders was revised to 3.7%.
Unfilled orders jumped 1.6% and pulled the year to year gain to a near record 12.1%. Less the transportation sector backlogs continued strong and surged 1.1% (9.8% y/y) while the ratio of total unfilled orders to shipments rose further to the highest level since 2002.<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.6%</td>
<td>0.1%</td>
<td>4.7%</td>
<td>7.7%</td>
<td>-1.1%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.2%</td>
<td>-1.4%</td>
<td>9.0%</td>
<td>9.3%</td>
<td>3.5%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>6.5%</td>
<td>9.5%</td>
<td>1.5%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.6%</td>
<td>0.6%</td>
<td>12.1%</td>
<td>8.4%</td>
<td>8.0%</td>
<td>-8.5%</td>
</tr>
</tbody>
</table>
Chain Store Sales Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 6, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051206f.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales collapsed 3.1% last week following the 0.7% drop during Thanksgiving week. It was the sharpest w/w drop since 1996 and lowered the starting point for December sales by 3.3% versus the November average which rose 1.2% m/m.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC recovered 1.1% (-0.5% y/y) following the prior week&#39;s revised 0.3% dip.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The latest decline in store sales was accompanied by an unchanged level of retail gasoline prices which held at $2.15 (12.3% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/03/05</th>
<th scope="col">11/26/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>440.6</td>
<td>454.8</td>
<td>3.5%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205c.jpg" width="353">
Corporate profits in Japan have begun to decelerate after the exceedingly good years of 2003 and 2004, but they are still, in the aggregate, showing positive year-over-year changes so far this year. Rising prices, particularly for energy, and increased wages as the labor market has begun to tighten are the principal factors accounting for the slowdown. The slowdown, however, has varied according to industry and to the size of corporations.
In the third quarter of 2005, profits in the non-manufacturing industry were only 2.39% above the third quarter of 2004, while the corresponding figure for profits in the manufacturing industries was 12.62%. The first chart shows the year-over-year changes in profits for the manufacturing and non manufacturing industries. For the past year, profits in the manufacturing industries have tended to increase faster than those in the non-manufacturing industries. Over the longer term, profits in the manufacturing industries tend to be more volatile than those in the non-manufacturing industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205d.jpg" width="353">
The trend in profits by size of corporation varies widely. Profits in large non-manufacturing corporations declined 3.18% in the third quarter while medium and small sized corporations continued to show year-over-year gains. Profits in large corporations in the manufacturing sector increased 9.25% and those in small corporations were up 42.84%. The weakness in the manufacturing sector was in the profits of medium sized corporation where profits in all three quarters of this year have been lower than those of the corresponding quarters of 2004. (Differences rather than percentage changes are shown for the profits of medium sized corporations because, in the past, this sector has experienced losses and percentage changes cannot be computed from a negative to a positive number). The second chart compares the year-over-year percent changes in profits of all large corporations with those of all small corporations.Note: Profit data for Japanese corporations are found in the JAPAN database in the Financial section under the heading, Corporate Financial Statement, Quarterly Data. Data for all industry, manufacturing and non-manufacturing industries are shown in billions of yen in the section Value of Capital Assets, Liabilities, Equity, Profit and Loss. Data are also available in 100 million yen for corporations in all industry, manufacturing and non manufacturing industries by size of capital under the heading--Financial Statement by Size of Capital.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Corporate Profits in Japan</th>
<th scope="col">Q3 05&nbsp; Y/Y%</th>
<th scope="col">Q2 05 Y/Y% </th>
<th scope="col">Q1 05 Y/Y%</th>
<th scope="col">2004 % &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">2003 %</th>
<th scope="col">2002 %&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All Industries&nbsp;</td>
<td>6.56</td>
<td>12.86</td>
<td>15.84</td>
<td>27.66</td>
<td>12.56</td>
<td>-0.70</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; B Large Corp (1 bil Y and over)&nbsp;</td>
<td>2.68</td>
<td>16.49</td>
<td>12.81</td>
<td>28.22</td>
<td>12.82</td>
<td>11.01</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; C Medium (100 mil-1 bil Y) </td>
<td>3.56</td>
<td>4.47</td>
<td>24.19</td>
<td>20.76</td>
<td>19.00</td>
<td>10.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; D Small (10 -100 mil Y)</td>
<td>17.68</td>
<td>9.92</td>
<td>16.16</td>
<td>29.62</td>
<td>9.71</td>
<td>-17.39</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>12.62</td>
<td>14.47</td>
<td>18.96</td>
<td>30.51</td>
<td>20.39</td>
<td>2.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; B Large Corp (1 bil Y and over)&nbsp;</td>
<td>9.25</td>
<td>13.86</td>
<td>16.02</td>
<td>28.63</td>
<td>24.99</td>
<td>6.56</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &nbsp; C Medium (100 mil-1 bil Y) </td>
<td>-199</td>
<td>-119</td>
<td>-203</td>
<td>5953</td>
<td>4428</td>
<td>1815</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; D Small (10 -100 mil Y)</td>
<td>42.84</td>
<td>25.31</td>
<td>42.33</td>
<td>36.01</td>
<td>0.49</td>
<td>-13.24</td>
</tr>
<tr class="odd">
<td class="firstcol">Non-Manufacturing</td>
<td>&nbsp;2.39</td>
<td>11.89&nbsp;</td>
<td>14.02</td>
<td>25.77</td>
<td>&nbsp;7.92</td>
<td>&nbsp;-2.37</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; B Large Corp (1 bil Y and over)&nbsp;</td>
<td>-3.18</td>
<td>19.69&nbsp;</td>
<td>9.02&nbsp;</td>
<td>27.77&nbsp;</td>
<td>1.95&nbsp;</td>
<td>&nbsp;15.31</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; C Medium (100 mil-1 bil Y) </td>
<td>8.50</td>
<td>9.36</td>
<td>38.88</td>
<td>14.21</td>
<td>12.84</td>
<td>14.21</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; D Small (10 -100 mil Y)</td>
<td>&nbsp;9.55</td>
<td>5.35&nbsp;</td>
<td>10.03&nbsp;</td>
<td>27.81&nbsp;</td>
<td>12.64&nbsp;</td>
<td>-18.63&nbsp;</td>
</tr>
</tbody>
</table>
</body>
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Corporate profits in Japan have begun to decelerate after the exceedingly good years of 2003 and 2004, but they are still, in the aggregate, showing positive year-over-year changes so far this year. Rising prices, particularly for [...]

Growth in Japanese Corporate Profits Slowing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205a.jpg" width="353">
The Institute for Supply Management reported that the Business Activity Index for the non-manufacturing sector in November slipped to 58.5 from an unrevised 60.0 the prior month. A reading above 50 indicates expansion. The latest about matched Consensus expectations for a decline to 59.0.
Since the series&#39; inception in 1997 there has been a 53% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
Despite the decline in the Business Activity gauge, the new orders component rose for the second month after a sharp September decline. In addition, the employment index rose 4 points to the highest level since August. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205b.jpg" width="353">
Pricing power fell for the second month after a 14 point September surge. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP Services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>58.5</td>
<td>60.0</td>
<td>61.9</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>74.2</td>
<td>78.0</td>
<td>73.2</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>


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The Institute for Supply Management reported that the Business Activity Index for the non-manufacturing sector in November slipped to 58.5 from an unrevised 60.0 the prior month. A reading above 50 indicates expansion. The latest [...]

ISM: Activity Expanded Outside the Factory Sector

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205a.jpg" width="353">
The Institute for Supply Management reported that the Business Activity Index for the non-manufacturing sector in November slipped to 58.5 from an unrevised 60.0 the prior month. A reading above 50 indicates expansion. The latest about matched Consensus expectations for a decline to 59.0.
Since the series&#39; inception in 1997 there has been a 53% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
Despite the decline in the Business Activity gauge, the new orders component rose for the second month after a sharp September decline. In addition, the employment index rose 4 points to the highest level since August. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205b.jpg" width="353">
Pricing power fell for the second month after a 14 point September surge. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP Services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>58.5</td>
<td>60.0</td>
<td>61.9</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>74.2</td>
<td>78.0</td>
<td>73.2</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>
Growth in Japanese Corporate Profits Slowing  
by <a href="/comment/Curley.html">Louise Curley</a> December 5, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205c.jpg" width="353">
Corporate profits in Japan have begun to decelerate after the exceedingly good years of 2003 and 2004, but they are still, in the aggregate, showing positive year-over-year changes so far this year. Rising prices, particularly for energy, and increased wages as the labor market has begun to tighten are the principal factors accounting for the slowdown. The slowdown, however, has varied according to industry and to the size of corporations.
In the third quarter of 2005, profits in the non-manufacturing industry were only 2.39% above the third quarter of 2004, while the corresponding figure for profits in the manufacturing industries was 12.62%. The first chart shows the year-over-year changes in profits for the manufacturing and non manufacturing industries. For the past year, profits in the manufacturing industries have tended to increase faster than those in the non-manufacturing industries. Over the longer term, profits in the manufacturing industries tend to be more volatile than those in the non-manufacturing industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051205d.jpg" width="353">
The trend in profits by size of corporation varies widely. Profits in large non-manufacturing corporations declined 3.18% in the third quarter while medium and small sized corporations continued to show year-over-year gains. Profits in large corporations in the manufacturing sector increased 9.25% and those in small corporations were up 42.84%. The weakness in the manufacturing sector was in the profits of medium sized corporation where profits in all three quarters of this year have been lower than those of the corresponding quarters of 2004. (Differences rather than percentage changes are shown for the profits of medium sized corporations because, in the past, this sector has experienced losses and percentage changes cannot be computed from a negative to a positive number). The second chart compares the year-over-year percent changes in profits of all large corporations with those of all small corporations.Note: Profit data for Japanese corporations are found in the JAPAN database in the Financial section under the heading, Corporate Financial Statement, Quarterly Data. Data for all industry, manufacturing and non-manufacturing industries are shown in billions of yen in the section Value of Capital Assets, Liabilities, Equity, Profit and Loss. Data are also available in 100 million yen for corporations in all industry, manufacturing and non manufacturing industries by size of capital under the heading--Financial Statement by Size of Capital.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Corporate Profits in Japan</th>
<th scope="col">Q3 05&nbsp; Y/Y%</th>
<th scope="col">Q2 05 Y/Y% </th>
<th scope="col">Q1 05 Y/Y%</th>
<th scope="col">2004 % &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">2003 %</th>
<th scope="col">2002 %&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All Industries&nbsp;</td>
<td>6.56</td>
<td>12.86</td>
<td>15.84</td>
<td>27.66</td>
<td>12.56</td>
<td>-0.70</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; B Large Corp (1 bil Y and over)&nbsp;</td>
<td>2.68</td>
<td>16.49</td>
<td>12.81</td>
<td>28.22</td>
<td>12.82</td>
<td>11.01</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; C Medium (100 mil-1 bil Y) </td>
<td>3.56</td>
<td>4.47</td>
<td>24.19</td>
<td>20.76</td>
<td>19.00</td>
<td>10.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; D Small (10 -100 mil Y)</td>
<td>17.68</td>
<td>9.92</td>
<td>16.16</td>
<td>29.62</td>
<td>9.71</td>
<td>-17.39</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>12.62</td>
<td>14.47</td>
<td>18.96</td>
<td>30.51</td>
<td>20.39</td>
<td>2.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; B Large Corp (1 bil Y and over)&nbsp;</td>
<td>9.25</td>
<td>13.86</td>
<td>16.02</td>
<td>28.63</td>
<td>24.99</td>
<td>6.56</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &nbsp; C Medium (100 mil-1 bil Y) </td>
<td>-199</td>
<td>-119</td>
<td>-203</td>
<td>5953</td>
<td>4428</td>
<td>1815</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; D Small (10 -100 mil Y)</td>
<td>42.84</td>
<td>25.31</td>
<td>42.33</td>
<td>36.01</td>
<td>0.49</td>
<td>-13.24</td>
</tr>
<tr class="odd">
<td class="firstcol">Non-Manufacturing</td>
<td>&nbsp;2.39</td>
<td>11.89&nbsp;</td>
<td>14.02</td>
<td>25.77</td>
<td>&nbsp;7.92</td>
<td>&nbsp;-2.37</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; B Large Corp (1 bil Y and over)&nbsp;</td>
<td>-3.18</td>
<td>19.69&nbsp;</td>
<td>9.02&nbsp;</td>
<td>27.77&nbsp;</td>
<td>1.95&nbsp;</td>
<td>&nbsp;15.31</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; C Medium (100 mil-1 bil Y) </td>
<td>8.50</td>
<td>9.36</td>
<td>38.88</td>
<td>14.21</td>
<td>12.84</td>
<td>14.21</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; D Small (10 -100 mil Y)</td>
<td>&nbsp;9.55</td>
<td>5.35&nbsp;</td>
<td>10.03&nbsp;</td>
<td>27.81&nbsp;</td>
<td>12.64&nbsp;</td>
<td>-18.63&nbsp;</td>
</tr>
</tbody>
</table>


</html>

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/051202e.jpg" width="353">
House prices are a major economic indicator for the UK. They are seen by many as a measure of the housing market, and also as a gauge of consumer confidence and spending potential. So after a substantial run-up in those prices from 2001 through the middle of last year, it was of no small concern that they flattened out until a few months ago.
The measure here is the &quot;Halifax House Price Index&quot;, a compilation by the country&#39;s largest mortgage lender, HBOS plc. It is based on about 15,000 home sales monthly; the data are adjusted for the size and style of home, so that month-to-month comparisons are calculated from like or &quot;standardized&quot; properties. Thus, the index measures only price change, not movements due to differing house or location characteristics.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202f.jpg" width="353">
The index began to rise again in June after stagnating for nearly a year. A 1.2% rise in November was the fifth increase in six months, and over the last six months, prices have gone up at a 9.7% annual rate. This compares with a low in the six-month annualized percent change of -0.4% in July. Relative to the enormous increases in 2002 and 2003, the recent pace is not fast, but it clearly is an improvement over the weakness of earlier this year. Accompanying data show that the recovery has been firmer in the existing home segment than in new houses. And as shown in the second graph, prices of the obviously smaller homes purchased by first-time buyers have generally been more vigorous than those bought by previous home owners.
All these data are in Haver&#39;s UK database, plus quarterly data for the various regions of the UK. Halifax&#39;s researchers publish the data both unadjusted and seasonally adjusted.

<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/UK/@U4/@U4.HTM">UK House Prices: Halifax data,</a> Seasonally Adjusted</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Nov 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="3">Annual Average</td>
</tr>
<tr>
<td class="firstcol">Price (&pound; Thous)</td>
<td>170.1</td>
<td>168.1</td>
<td>168.2</td>
<td>160.7</td>
<td>157.0</td>
<td>132.2</td>
<td>110.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="3">December/December</td>
</tr>
<tr>
<td class="firstcol">% Change*</td>
<td>1.2</td>
<td>-0.0</td>
<td>1.1</td>
<td>5.7</td>
<td>14.2</td>
<td>17.3</td>
<td>23.1</td>
</tr>
</tbody>
</table>
</body>
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House prices are a major economic indicator for the UK. They are seen by many as a measure of the housing market, and also as a gauge of consumer confidence and spending potential. So after a substantial run-up in those prices from [...]

UK House Prices Continue Recovery in November

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202a.jpg" width="353">
According to the Office of Federal Housing Enterprise Oversight (OFHEO) home prices in the U.S. continued to rise last quarter, but the rate of escalation showed signs of topping out. The 2.9% q/q rise was down from the prior quarter and was down from a 4.7% jump one year ago. As a result the y/y gain slowed to 12.0% from 14.0% in 2Q.
These rates of gain are hardly slow, and given the near record level of home sales, historically low interest rates and rising personal incomes they are widely expected to remain healthy.
Throughout the country, rates of home price appreciation appear to have topped. However, the variance in the rates of growth between regions is high.
During the last year, job cutbacks in the auto industry helped lower the rate of home price appreciation in Michigan to 4.0% and the state&#39;s gain has lagged all others. At the other end of the spectrum, demographic trends pushed the rate of home price appreciation in Arizona to the top of the scale at 30.3% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051202b.jpg" width="353">
During the last five years, home price appreciation in the District of Columbia has surpassed all others at 118.9% followed closely by California at 112.8%. Indiana with a 20.6% rise is at the bottom of the list during the last five years.
The House Price Indices in this report are weighted indexes based on repeat sales or refinancings using data provided by Fannie Mae or Freddie Mac .
Housing Markets and Demographics from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-21.pdf"> here</a>.
The latest report from the Office of Federal Housing Enterprise Oversight (OFHEO) can be found <a href="http://www.ofheo.gov/media/pdf/3q05hpi.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/REGIONAL/@R11/@R1101/@R1101.HTM">House Price Index (OFHEO)</a></th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">United States</td>
<td>2.9%</td>
<td>3.6%</td>
<td>12.0%</td>
<td>10.9%</td>
<td>6.9%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; California</td>
<td>4.2%</td>
<td>5.6%</td>
<td>19.3%</td>
<td>22.4%</td>
<td>12.3%</td>
<td>11.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Jersey</td>
<td>3.1%</td>
<td>4.4%</td>
<td>13.7%</td>
<td>15.0%</td>
<td>10.5%</td>
<td>12.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Alabama</td>
<td>2.2%</td>
<td>2.5%</td>
<td>8.1%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Michigan</td>
<td>0.9%</td>
<td>1.0%</td>
<td>4.0%</td>
<td>4.4%</td>
<td>3.5%</td>
<td>4.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the Office of Federal Housing Enterprise Oversight (OFHEO) home prices in the U.S. continued to rise last quarter, but the rate of escalation showed signs of topping out. The 2.9% q/q rise was down from the prior quarter [...]

Home Price Appreciation Strong, But Off Record Pace

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

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Tian Yong Woon

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

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

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

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

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

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

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

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

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

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Asia

Economic Letter from Asia: The Final Countdown?

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

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

Crude Oil & Benzene group prices moved 3.1% higher (-15.7% y/y) in the latest four week period. The cost of West Texas Intermediate crude oil rose 5.2% higher to $65.86 per barrel and remained 20.6% lower y/y. It fell to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 6.0% (-35.3% y/y). Excluding crude oil, the industrial commodity price index rose 2.1% (1.6% y/y) during the last four weeks.

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


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

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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

FIBER: Industrial Commodity Prices Surge in Latest Four Weeks

Robert Brusca

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

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

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

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

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

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

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

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

Germany

German IP Is Making Progress Across Most Sectors

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

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

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

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

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

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

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

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

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

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

Economy in Brief: December 2005

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U.S. Factory Inventories Back on the Rise, Order Backlogs Surged

3Q U.S. Productivity Revised Up, 2Q Compensation Lower

3Q U.S. Productivity Revised Up, 2Q Compensation Lower

Growth in Japanese Corporate Profits Slowing

ISM: Activity Expanded Outside the Factory Sector

ISM: Activity Expanded Outside the Factory Sector

UK House Prices Continue Recovery in November

Home Price Appreciation Strong, But Off Record Pace