Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080506d.jpg" align="left" border="0" height="265" width="353">
The Czech Republic, Australia and Malaysia reported their
March trade balances today. The monthly data are shown in the first
chart. Australia showed improvement as its deficit declined by A$536
million from February to A$2,544 million in March. Exports of wheat,
coal and iron ore were particularly strong.
Both Malaysia and the Czech Republic reported lower trade
surpluses in March than in February due to a greater decline in exports
than in imports. For Malaysia, the March trade surplus was US$2,302
million compared with US$ 3,269 million in February. For the Czech
Republic, the March trade surplus was US$182 million, compared with
US$505 million in February. Czech data on the composition and direction
of exports and imports are not available. Malaysian data on the
composition of exports and imports are available but on a delayed
schedule. Some such data are available for February but most are only
available for January or the 4th quarter of 2007.
It is to be expected that the slowdown in the US economy
and the appreciation of their currencies are affecting the trade
balances of most countries. The appreciation in Australia's exchange
rate is shown in the second chart and those of the Czech Republic and
Malaysia in the third chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080506f.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080506e.jpg" border="0" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">BALANCES
ON TRADE IN MERCHANDISE GOODS</th>
<th scope="col">Mar 08</th>
<th scope="col">Feb&nbsp; 08&nbsp;</th>
<th scope="col">Mar&nbsp; 07&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Australia</td>
<td>-2844</td>
<td>-3380</td>
<td>-1766</td>
<td>536</td>
<td>-1078</td>
<td>-20873</td>
<td>-13268</td>
<td>-18007</td>
</tr>
<tr class="odd">
<td class="firstcol">Malaysia</td>
<td>2302</td>
<td>3269</td>
<td>1719</td>
<td>-967</td>
<td>583</td>
<td>29219</td>
<td>29528</td>
<td>36346</td>
</tr>
<tr class="odd">
<td class="firstcol">Czech Republic</td>
<td>182</td>
<td>505</td>
<td>462</td>
<td>-324</td>
<td>-280</td>
<td>4244</td>
<td>1777</td>
<td>1607</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Q1 08</td>
<td>Q4 07&nbsp;</td>
<td>Q1 07&nbsp;</td>
<td>Q/Q Chg&nbsp;</td>
<td>Y/Y Chg&nbsp;</td>
<td>2007</td>
<td>2006</td>
<td>2005</td>
</tr>
<tr class="odd">
<td class="firstcol">Australia</td>
<td>-8703</td>
<td>-7073</td>
<td>-3794</td>
<td>-1630</td>
<td>-4909</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Malaysia</td>
<td>8504</td>
<td>7182</td>
<td>6135</td>
<td>1323</td>
<td>2405</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Czech Republic</td>
<td>1059</td>
<td>1478</td>
<td>1025</td>
<td>-419</td>
<td>30</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>

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The Czech Republic, Australia and Malaysia reported their March trade balances today. The monthly data are shown in the first chart. Australia showed improvement as its deficit declined by A$536 million from February to A$2,544 [...]

Trade Balances for Czech Republic, Malaysia and Australia

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080506b.jpg" width="353">
In its ICSC-UBS Chain Store survey, the International Council of Shopping Centers reported that sales dipped 0.2% last week after the prior period&#39;s 0.9% rise.
During all of April sales rose 1.0% from March and they began May up another 0.4%.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080506c.jpg" width="353">
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.
During the latest week, the leading indicator of chain store sales from ICSC-UBS fell a sharp 1.2% (-3.7% y/y) and it has been declining steadily for more than a year.
The chain store sales figures are available in Haver&#39;s SURVEYW database.
The April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200805/fullreport.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/03/08</th>
<th scope="col">04/26/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>496.3</td>
<td>491.8</td>
<td>2.3%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


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In its ICSC-UBS Chain Store survey, the International Council of Shopping Centers reported that sales dipped 0.2% last week after the prior period's 0.9% rise.

U.S. Chain Store Sales Dipped Last Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080506a.jpg" width="353">
The retail price for a gallon of regular gasoline was relatively stable last week. A penny rise to $3.61 per gallon, according to the U.S. Department of Energy survey, followed a ten cent increase during the last week of April.Prices have risen 56 cents (18.3%) since the end of last year.
Spot market prices for gasoline rose further yesterday. The wholesale price for a gallon of non-oxygenated gasoline was $2.94 per gallon, up eight cents from Friday and up ten cents from last week&#39;s average.
During all of last week, the price of a barrel of WTI crude oil fell nearly four dollars w/w to an average of $115.34. Yesterday, however, the price recovered sharply to $119.97. The record was reached during the third week of April prices reached $121.57.
Natural gas prices also have move higher. Yesterday&#39;s wholesale price of natural gas at $10.88 per mmbtu was up from Friday&#39;s price and up from last week&#39;s average of $10.74/mmbtu.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database, daily prices are found in the DAILY database.
Mortgage Delinquencies and Foreclosures are yesterday&#39;s remarks by Fed Chairman Ben S. Bernancke and they can be found <a href="http://www.federalreserve.gov/newsevents/speech/Bernanke20080505a.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/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">05/05/08</th>
<th scope="col">04/21/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>3.61</td>
<td>3.60</td>
<td>18.3%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>115.34</td>
<td>119.21</td>
<td>80.8%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>


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The retail price for a gallon of regular gasoline was relatively stable last week. A penny rise to $3.61 per gallon, according to the U.S. Department of Energy survey, followed a ten cent increase during the last week of April.Prices [...]

U.S. Gasoline Prices Stable at $3.61 per Gallon, WTI Crude Down

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505d.jpg" align="left" border="0" height="265" width="353">
The Gulf States, Bahrain, Kuwait, Oman, Qatar, United Arab
Emirates and Saudi Arabia have, with the exception of Kuwait, long kept
their exchange rates pegged to the dollar. The first chart shows the
exchange rates of Qatar and Saudi Arabia as typical of the majority of
the Gulf States and that of Kuwait that has been slowly appreciating
since early 2002.
As inflation has increased with the rise in oil wealth in all
the states, talk of appreciation of the currencies of the other five
gulf states has become widespread. The second chart shows monthly
inflation rates in Kuwait, Oman and Saudi Arabia. These are the only
states that have monthly data. The remaining states have only quarterly
or annual data. The annual rates of inflation for these states are
shown in the third chart. The latest data for Bahrain is 2.59% in 2005,
for Qatar 9.29% in 2006 and 13.76% for the United Arab Emirates in 2007.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505e.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505f.jpg" border="0" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GULF
STATES&nbsp;</th>
<th scope="col">Mar 08</th>
<th scope="col">Feb 08&nbsp;</th>
<th scope="col">Jan 08&nbsp;</th>
<th scope="col">Mar 07</th>
<th scope="col">Feb&nbsp; 07&nbsp;</th>
<th scope="col">Jan&nbsp; 08&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inflation</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Saudi Arabia</td>
<td>9.60</td>
<td>8.67</td>
<td>6.95</td>
<td>2.86</td>
<td>2.98</td>
<td>3.87</td>
<td>4.12</td>
<td>2.30</td>
<td>0.61</td>
</tr>
<tr>
<td class="firstcol">Oman</td>
<td>--</td>
<td>11.11</td>
<td>10.12</td>
<td>--</td>
<td>4.58</td>
<td>4.16</td>
<td>5.94</td>
<td>3.04</td>
<td>1.19</td>
</tr>
<tr>
<td class="firstcol">Kuwait</td>
<td>--</td>
<td>--</td>
<td>9.53</td>
<td>--</td>
<td>--</td>
<td>3.87</td>
<td>5.48</td>
<td>3.10</td>
<td>4.09</td>
</tr>
<tr class="odd">
<td class="firstcol">Exchange Rates</td>
<td>Recent Quote</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Bahrain Dinar/USD</td>
<td>.376</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Kuwait Dinar/USD</td>
<td>.266</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Oman
Rial/USD&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>.385</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Qatar Riyal/USD</td>
<td>3.64</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">United Arab Emirates
Dirham/USD</td>
<td>3.68</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Saudi Arabia Riyal/USD</td>
<td>3.75</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
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The Gulf States, Bahrain, Kuwait, Oman, Qatar, United Arab Emirates and Saudi Arabia have, with the exception of Kuwait, long kept their exchange rates pegged to the dollar. The first chart shows the exchange rates of Qatar and Saudi [...]

Appreciation to Come in the Exchange Rates in the Gulf States ???

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505c.jpg" align="left" border="0" height="265" width="353">
In recognition of &#8216;cinco de mayo&#8217; we say &#8216;MUY FUERTE&#8217; (or very
strong) - The chart above displays the JP Morgan broad trade-weighted
index value of the euro. In this framework we convert the index to
operate as a PPP index, or index of purchasing power parity by
inserting a line representing its mean value from 1972 onward, after
the period of fixed rates ended. Enabled by the assumption that FX
markets are reasonably competitive and despite sometimes heavy handed
intervention by monetary authorities (especially those that have
accumulated large FX reserve balances, thereby thwarting the market
mechanism of making the private sector absorb flows or force changes in
FX rates when there are imbalances) we appeal to the market mechanism
as being one that gets the level of the exchange rate right over the
long haul. The period above spans 1972 to 2008. Thus we set the mean of
the real weighted dollar index for this period to parity (it lies at
113.8 on the scale) and plot the series. What you get is the chart you
see above. As a result the value of 113.8 is the market&#8217;s estimate of
parity. Above the value of 100 the euro is too high, below it, it is
too weak. Right now the euro is too high by some 20%. The highest
overvaluation in the period since fixed rate were abolished.

This PPP chart of course plots a &#8216;euro;&#8217; that did not exist
before 1990. To plug that gap a weighting process is used to
reconstruct the index for the same group of countries that are in the
euro today. Since the European currencies have, for much of this
episode, been tethered together in an arrangement called &#8216;the snake&#8217;
(or the snake in a tunnel). I think this treatment is useful for
historic comparison.

A similar formulation of the dollar shows that it is
undervalued by about 15% on broad currency weighted basis. From that we
see that euro seems to have more disequilibrium to deal with on the
upside than the dollar does on the downside. And while European data
are not uniform in their signals there are some strong hints by local
economists, business groups and labor groups and there has been a lot
of policymaker squawking to make us think that Europe is indeed
suffering from this overvaluation. The data on trade trends are a
useful diagnostic.

EU trade is showing the wear and tear of a rising exchange
rate. The twelve month growth rates show that European exports are
generally decelerating. Among these groups, exports in 2007 decelerated
compared to 2006 growth rates in 75% of the destinations without regard
to size. With regard to size some 87% of the exports are slowing. The
size-weighted slowing has jumped sharply in 2007. This last move up in
the euro of about 9% in one year on a trade weighted basis has made a
large impact. EMU trade flows are predominately slowing already and we
know that the impact from exchanger rate changes embodies lags.

Economic summits have been poor vehicles achieve macroeconomic
change in recent years and so they have turned their attention to
global issues and to North-South (developed VS undeveloped country)
trade issues and tariff reduction. At the last G-7 summit participants
came away giving markets very different views of what was waiting for
them on the exchange rate front with European participants talking of a
strong commitment to limit the dollar&#8217;s drop while US officials pointed
to the unchanged nature of the langue of the communiqué.

European MFG and consumer data plus the survey data on
activity in the EMU and EU areas seem to confirm that slowing is taking
root in Europe. The backing off the euro and the dollar from their
respective precipices is welcome news. But the Euro still faces some
strong challenges and so does growth in Europe.



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> EMU12 Export Trends BY Region 12Mo %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Dec-06</td>
<td>Dec-05</td>
<td>Dec-04</td>
<td>Dec-03</td>
<td>SHARE</td>
</tr>
<tr>
<td class="firstcol">EU/NonEMU</td>
<td style="color: red;">5.1%</td>
<td>19.2%</td>
<td>18.7%</td>
<td>10.1%</td>
<td>8.3%</td>
<td style="color: red;">23.4%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td style="color: red;">0.0%</td>
<td>7.8%</td>
<td>7.6%</td>
<td style="color: red;">-8.2%</td>
<td>6.1%</td>
<td style="color: red;">16.9%</td>
</tr>
<tr>
<td class="firstcol">Russia</td>
<td style="color: red;">10.9%</td>
<td>29.7%</td>
<td style="color: red;">19.7%</td>
<td>31.6%</td>
<td>11.7%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Switzerland</td>
<td style="color: red;">-3.0%</td>
<td>14.1%</td>
<td style="color: red;">3.8%</td>
<td>12.1%</td>
<td style="color: red;">-0.2%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Turkey</td>
<td>5.6%</td>
<td style="color: red;">-5.1%</td>
<td>35.4%</td>
<td style="color: red;">12.3%</td>
<td style="color: red;">22.7%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">US</td>
<td style="color: red;">-17.4%</td>
<td style="color: red;">5.6%</td>
<td>21.3%</td>
<td>0.0%</td>
<td style="color: red;">-6.1%</td>
<td style="color: red;">14.0%</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td style="color: red;">7.9%</td>
<td style="color: red;">15.4%</td>
<td>28.2%</td>
<td>12.4%</td>
<td style="color: red;">8.3%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Japan</td>
<td>-6.0%</td>
<td style="color: red;">-7.0%</td>
<td style="color: red;">2.9%</td>
<td>5.8%</td>
<td>5.6%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Other Asia</td>
<td style="color: red;">-8.0%</td>
<td style="color: red;">-7.5%</td>
<td style="color: red;">2.8%</td>
<td style="color: red;">5.4%</td>
<td>5.6%</td>
<td style="color: red;">2.4%</td>
</tr>
<tr>
<td class="firstcol">Africa</td>
<td>8.8%</td>
<td style="color: red;">4.1%</td>
<td>19.2%</td>
<td>8.1%</td>
<td>2.6%</td>
<td>6.5%</td>
</tr>
<tr>
<td class="firstcol">Latin America</td>
<td style="color: red;">6.5%</td>
<td style="color: red;">11.4%</td>
<td style="color: red;">13.3%</td>
<td>19.4%</td>
<td>-7.7%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td style="color: red;">-3.9%</td>
<td>11.3%</td>
<td>7.2%</td>
<td style="color: red;">7.0%</td>
<td>18.7%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">% Slowing</td>
<td style="color: red;">75.0%</td>
<td style="color: red;">58.3%</td>
<td style="color: red;">41.7%</td>
<td style="color: red;">33.3%</td>
<td style="color: red;">33.3%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">% slowing weighted</td>
<td>87.6%</td>
<td>37.8%</td>
<td>20.8%</td>
<td>32.4%</td>
<td>27.8%</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

In recognition of ‘cinco de mayo’ we say ‘MUY FUERTE’ (or very strong) - The chart above displays the JP Morgan broad trade-weighted index value of the euro. In this framework we convert the index to operate as a PPP index, or index [...]

So How Strong is the Euro?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505a.jpg" width="353">
For April, the Institute for Supply Management reported that its Composite Index for the non-manufacturing sector improved further. At 52.0, the index was up from 49.6 in March and it was well up from the recent low of 44.6 in January. Consensus expectations had been for a lower April reading of 49.1.
The trend in the index, however, remained under pressure. For the first four months of 2008 the index averaged 48.9. A level of 50 is the break even point between rising and falling activity in the service sector.
Beginning with the January 2008 Non-Manufacturing <cite>Report On Business</cite>&reg;, a composite index is now calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indexes for four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm"> here</a>.
The non-manufacturing business activity sub-index fell somewhat to 50.9 from 52.2 in March. So far in 2008 the index has averaged 48.9, down from 56.0 during all of last year. Since the series&#39; inception in 1997 there has been a 48% correlation between the level of the business activity index for the non-manufacturing sector and the Q/Q change in real GDP for the services and the construction sectors. The correlation of the separate factory sector ISM index with the change in real GDP less just services is a higher 57%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505b.jpg" width="353">
The new orders sub-index held about steady with March at 50.1 and the four month figure averaged 48.4 versus 54.8 last year. The supplier delivery index improved quite sharply last month to a reading of 56.0 from 49.0 in March. So far this year, however, the index still was steady with 2007 at 51.0.
The employment index also improved m/m to 50.8 from 46.9 in March. That was not enough, however, to lift the year to date average, at 47.1, above break even. The series remained below last year&#39;s level of 52.0. Since the series&#39; inception in 1997 there has been a 56% 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.
Pricing power continued firm. The prices paid index at 72.1 rose 1.3 points from March and added to that month&#39;s 2.9 point gain. The latest was the highest level since last November and it was well up from the 2007 average of 63.8. Since inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
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 back to July 1997.

<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">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>52.0</td>
<td>49.6</td>
<td>53.4</td>
<td>53.5</td>
<td>55.7</td>
<td>58.0</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.1</td>
<td>70.8</td>
<td>63.2</td>
<td>63.8</td>
<td>65.3</td>
<td>68.0</td>
</tr>
</tbody>
</table>


</html>

For April, the Institute for Supply Management reported that its Composite Index for the non-manufacturing sector improved further. At 52.0, the index was up from 49.6 in March and it was well up from the recent low of 44.6 in [...]

U.S. April ISM Non-Manufacturing Index Improved, Trend Still Lower

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505a.jpg" align="left" border="0" height="265" width="353">
For April, the Institute for Supply Management reported that
its Composite Index for the non-manufacturing sector improved further.
At 52.0, the index was up from 49.6 in March and it was well up from
the recent low of 44.6 in January. Consensus expectations had been for
a lower April reading of 49.1.
The trend in the index, however, remained under pressure. For
the first four months of 2008 the index averaged 48.9. A level of 50 is
the break even point between rising and falling activity in the service
sector.
Beginning with the January 2008 Non-Manufacturing <cite>Report
On Business</cite>®, a composite index is now calculated as an
indicator of the overall economic condition for the non-manufacturing
sector. It is a composite index based on the diffusion indexes for four
of the indicators (business activity, new orders, employment and
supplier deliveries) with equal weights. The latest report from the ISM
can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm">
here</a>.
The non-manufacturing business activity sub-index fell
somewhat to 50.9 from 52.2 in March. So far in 2008 the index has
averaged 48.9, down from 56.0 during all of last year. Since the
series' inception in 1997 there has been a 48% correlation between the
level of the business activity index for the non-manufacturing sector
and the Q/Q change in real GDP for the services and the construction
sectors. The correlation of the separate factory sector ISM index with
the change in real GDP less just services is a higher 57%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505b.jpg" align="right" border="0" height="265" width="353">
The new orders sub-index held about steady with March at 50.1
and the four month figure averaged 48.4 versus 54.8 last year. The
supplier delivery index improved quite sharply last month to a reading
of 56.0 from 49.0 in March. So far this year, however, the index still
was steady with 2007 at 51.0.
The employment index also improved m/m to 50.8 from 46.9 in
March. That was not enough, however, to lift the year to date average,
at 47.1, above break even. The series remained below last year's level
of 52.0. Since the series' inception in 1997 there has been a 56%
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.
Pricing power continued firm. The prices paid index at 72.1
rose 1.3 points from March and added to that month's 2.9 point gain.
The latest was the highest level since last November and it was well up
from the 2007 average of 63.8. Since inception ten years ago, there has
been a 60% correlation between the price index and the q/q change in
the GDP services chain price index.
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 back to July 1997.

<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">April</th>
<th scope="col">March</th>
<th scope="col">April '07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>52.0</td>
<td>49.6</td>
<td>53.4</td>
<td>53.5</td>
<td>55.7</td>
<td>58.0</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.1</td>
<td>70.8</td>
<td>63.2</td>
<td>63.8</td>
<td>65.3</td>
<td>68.0</td>
</tr>
</tbody>
</table>
&nbsp;Appreciation to Come
inthe Exchange Rates in the Gulf States ??? 
by <a href="/comment/Curley.html">Louise
Curley</a> May 5, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505d.jpg" align="left" border="0" height="265" width="353">
The Gulf States, Bahrain, Kuwait, Oman, Qatar, United Arab
Emirates and Saudi Arabia have, with the exception of Kuwait, long kept
their exchange rates pegged to the dollar. The first chart shows the
exchange rates of Qatar and Saudi Arabia as typical of the majority of
the Gulf States and that of Kuwait that has been slowly appreciating
since early 2002.
As inflation has increased with the rise in oil wealth in all
the states, talk of appreciation of the currencies of the other five
gulf states has become widespread. The second chart shows monthly
inflation rates in Kuwait, Oman and Saudi Arabia. These are the only
states that have monthly data. The remaining states have only quarterly
or annual data. The annual rates of inflation for these states are
shown in the third chart. The latest data for Bahrain is 2.59% in 2005,
for Qatar 9.29% in 2006 and 13.76% for the United Arab Emirates in 2007.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505e.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505f.jpg" border="0" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GULF
STATES&nbsp;</th>
<th scope="col">Mar 08</th>
<th scope="col">Feb 08&nbsp;</th>
<th scope="col">Jan 08&nbsp;</th>
<th scope="col">Mar 07</th>
<th scope="col">Feb&nbsp; 07&nbsp;</th>
<th scope="col">Jan&nbsp; 08&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inflation</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Saudi Arabia</td>
<td>9.60</td>
<td>8.67</td>
<td>6.95</td>
<td>2.86</td>
<td>2.98</td>
<td>3.87</td>
<td>4.12</td>
<td>2.30</td>
<td>0.61</td>
</tr>
<tr>
<td class="firstcol">Oman</td>
<td>--</td>
<td>11.11</td>
<td>10.12</td>
<td>--</td>
<td>4.58</td>
<td>4.16</td>
<td>5.94</td>
<td>3.04</td>
<td>1.19</td>
</tr>
<tr>
<td class="firstcol">Kuwait</td>
<td>--</td>
<td>--</td>
<td>9.53</td>
<td>--</td>
<td>--</td>
<td>3.87</td>
<td>5.48</td>
<td>3.10</td>
<td>4.09</td>
</tr>
<tr class="odd">
<td class="firstcol">Exchange Rates</td>
<td>Recent Quote</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Bahrain Dinar/USD</td>
<td>.376</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Kuwait Dinar/USD</td>
<td>.266</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Oman
Rial/USD&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>.385</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Qatar Riyal/USD</td>
<td>3.64</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">United Arab Emirates
Dirham/USD</td>
<td>3.68</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Saudi Arabia Riyal/USD</td>
<td>3.75</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
So How Strong is the
Euro?&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 5, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080505c.jpg" align="left" border="0" height="265" width="353">
In recognition of &#8216;cinco de mayo&#8217; we say &#8216;MUY FUERTE&#8217; (or very
strong) - The chart above displays the JP Morgan broad trade-weighted
index value of the euro. In this framework we convert the index to
operate as a PPP index, or index of purchasing power parity by
inserting a line representing its mean value from 1972 onward, after
the period of fixed rates ended. Enabled by the assumption that FX
markets are reasonably competitive and despite sometimes heavy handed
intervention by monetary authorities (especially those that have
accumulated large FX reserve balances, thereby thwarting the market
mechanism of making the private sector absorb flows or force changes in
FX rates when there are imbalances) we appeal to the market mechanism
as being one that gets the level of the exchange rate right over the
long haul. The period above spans 1972 to 2008. Thus we set the mean of
the real weighted dollar index for this period to parity (it lies at
113.8 on the scale) and plot the series. What you get is the chart you
see above. As a result the value of 113.8 is the market&#8217;s estimate of
parity. Above the value of 100 the euro is too high, below it, it is
too weak. Right now the euro is too high by some 20%. The highest
overvaluation in the period since fixed rate were abolished.

This PPP chart of course plots a &#8216;euro;&#8217; that did not exist
before 1990. To plug that gap a weighting process is used to
reconstruct the index for the same group of countries that are in the
euro today. Since the European currencies have, for much of this
episode, been tethered together in an arrangement called &#8216;the snake&#8217;
(or the snake in a tunnel). I think this treatment is useful for
historic comparison.

A similar formulation of the dollar shows that it is
undervalued by about 15% on broad currency weighted basis. From that we
see that euro seems to have more disequilibrium to deal with on the
upside than the dollar does on the downside. And while European data
are not uniform in their signals there are some strong hints by local
economists, business groups and labor groups and there has been a lot
of policymaker squawking to make us think that Europe is indeed
suffering from this overvaluation. The data on trade trends are a
useful diagnostic.

EU trade is showing the wear and tear of a rising exchange
rate. The twelve month growth rates show that European exports are
generally decelerating. Among these groups, exports in 2007 decelerated
compared to 2006 growth rates in 75% of the destinations without regard
to size. With regard to size some 87% of the exports are slowing. The
size-weighted slowing has jumped sharply in 2007. This last move up in
the euro of about 9% in one year on a trade weighted basis has made a
large impact. EMU trade flows are predominately slowing already and we
know that the impact from exchanger rate changes embodies lags.

Economic summits have been poor vehicles achieve macroeconomic
change in recent years and so they have turned their attention to
global issues and to North-South (developed VS undeveloped country)
trade issues and tariff reduction. At the last G-7 summit participants
came away giving markets very different views of what was waiting for
them on the exchange rate front with European participants talking of a
strong commitment to limit the dollar&#8217;s drop while US officials pointed
to the unchanged nature of the langue of the communiqué.

European MFG and consumer data plus the survey data on
activity in the EMU and EU areas seem to confirm that slowing is taking
root in Europe. The backing off the euro and the dollar from their
respective precipices is welcome news. But the Euro still faces some
strong challenges and so does growth in Europe.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> EMU12
Export Trends BY Region 12Mo %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Dec-06</td>
<td>Dec-05</td>
<td>Dec-04</td>
<td>Dec-03</td>
<td>SHARE</td>
</tr>
<tr>
<td class="firstcol">EU/NonEMU</td>
<td style="color: red;">5.1%</td>
<td>19.2%</td>
<td>18.7%</td>
<td>10.1%</td>
<td>8.3%</td>
<td style="color: red;">23.4%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td style="color: red;">0.0%</td>
<td>7.8%</td>
<td>7.6%</td>
<td style="color: red;">-8.2%</td>
<td>6.1%</td>
<td style="color: red;">16.9%</td>
</tr>
<tr>
<td class="firstcol">Russia</td>
<td style="color: red;">10.9%</td>
<td>29.7%</td>
<td style="color: red;">19.7%</td>
<td>31.6%</td>
<td>11.7%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Switzerland</td>
<td style="color: red;">-3.0%</td>
<td>14.1%</td>
<td style="color: red;">3.8%</td>
<td>12.1%</td>
<td style="color: red;">-0.2%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Turkey</td>
<td>5.6%</td>
<td style="color: red;">-5.1%</td>
<td>35.4%</td>
<td style="color: red;">12.3%</td>
<td style="color: red;">22.7%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">US</td>
<td style="color: red;">-17.4%</td>
<td style="color: red;">5.6%</td>
<td>21.3%</td>
<td>0.0%</td>
<td style="color: red;">-6.1%</td>
<td style="color: red;">14.0%</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td style="color: red;">7.9%</td>
<td style="color: red;">15.4%</td>
<td>28.2%</td>
<td>12.4%</td>
<td style="color: red;">8.3%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Japan</td>
<td>-6.0%</td>
<td style="color: red;">-7.0%</td>
<td style="color: red;">2.9%</td>
<td>5.8%</td>
<td>5.6%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Other Asia</td>
<td style="color: red;">-8.0%</td>
<td style="color: red;">-7.5%</td>
<td style="color: red;">2.8%</td>
<td style="color: red;">5.4%</td>
<td>5.6%</td>
<td style="color: red;">2.4%</td>
</tr>
<tr>
<td class="firstcol">Africa</td>
<td>8.8%</td>
<td style="color: red;">4.1%</td>
<td>19.2%</td>
<td>8.1%</td>
<td>2.6%</td>
<td>6.5%</td>
</tr>
<tr>
<td class="firstcol">Latin America</td>
<td style="color: red;">6.5%</td>
<td style="color: red;">11.4%</td>
<td style="color: red;">13.3%</td>
<td>19.4%</td>
<td>-7.7%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td style="color: red;">-3.9%</td>
<td>11.3%</td>
<td>7.2%</td>
<td style="color: red;">7.0%</td>
<td>18.7%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">% Slowing</td>
<td style="color: red;">75.0%</td>
<td style="color: red;">58.3%</td>
<td style="color: red;">41.7%</td>
<td style="color: red;">33.3%</td>
<td style="color: red;">33.3%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">% slowing weighted</td>
<td>87.6%</td>
<td>37.8%</td>
<td>20.8%</td>
<td>32.4%</td>
<td>27.8%</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

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

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Andrew Cates

**Capacity pressures in the US and Europe**
Output gaps in advanced economies (the US and euro area) are estimated to have narrowed sharply in recent months and could be on the verge of turning negative. This reflects a prior period of weaker growth and a growing degree of slack in the economy—conditions that typically translate into softer inflation and heightened pressure on central banks to ease policy. Labour markets are certainly showing greater signs of weakness in the US. A big caveat to this is that estimating output gaps is inherently difficult, especially after recent supply shocks and structural shifts in labour markets. Still, most real-time indicators now suggest aggregate demand is slipping below potential. And that, alongside weakening job data, is strengthening the case for further policy easing and hints at continued disinflation in the months ahead.

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**The US housing market**
US housing has long been a bellwether for broader economic conditions, largely because of its deep ties to credit creation, household balance sheets, and interest rates. That’s why the latest data showing a renewed slump in builder sentiment and a more sustained drop in house price momentum has been of note. With mortgage rates still elevated and lending standards – as we discuss below – still tight, the housing sector looks increasingly fragile—raising fresh concerns about the durability of US growth.

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**US bank lending standards**
This week’s latest Fed Senior Loan Officer Survey confirms that US credit conditions remain restrictive. Banks are still tightening lending standards for companies and consumers while loan demand continues to weaken—a pattern historically associated with periods of economic downturn. Although the net percentage of banks tightening standards has eased somewhat from 2023 peaks (see chart below), it remains elevated, and credit demand is now falling across most categories, from small business to commercial real estate. This tightening in credit supply and fall in demand suggests that monetary policy is still transmitting forcefully through the banking sector.

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**Global growth momentum** 
Until recently, global economic surprises and sentiment surveys were broadly supportive, suggesting the global cycle still had momentum. But this week’s Sentix survey revealed a renewed drop in expectations for August. That decline, coupled with a fading Citi Economic Surprise Index, hints that global momentum may be weakening again. As forward-looking indicators start to roll over, investors and policymakers alike should be alert to a potential shift toward a more pronounced downturn.

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**Global shipping costs and supply chain pressures** 
One additional area of heightened investor concern of late has been the potential inflationary fallout from recent US tariff measures. But so far, there is little evidence – at the global level - to suggest that global supply chains or freight costs have been meaningfully disrupted. The Baltic Exchange Dry Index and the NY Fed’s Global Supply Chain Pressure Index both remain relatively subdued, indicating that logistics bottlenecks have not re-emerged.

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**China’s excess capacity**
China’s economic influence remains pivotal in shaping global goods inflation. The latest data show that producer prices in China continue to contract, extending a prolonged period of deflation that reflects both domestic weakness and excess industrial capacity. This ongoing slack not only suppresses China’s export prices but also exerts downward pressure on global manufacturing input costs. At a time when central banks (most notably in the US) are weighing the risk of reacceleration in inflation, China’s persistent deflation in upstream prices acts as a powerful counterforce—reinforcing the view that goods inflation risks could remain subdued for now.

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Last week’s weaker-than-expected US labour market report—marked by sluggish payroll growth, rising unemployment, and downward revisions to prior months—sparked a notable shift in financial markets. Bond yields fell sharply as investors repriced the outlook for Fed easing, with rate cut expectations brought forward. This recalibration arguably reflects growing awareness of mounting downside risks across the US and broader global economy. Several indicators reinforce this view. Output gaps in many major economies are narrowing or turning negative, signalling that demand is falling short of potential (chart 1). The US housing market looks fragile, amidst weak builder sentiment and falling prices (chart 2). US bank lending standards are still restrictive, with implications for credit availability, household and business investment, and overall economic momentum (chart 3). Some (though not all) global sentiment surveys have softened, and positive growth surprises are now fading. Meanwhile, and despite earlier fears, US tariffs have not triggered renewed supply chain stress or inflationary pressures (chart 5). Add to that the ongoing deflation in China’s producer prices, and the macro narrative could be tilting more decisively toward slower growth and diminishing inflation risks—leaving policymakers with more space to continue easing monetary policy (chart 6).

Charts of the Week: Downside Risks

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Mortgage applications increased 3.1% (17.8% y/y) in the week ending August 1, after declining 3.8% in the prior week, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loan refinancing jumped 5.2% (17.5% y/y) last week, following three straight weeks of decline. Applications for loans to purchase a home rose 1.5% (18.0% y/y) last week, following a 5.8% decline in the week of July 25.

The effective interest rate on a 30-year fixed-rate loan slipped to 6.94% in the week ending August 1, from 7.00% in the prior week. It was the lowest rate since the first week of April. The rate on 15-year fixed-rate mortgages declined to 6.19% in the latest week from 6.28% in the week of July 25. The rate on 30-year Jumbo loans dropped to 6.82% last week from 6.89% one week earlier. The rate on a 5-year ARM dropped to 6.25% in the week of August 1 after rising to 6.40% in the prior week. It was above a low of 5.84% in the week of September 13, 2024.

The share of applications for refinancing an existing loan rose to 41.5% of total applications in the week ending August 1, from 40.7% in the prior week. The adjustable-rate mortgage (ARM) share of activity rose to 8.50% in the latest week from 8.30% in the week of July 25.

The average size of a mortgage loan rose 1.9% (0.6% y/y) to $381,400 in the week of August 1, following a 0.7% rise in the prior week. The average size of a purchase loan rose 0.7% (1.3% y/y) to $432,300 in the latest week after gaining 0.6% in the week ending July 27. The average size of a loan to refinance a mortgage rose 5.2% (-0.8% y/y) to $309,800 last week, after rising 2.3% in the prior week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Loan refinancing jumps as purchase applications edge higher.
- Effective fixed-interest rate eases on 30-year loans. 
- Average loan size increases again.

U.S. Mortgage Applications Rise Last Week as Interest Rates Slip

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German orders expressed in real terms fell by 1% in June after falling by 0.8% in May. Foreign orders fell by 3% month-to-month after rising 3.8% in May. Domestic orders came back to life rising by 2.2% in June but only after a sharp 7.5% drop in May; that drop had been preceded by a 2.8% increase in April. The gyration and trend performance of orders is still choppy and, for the most part, weak.

**Order trends**
Sequential growth rates show that overall orders for Germany (still expressed in real terms) rose by 0.6% over 12 months; however, they fall at 4.7% annual rate over six months and fall at a 0.5% annual rate over three months. Foreign orders rise by 7.4% over 12 months; over six months the gain is at a 13.7% annual rate, and over three months that pace is reduced to a 7.3% annual rate. German domestic orders fall by 8.6% over 12 months, then decline at an extremely rapid 26.1% annual rate over six months, and continue to decline at 11.1% annual rate over three months. For the time being, orders have been propped up by strength in the international market while domestic orders continue to languish and to contract.

**Real sales**
Sector sales, expressed in real terms, rose by 1% and those across all the components after seeing widespread contractions in May that had followed an uneven performance in April. Real sales for manufacturing fall by 1.5% over 12 months, fall at a 1.9% annual rate over six months, and fall at an annual rate of 9.2% over three months. Real sales trends are not reassuring.

**European Surveys on Industry**
Survey results for the largest economies in the European Monetary Union show slippages in June compared to May as three of the four large economies weaken (with Italy being the exception). Over three months France logged a weaker reading compared to six-months, Germany improved, Italy's performance is unchanged; Spain reports a result that's better by a single tick on the survey index comparing 3-months to 6-months. Comparing the 12-month to averages to 3-month averages for the four large European economies, shows deterioration that's across the board with the slight exception of Italy.

**Quarter-to-date (completed Q2)**
The quarter-to-date (QTD) performance in Germany for orders are strong, rising at a 13.1% annual rate. Sector sales show deteriorated real sector sales across most sectors on QTD basis; manufacturing sales fall at a 2.9% annual rate.

**Longer term evaluations** 
The two right hand columns evaluate the growth and level performance of these various metrics on real sector sales and on a level basis and well as on annual growth rates. Total orders and foreign orders ranked on levels are well above their 50% mark, which puts them above their median on data back to 1994. Domestic sales levels have only a 21.8 percentile standing, extremely weak. Rankings on growth rates show total orders at a 45.9 percentile ranking, below the median growth rate (which occurs at a ranking of 50%). However, foreign orders’ growth ranks in the 70th percentile, quite firm, while the domestic growth rate queue ranking resides in the lower 10.7 percentile of its range. Growth rates for real sector sales are mostly below their 50-percentile mark except for consumer nondurables and consumer goods sales overall (which, of course, are boosted by the sales of consumer nondurables). The industrial confidence indicators for European economies that are from diffusion surveys are evaluated relative to historic levels only. All of them score weak results. The best queue standing is Spain with a 37.5 percentile standing, followed by Italy at a 24.8 percentile standing. France has a 14.6 percentile standing, while Germany has a 7.4 percentile standing. These range from weak, and below median, to very weak.

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**Summing up**
On balance, German performance in June is poor. The trends are poor, and far from reassuring. Sector sales performance is poor. Performance across Europe continues to be poor as captured by survey results- that performance continues, for the most part, to deteriorate. However, German quarter-to-date growth rates for orders are strong in Q2 compared to Q1, but that is only on the back of strength in foreign orders. German domestic orders are still behaving badly. All-in-all, it's a disappointing report on the manufacturing sector for Germany and for what we survey of Europe.

Germany

German Orders Fall Again, Unexpectedly

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The U.S. ISM Services PMI declined to 50.1 during July, after rising to 50.8 in June from 49.9 in May, according to the Institute for Supply Management. The index hit a recent high of 55.8 in October of last year, and remains below the all-time high of 67.5 in November 2021. The Action Economics Forecast Survey expected a reading of 51.5 for July.

The composite index combines the services index and the manufacturing index released last Friday. This index fell to 49.8 in July from 50.6 in June. The latest figure is the lowest since June 2024, down from the November 2024 high of 54.7.

Amongst the services component series, the business activity index fell to 52.6 last month from 54.2 in June. Twenty-four percent (NSA) of respondents reported improved activity while 14.4% reported a decline. The new orders index fell to 50.3 in July from 51.3 in June. Twenty percent (NSA) of respondents reported improved orders while a higher 18.7% reported a decline. The employment series weakened to 46.4, its lowest level in four months, from 47.2 in June. An increased 12.3% (NSA) of respondents reported increased employment while a higher 18.1% reported a decline. Working higher, the supplier delivery series edged up to 51.0 in July after falling to 50.3 in June, but remained below a high of 56.4 in October of last year. A reduced 4.3% of respondents (NSA) reported faster delivery speeds while a higher 6.3% reported a slowing.

On the inflation front, the prices index surged to 69.9 in July after easing to 67.5 in June. It was the highest level since October 2022. An increased 42.1% (NSA) of respondents reported higher prices while an increased 4.0% reported lower prices. The index was increased from its March 2024 low 53.5 and stood at its highest level since October 2022.

Additionally, the new export orders index fell sharply to 47.9 (NSA) in October following a rise to 51.1 in June. Just 10.4% of survey respondents reported higher exports while an increased 14.7% reported a decline. The imports index fell sharply to 45.9 last month from 51.7 in June. A greatly lessened 4.1% of respondents reported higher imports while a higher 12.4% reported a decline. The inventory change index weakened to 51.8. The order backlog index rose to 44.3 in July after falling to 42.4 in June. A higher 8.3% of respondents reported higher backlogs while a fewer 19.7% reported a decline. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries.

The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Total index trending lower for nine months.
- Business activity, new orders & employment weaken.
- Prices Index strengthens to highest level since 2022.

U.S. ISM Services PMI Declines in July; Price Index Increases

Winnie Tapasanun

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The U.S. trade deficit in goods and services (BOP basis) narrowed to $60.18 billion in June after widening to $71.66 billion in May ($71.52 billion originally), according to the U.S. Census Bureau. This was the second month in three in which the deficit had narrowed. The June deficit was the smallest since September 2023 and much smaller than the $73.89 billion in June 2024. A deficit of $61.6 billion had been expected in the Action Economics Forecast Survey. Exports declined 0.5% m/m (+3.3% y/y) in June following a 4.1% drop in May (-4.0% previously) and four successive m/m increases. Imports fell 3.7% (-1.4% y/y) after an unrevised 0.1% downtick in May, registering the third consecutive m/m fall and the fourth in five months.

The real (inflation-adjusted) goods trade deficit (customs value; chained 2017 dollars) narrowed to $84.61 billion in June after widening to $93.32 billion in May; it was smaller than the $92.82 billion in June 2024. The $87.43 billion average monthly real trade deficit in Q2'25 was the smallest since Q4'23 and significantly smaller than the record $143.28 billion in Q1'25. A trade balance (net exports) added 4.99%-points to Q2'25 real GDP growth after subtracting 4.61%-points in Q1'25.

The deficit in goods trade (BOP basis) narrowed to $85.88 billion in June, the smallest since September 2023, after widening to $97.30 billion in May; it was much smaller than the $99.56 billion in June 2024. Goods exports fell 0.7% (+3.3% y/y) in June following a 5.9% drop in May and four straight m/m rises. Imports of goods decreased 4.5% (-2.9% y/y), down for the fourth month in five, after a 0.1% May easing.

The customs value goods trade deficit fell to $84.85 billion in June, the smallest since September 2023, after widening to $96.21 billion in May; it was much smaller than the $98.81 billion in June 2024. The latest figure was slightly smaller than an $85.99 billion deficit in the advance report released on July 29. Custom value exports fell 0.7% (+3.5% y/y) in June following a 5.6% drop in May and four consecutive m/m gains. This reflected m/m falls of 7.4% (+0.7% y/y) in industrial supplies & materials and 2.6% (+22.8% y/y) in other goods. To the upside, exports for the following end-use categories rose m/m in June: nonfood consumer goods excluding autos (4.6%; 4.3% y/y), foods, feeds & beverages (4.4%; 1.2% y/y), capital goods excluding autos (3.4%; 9.7% y/y), and automotive vehicles, parts & engines (1.6%; -15.8% y/y).

Customs value imports slid 4.6% (-2.9% y/y) in June, the third straight m/m slide and the fourth in five months, after a 0.1% downtick in May. This reflected m/m drops of 12.7% (-13.3% y/y) in nonfood consumer goods excluding autos, 5.2% (-12.4% y/y) in industrial supplies & materials, 4.9% (+7.8% y/y) in other goods, 3.6% (-12.2% y/y) in automotive vehicles, parts & engines, and 1.5% (+3.8% y/y) in foods, feeds & beverages. In contrast, imports of capital goods excluding autos, the only end-use category with a monthly increase in June, rose 0.7% (14.0% y/y), the seventh m/m rise in eight months, on top of a 0.3% May rebound. Meanwhile, petroleum imports fell 3.8% (-24.7% y/y) in June, the fourth m/m fall in five months, reversing a 1.5% rise in May. Nonpetroleum imports slid 4.6% (-1.1% y/y), the third straight m/m slide, after a 0.2% May decline.

The services trade surplus rose to $25.70 billion in June after narrowing to $25.64 billion in May; it was in line with $25.67 billion in June 2024. Services exports fell 0.2% (+3.3% y/y) in June, the fifth m/m fall in six months, on top of a 0.6% decline in May. This reflected m/m drops of 4.8% (-11.3% y/y) in government goods & services, 2.1% (+30.8% y/y) in maintenance & repair services, and 1.1% (-0.02% y/y) in travel services, while exports for construction services (0.9%; -5.7% y/y), insurance services (0.7%; 18.9% y/y) and charges for the use of intellectual property (0.5%; 7.0% y/y) increased m/m in June. Services imports fell 0.3% (+4.5% y/y) after a 0.3% May fall and two successive m/m increases. This reflected m/m drops of 1.9% (+48.0% y/y) in maintenance & repair services, 1.5% (+2.9% y/y) in travel services, and 1.3% (-1.3% y/y) in transport services, while imports for construction services (2.0%; 82.3% y/y), charges for the use of intellectual property (0.8%; 1.3% y/y) and financial services (0.5%; 4.9% y/y) rose m/m in June.

The U.S. goods trade deficit with China narrowed to a seasonally adjusted $9.38 billion in June, the smallest on record, after falling to $13.97 billion in May. Exports surged 45.4% (-16.6% y/y) following a 19.9% May slump, while imports fell 6.9% (-45.6% y/y) on top of a 26.3% May plunge. The goods trade deficit with the European Union narrowed markedly to $9.52 billion in June, the smallest since June 2013, after widening to $22.54 billion in May, with exports up 6.8% (16.6% y/y) and imports down 19.2% (-8.2% y/y). The trade shortfall with Japan narrowed marginally to $5.72 billion in June, the smallest since February, from $5.77 billion in the previous month, reflecting declines of 3.4% (-7.5% y/y) in exports and 2.3% (-0.4% y/y) in imports.

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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- $60.2 bil. trade deficit, reflecting $85.9 bil. goods deficit & $25.7 bil. services surplus.
- Exports -0.5% m/m, down for the second consecutive month.
- Imports -3.7% m/m, down for the third straight month.
- Real goods trade deficit narrows to $84.6 bil. after May’s widening.
- Goods trade deficits w/ China at a record low, w/ EU at a June ’13 low, and w/ Japan at a 4-month low.

Economy in Brief: May 2008

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Trade Balances for Czech Republic, Malaysia and Australia

U.S. Chain Store Sales Dipped Last Week

U.S. Gasoline Prices Stable at $3.61 per Gallon, WTI Crude Down

U.S. Gasoline Prices Stable at $3.61 per Gallon, WTI Crude Down

Appreciation to Come in the Exchange Rates in the Gulf States ???

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U.S. April ISM Non-Manufacturing Index Improved, Trend Still Lower

U.S. April ISM Non-Manufacturing Index Improved, Trend Still Lower