Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050607a.jpg" width="353">
Chain store sales rose a modest 0.4% during the opening week of June following three consecutive periods of decline according to the International Council of Shopping Centers (ICSC)-UBS survey. The slim increase left sales 0.7% below the May average which rose 0.3% versus April.
During the last ten years there has been a 56% 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 slipped 0.3% w/w (+0.8% y/y), the first decline in four weeks.
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.
Last night&#39;s remarks by Fed Chairman Alan Greenspan are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050606/default.htm"> here</a>.
Battle at Bond Bluff: Forecasters vs. Financial Markets from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20050601/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/04/05</th>
<th scope="col">05/28/05</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>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>452.9</td>
<td>451.2</td>
<td>3.3%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
Semiconductor Sales Eased 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 7, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050607b.jpg" width="353">
April sales of semiconductors in the Americas as published by the Semiconductor Industry Association fell a sharp 21.1% following a like increase the month prior. This sideways movement in American sales of semis has been in place for roughly a year.
American sales of semiconductors account for 18% of the worldwide total, about half the percentage in 2000. Sales growth in the Asia/Pacific region averaged 41.3% last year, twice the American average, while sales in Japan rose 17.5%. The Asia/Pacific region currently accounts for just under one half of worldwide sales of semiconductors, up from less than one quarter in 2000.
During the last ten years there has been a 66% correlation between the y/y change in American sales of semiconductors and the change in real U.S. investment in equipment &amp; software.

<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/INDUSTRY/@I02/@I0211/@I021101/@I021101.HTM">Semiconductor Sales </a></th>
<th scope="col">April</th>
<th scope="col">March</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>
<td class="firstcol">Worldwide</td>
<td>$16.679B</td>
<td>$20.556B</td>
<td>4.7%</td>
<td>28.0%</td>
<td>18.3%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Americas</td>
<td>$2.920B</td>
<td>$3.701B</td>
<td>3.8%</td>
<td>20.8%</td>
<td>3.4%</td>
<td>-12.6%</td>
</tr>
</tbody>
</table>
Industrial Production:  Germany, Norway, Brazil and Hungary 
by <a href="/comment/Curley.html">Louise Curley</a> June 7, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050607c.jpg" width="353">
Industrial production data for April were released today for Germany, Norway, Brazil and Hungary--a large and a small developed economy and a large and a small emerging economy.
The first chart compares the trend in manufacturing production for Germany and Norway. Indexes for manufacturing rather than the total are used as the total indexes for these countries are particularly erratic, including such volatile industries as construction in Germany and oil and gas extraction and mining and quarrying in Norway. For instance, the increase in the total index for Germany was 1.1% from March to April but after excluding the 18.6% rise in construction, manufacturing was up only 0.5%. In Norway the total was up 4.7%, but excluding the rise of 6.3% in oil and gas extraction and of 17.9% in mining and quarrying, up, manufacturing was up only 2.2% Production has increased in recent months in both countries, but there has been no strong trend since 2000. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050607d.jpg" width="353">
In contrast industrial production in the two emerging market countries has been in a strong uptrend since 2000 as can be seen in the second chart. While index numbers tell us nothing of magnitudes, they do reveal changes in the levels of production. To make it easier to compare the growth in production in the four countries we have adjusted the figures for Norway and Brazil, putting both on a bases of 2000 =100. The official Norway data are based on 1995=100 and those for Brazil, on 2002=100. These calculations are shown in the table below.
Currently production in the emerging market economies is well above 2000 levels--some 15% in Brazil and 30% in Hungary while manufacturing production in Norway is slightly below the level of 2000 and in Germany, only slightly above. Production in Brazil is beginning to falter, but production in Hungary is still strong.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production</th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany Mfg 2000=100</td>
<td>105.1</td>
<td>104.6</td>
<td>0.48</td>
<td>2.64</td>
<td>102.7</td>
<td>99.5</td>
<td>99.3</td>
</tr>
<tr>
<td class="firstcol">Norway Mfg 2000=100 Computed</td>
<td>98.4</td>
<td>96.2</td>
<td>2.22</td>
<td>5.63</td>
<td>95.3</td>
<td>93.9</td>
<td>98.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Norway Mfg 1995 =100 Official&nbsp;</td>
<td>101.4</td>
<td>99.2</td>
<td>2.22</td>
<td>5.63</td>
<td>98.2</td>
<td>96.8</td>
<td>101.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary 2000=100</td>
<td>130.50</td>
<td>126.58</td>
<td>3.10</td>
<td>7.26</td>
<td>123.10</td>
<td>114.37</td>
<td>107.82</td>
</tr>
<tr>
<td class="firstcol">Brazil 2000=100&nbsp; Computed</td>
<td>115.69</td>
<td>115.79</td>
<td>-0.04</td>
<td>4.68</td>
<td>112.78</td>
<td>104.37</td>
<td>104.37</td>
</tr>
<tr class="odd">
<td class="firstcol">Brazil 2002=100 Official</td>
<td>110.84</td>
<td>110.88</td>
<td>-0.04</td>
<td>4.68</td>
<td>108.05</td>
<td>100.0</td>
<td>100.0</td>
</tr>
</tbody>
</table>
</body>
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Chain store sales rose a modest 0.4% during the opening week of June following three consecutive periods of decline according to the International Council of Shopping Centers (ICSC)-UBS survey. The slim increase left sales 0.7% below [...]

Chain Store Sales Recovered Some Last Week

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050606c.jpg" width="353">
Despite small increases in the demand for and in placements of permanent staff in recent months, the job market in the United Kingdom has been easing for about a year as revealed in The Survey of Jobs conducted by NTC Research on behalf of the Recruitment and Employment Confederation and Deloitte &amp; Touche LLP. These data are found in the Haver database entitled UKSRVYS.
There are four general aspects of the labor market covered by The Survey of Jobs: recruitment, demand, availability and wages and salaries. And for each of these, diffusion indexes are calculated for both permanent and temporary staff.
Typical of late cyclical trends, as the demand for labor weakens, the supply increases. In May, 2005, the index for the demand for temporary staff was almost 12% below May of 2004. At the same time the index for the availability of temporary staff was more than 20% above May of 2004. While the demand for permanent staff is only about 3% below last year&#39;s comparable figure, the increase in the availability of permanent staff is almost as high as that of temporary staff. The two charts show these inverse relationships for temporary and permanent staff.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050606d.jpg" width="353">
Other signs of weakness in the labor market are the declines in the diffusion indexes for wages and salaries for both permanent and temporary staff. Although these indexes are above the 50 mark, indicating that more people believe they are rising than those who believe they are falling, the indexes are below levels reached a year ago.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Diffusion Indexes</th>
<th scope="col">May 05</th>
<th scope="col">Apr 05</th>
<th scope="col">May 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Demand for Jobs</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Permanent staff</td>
<td>59.5</td>
<td>59.2</td>
<td>61.2</td>
<td>0.51</td>
<td>-2.78</td>
<td>61.5</td>
<td>52.6</td>
<td>51.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Temporary staff</td>
<td>56.0</td>
<td>56.6</td>
<td>63.4</td>
<td>-1.06</td>
<td>-11.67</td>
<td>61.5</td>
<td>55.3</td>
<td>56.3</td>
</tr>
<tr>
<td class="firstcol">Availability for Jobs</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Permanent staff</td>
<td>46.3</td>
<td>44.5</td>
<td>38.7</td>
<td>4.04</td>
<td>19.64</td>
<td>40.8</td>
<td>55.6</td>
<td>59.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Temporary staff</td>
<td>50.0</td>
<td>48.4</td>
<td>41.5</td>
<td>3.95</td>
<td>20.48</td>
<td>43.8</td>
<td>54.3</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Wages and Salaries</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Permanent staff</td>
<td>58.0</td>
<td>60.3</td>
<td>59.7</td>
<td>-3.81</td>
<td>-2.85</td>
<td>5.88</td>
<td>54.3</td>
<td>51.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Temporary staff</td>
<td>55.3</td>
<td>55.7</td>
<td>59.2</td>
<td>-0.72</td>
<td>-6.59</td>
<td>57.9</td>
<td>52.7</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Recruitment Activity</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Placement of Permanent Staff</td>
<td>56.3</td>
<td>55.9</td>
<td>59.1</td>
<td>0.72</td>
<td>-4.74</td>
<td>59.0</td>
<td>53.4</td>
<td>52.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Billings from temporary and contract staff</td>
<td>53.2</td>
<td>53.3</td>
<td>60.7</td>
<td>-0.19</td>
<td>-12.36</td>
<td>59.1</td>
<td>53.3</td>
<td>53.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Temporary staff margins</td>
<td>49.2</td>
<td>49.7</td>
<td>48.2</td>
<td>-1.01</td>
<td>2.07</td>
<td>48.7</td>
<td>45.9</td>
<td>45.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Despite small increases in the demand for and in placements of permanent staff in recent months, the job market in the United Kingdom has been easing for about a year as revealed in The Survey of Jobs conducted by NTC Research on [...]

UK Survey of Jobs Reveals Softening in the Labor Market

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050606b.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) fell last week for the fifth week in the last six. The 0.6% decline lowered the index 2.9% versus the peak in early March.
During the last ten years there has been a 54% correlation between the change in the weekly leading index and the change in US real GDP growth during the following quarter. The correlation has risen to 67% during the last five years. During the last ten years there has been a a 70% correlation between the y/y change in the ECRI leaders and the change in the Conference Board&#39;s Index of Leading Economic Indicators.
Six month in the leaders fell to near zero. While down sharply from the double digit growth rates logged during 2003, recession is not indicated. Negative growth in excess of -4% typically preceded past U.S. recessions.
A slowdown in economic growth may or may not be indicated by the more than 10 percentage point slowdown in the leaders&#39; growth. During both the late 1980s and the late 1990s, the leaders slowed by an even greater degree and little slowing in real GDP occurred. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050606a.jpg" width="353">
Weakness in the leaders has been broad based. The components of the Conference Board leaders weigh heavily on the financial and the factory sectors (which are the more volatile of the US data series) and both sets are indicating slower growth.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">05/27/05</th>
<th scope="col">12/31/04</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>
<td class="firstcol">Weekly Leading Index</td>
<td>132.0</td>
<td>132.4</td>
<td>-0.6%</td>
<td>132.5</td>
<td>124.8</td>
<td>119.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>0.7%</td>
<td>1.4%</td>
<td>&nbsp;</td>
<td>4.3%</td>
<td>6.5%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) fell last week for the fifth week in the last six. The 0.6% decline lowered the index 2.9% versus the peak in early March. During the [...]

ECRI Leading Economic Index Trending Lower

Carol Stone, CBE

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Consumer prices in Chile slowed last month after a strong rise in April. The total CPI was up 0.4% (seasonally adjusted by Haver) following 0.7%. This helped the 12-month inflation rate ease to 2.7% from 2.9%. Energy prices were evidently the main mover in both the April surge and the May moderation; transportation prices had risen a mere 0.2% in March, but leaped 2.2% in April and were still strong but less so in May with a 1.3% rise.
Chilean inflation generally remains well under control. Excluding food and energy, the CPI was up 2.4% over May 2004. This is a higher rate than what prevailed over the previous three years by about 0.7 percentage point. But the firming has come mainly from reduced rates of deflation in clothing prices and home furnishings, not from a measurable reacceleration of some sector; indeed, housing costs, health care and education are basically trendless near the overall inflation rate.
Inflation in Chile also remains notable relative to its neighbors. Argentina still struggles with more than 8% and Brazil with about 7%. Among South American countries, only Ecuador and Peru have slower inflation than Chile. For Ecuador, the slower pace is new just in the last three or four years. Peru&#39;s inflation has been a bit lower than Chile&#39;s since early 2001, but Peru was experiencing much more dramatic rates until well into the mid-1990s.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603e.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603d.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Year/ Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total CPI</td>
<td>0.4</td>
<td>0.7</td>
<td>0.3</td>
<td>2.7</td>
<td>2.4</td>
<td>1.1</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">ex Food &amp; Energy</td>
<td>0.5</td>
<td>0.3</td>
<td>0.1</td>
<td>2.4</td>
<td>1.8</td>
<td>1.6</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>0.2</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>0.2</td>
<td>-0.8</td>
<td>3.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Transportation</td>
<td>1.3</td>
<td>2.2</td>
<td>0.2</td>
<td>6.7</td>
<td>9.1</td>
<td>0.3</td>
<td>3.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer prices in Chile slowed last month after a strong rise in April. The total CPI was up 0.4% (seasonally adjusted by Haver) following 0.7%. This helped the 12-month inflation rate ease to 2.7% from 2.9%. Energy prices were [...]

Chilean Inflation Eases in May After Energy-Driven Surge in April

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603c.jpg" width="353">
The May Business Activity Index for the non-manufacturing sector fell to 58.5 from 61.7 in April, reported the Institute for Supply Management. The average level so far this year of 60.5 is below the 2004 average of 62.4. Consensus expectations had been for a reading of 60.0 for May.
Since the series&#39; inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
Both the new orders index and the employment indexes rose slightly m/m but remained well off the earlier highs. 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.
Pricing power dropped again m/m to the lowest level since August 2003.
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">May</th>
<th scope="col">April</th>
<th scope="col">May&nbsp; &#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>61.7</td>
<td>63.3</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>57.9</td>
<td>61.9</td>
<td>72.0</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>


</html>

The May Business Activity Index for the non-manufacturing sector fell to 58.5 from 61.7 in April, reported the Institute for Supply Management. The average level so far this year of 60.5 is below the 2004 average of 62.4. Consensus [...]

ISM Non-Manufacturing Index Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603a.jpg" width="353">
Non-farm payrolls increased just 78,000 in May, the weakest rise since 2003. The prior month&#39;s strong gain was revised slightly higher but March was revised lower. Consensus expectations had been for a 180,000 May increase.
Widespread declines in private service producing industries where payrolls rose 59,000 (1.9% y/y) last month accounted for the weakness. Information services jobs fell 8,000 (-0.2% y/y), real estate &amp; leasing jobs were off 1,700 (+2.4% y/y), temporary services jobs fell 4,300 (+5.3% y/y) and jobs in leisure industries fell 6,000 (+2.0% y/y).
Factory sector payrolls fell 7,000 for the fourth monthly decline this year. A 10,000 worker decline in nondurable goods industries (-1.5% y/y) centered in the apparel and the paper industries.
Construction jobs rose 20,000 (4.0% y/y) but that was less than half the prior month&#39;s increase. Total government employment rose a modest 5,000 (0.8% y/y). Federal government jobs increased 1,000 (-0.4% y/y) and local gov&#39;t employment rose 5,000 (0.8% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603b.jpg" width="353">
The household survey indicated that the unemployment rate fell unexpectedly to 5.1%, the lowest level since 2001. Employment again was strong posting a 376,000 (1.9% y/y) rise and the labor force rose 360,000 (1.4% y/y). The labor force participation rate moved higher for the second month to 66.1% as the number of dropouts from the force fell for the second month. Growth in dropouts fell to 0.8% y/y, down from the high of 3.7% late in 2003.
The index of aggregate hours worked (employment times hours worked) rose a slight 0.1% (2.3% y/y) and the gain in April was scaled back to 0.6% due to a downward revision to the length of the workweek. The level of hours worked so far in 2Q is up 3.4% (AR) from 1Q05.
The increase in average hourly earnings slowed to 0.2% though earnings in manufacturing rose a strong 0.4% (2.7% y/y).
What&#39;s Driving Wage Inequality? The Effects of Technical Change on the Labor Market from the Federal Reserve Bank of Richmond can be found <a href="http://www.rich.frb.org/publications/economic_research/annual_report/2004/index.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">May</th>
<th scope="col">April</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">Payroll Employment</td>
<td>78,000</td>
<td>274,000</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-7,000</td>
<td>-9,000</td>
<td>-0.3%</td>
<td>-1.2%</td>
<td>-4.9%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.1%</td>
<td>5.2%</td>
<td>5.6%</td>
<td>5.5%</td>
<td>6.0%</td>
<td>5.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

Non-farm payrolls increased just 78,000 in May, the weakest rise since 2003. The prior month's strong gain was revised slightly higher but March was revised lower. Consensus expectations had been for a 180,000 May increase. Widespread [...]

U.S. Job Gain Well Short of Expectations

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603a.jpg" width="353">
Non-farm payrolls increased just 78,000 in May, the weakest rise since 2003. The prior month&#39;s strong gain was revised slightly higher but March was revised lower. Consensus expectations had been for a 180,000 May increase.
Widespread declines in private service producing industries where payrolls rose 59,000 (1.9% y/y) last month accounted for the weakness. Information services jobs fell 8,000 (-0.2% y/y), real estate &amp; leasing jobs were off 1,700 (+2.4% y/y), temporary services jobs fell 4,300 (+5.3% y/y) and jobs in leisure industries fell 6,000 (+2.0% y/y).
Factory sector payrolls fell 7,000 for the fourth monthly decline this year. A 10,000 worker decline in nondurable goods industries (-1.5% y/y) centered in the apparel and the paper industries.
Construction jobs rose 20,000 (4.0% y/y) but that was less than half the prior month&#39;s increase. Total government employment rose a modest 5,000 (0.8% y/y). Federal government jobs increased 1,000 (-0.4% y/y) and local gov&#39;t employment rose 5,000 (0.8% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603b.jpg" width="353">
The household survey indicated that the unemployment rate fell unexpectedly to 5.1%, the lowest level since 2001. Employment again was strong posting a 376,000 (1.9% y/y) rise and the labor force rose 360,000 (1.4% y/y). The labor force participation rate moved higher for the second month to 66.1% as the number of dropouts from the force fell for the second month. Growth in dropouts fell to 0.8% y/y, down from the high of 3.7% late in 2003.
The index of aggregate hours worked (employment times hours worked) rose a slight 0.1% (2.3% y/y) and the gain in April was scaled back to 0.6% due to a downward revision to the length of the workweek. The level of hours worked so far in 2Q is up 3.4% (AR) from 1Q05.
The increase in average hourly earnings slowed to 0.2% though earnings in manufacturing rose a strong 0.4% (2.7% y/y).
What&#39;s Driving Wage Inequality? The Effects of Technical Change on the Labor Market from the Federal Reserve Bank of Richmond can be found <a href="http://www.rich.frb.org/publications/economic_research/annual_report/2004/index.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">May</th>
<th scope="col">April</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">Payroll Employment</td>
<td>78,000</td>
<td>274,000</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-7,000</td>
<td>-9,000</td>
<td>-0.3%</td>
<td>-1.2%</td>
<td>-4.9%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.1%</td>
<td>5.2%</td>
<td>5.6%</td>
<td>5.5%</td>
<td>6.0%</td>
<td>5.8%</td>
</tr>
</tbody>
</table>
ISM Non-Manufacturing Index Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 3, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603c.jpg" width="353">
The May Business Activity Index for the non-manufacturing sector fell to 58.5 from 61.7 in April, reported the Institute for Supply Management. The average level so far this year of 60.5 is below the 2004 average of 62.4. Consensus expectations had been for a reading of 60.0 for May.
Since the series&#39; inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
Both the new orders index and the employment indexes rose slightly m/m but remained well off the earlier highs. 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.
Pricing power dropped again m/m to the lowest level since August 2003.
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">May</th>
<th scope="col">April</th>
<th scope="col">May&nbsp; &#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>61.7</td>
<td>63.3</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>57.9</td>
<td>61.9</td>
<td>72.0</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>
Chilean Inflation Eases in May After Energy-Driven Surge in April 
by <a href="/comment/Stone.html">Carol Stone</a> June 3, 2005


Consumer prices in Chile slowed last month after a strong rise in April. The total CPI was up 0.4% (seasonally adjusted by Haver) following 0.7%. This helped the 12-month inflation rate ease to 2.7% from 2.9%. Energy prices were evidently the main mover in both the April surge and the May moderation; transportation prices had risen a mere 0.2% in March, but leaped 2.2% in April and were still strong but less so in May with a 1.3% rise.
Chilean inflation generally remains well under control. Excluding food and energy, the CPI was up 2.4% over May 2004. This is a higher rate than what prevailed over the previous three years by about 0.7 percentage point. But the firming has come mainly from reduced rates of deflation in clothing prices and home furnishings, not from a measurable reacceleration of some sector; indeed, housing costs, health care and education are basically trendless near the overall inflation rate.
Inflation in Chile also remains notable relative to its neighbors. Argentina still struggles with more than 8% and Brazil with about 7%. Among South American countries, only Ecuador and Peru have slower inflation than Chile. For Ecuador, the slower pace is new just in the last three or four years. Peru&#39;s inflation has been a bit lower than Chile&#39;s since early 2001, but Peru was experiencing much more dramatic rates until well into the mid-1990s.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603e.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050603d.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Year/ Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total CPI</td>
<td>0.4</td>
<td>0.7</td>
<td>0.3</td>
<td>2.7</td>
<td>2.4</td>
<td>1.1</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">ex Food &amp; Energy</td>
<td>0.5</td>
<td>0.3</td>
<td>0.1</td>
<td>2.4</td>
<td>1.8</td>
<td>1.6</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>0.2</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>0.2</td>
<td>-0.8</td>
<td>3.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Transportation</td>
<td>1.3</td>
<td>2.2</td>
<td>0.2</td>
<td>6.7</td>
<td>9.1</td>
<td>0.3</td>
<td>3.5</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050602h.jpg" width="353">
In the May edition of &quot;Haver Analytics News&quot;, we announced the availability of the CEIC China Premium Database. This new database, CHINA, has over 125,000 series covering many, many facets of Chinese economic life. The level of detail is extensive, including such items as the number of visitors to China who arrive on foot in any given month, the prices for common Portland cement by intensity and the gross domestic product of Shanghai, annually, by industry.
Earlier this week, the General Administration of Customs reported foreign trade data for April. The surplus was $4.6 million, consisting of $62.2 billion in exports and $57.6 billion in imports. On examining these figures over time, we were startled to find that, while trade surpluses prevail, the trend is not nearly the one-sided imbalance that one might envision. In fact, there has even been the occasional monthly trade deficit. During the last 12 months, the surplus has averaged $5.4 billion, equivalent to just about 10% of China&#39;s exports. By contrast, in Japan, the 12-month average trade surplus has represented 23% of exports and in Germany, 21%, much larger proportional imbalances than in China.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050602i.jpg" width="353">
Thus, not only are China&#39;s exports large and growing rapidly, so are China&#39;s imports. In 2004, exports of goods totaled $593.6 billion, up 35.4% from 2003. Imports were $560.8 billion, up 35.8%. Just in the last three months, however, imports have slowed, so their average for February, March and April is &quot;just&quot; 10.8% higher than a year ago. Products contributing most to the lessening pace include textiles, paper and several machinery categories. At the same time, as elsewhere, petroleum imports continue to grow strongly, along with its derivatives, chemicals and plastics. Some durable goods remain strong as well, including wood products and electrical equipment.
In the second graph here, we show imports growth along with that of GDP. We see that most of the time since 1999 imports have grown faster than GDP. Thus, even as trade accounts run surpluses, China clearly spends a sizable portion of its export earnings on imported products. A concentration in machinery suggests that building and upgrading plants is a major priority.

<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/CHINA/CHINA.HTM">China</a> Millions of US$</th>
<th scope="col">12-Mo Avg, Apr 2005</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Apr 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>5392</td>
<td>4591</td>
<td>5733</td>
<td>-2250</td>
<td>2736</td>
<td>2115</td>
<td>2528</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports, fob</td>
<td>54071</td>
<td>62151</td>
<td>60869</td>
<td>47124</td>
<td>49471</td>
<td>36540</td>
<td>27137</td>
</tr>
<tr>
<td class="firstcol">Imports, cif</td>
<td>48680</td>
<td>57560</td>
<td>55136</td>
<td>49374</td>
<td>46734</td>
<td>34425</td>
<td>24609</td>
</tr>
</tbody>
</table>
</body>
</html>

In the May edition of "Haver Analytics News", we announced the availability of the CEIC China Premium Database. This new database, CHINA, has over 125,000 series covering many, many facets of Chinese economic life. The level of detail [...]

China Trade in Surplus, but Imports Are Large, Nonetheless

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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The U.S. trade deficit in goods and services (BOP basis) in March grew to $140.5 billion after narrowing slightly to $123.2 billion in February, revised from $122.7 billion, after widening to $130.7 billion in January according to the U.S. Census Bureau. A $136.7 billion deficit was expected by the Action Economics Forecast Survey. Exports rose 0.2% (6.7% y/y) in March after increasing 2.8% in February. This was accompanied by a 4.4% rise (27.1% y/y) rise in imports which came after m/m stability in February. In Q1’25, the deficit grew to an average $131.4 billion, after rising to an average $83.3 billion in Q4’24.

The trade deficit in goods (BOP basis) widened to a record $163.2 billion in March from $147.9	 billion in February, revised from $147.0 billion. Goods exports (customs value) rose 1.4% (7.0% y/y) in March, after increasing 3.6% in February. The latest increase reflected an 8.2% (8.4% y/y) surge in auto exports which came after a 12.7% strengthening. A 3.5% (4.0% y/y) gain occurred in industrial supplies & materials exports which followed a 5.1% rise. Foods, feeds & beverage exports rose 6.6% (1.4% y/y) after declining in four of the prior five month. Working lower, capital goods exports fell 2.5% (+13.9% y/y) in March after a 4.	8% increase and nonauto consumer goods exports were off 1.1% (+3.4% y/y) in March after a 2.4% gain.

Imports of goods increased 5.5% (31.4% y/y) in March after a 0.2% February easing. Imports of nonauto consumer goods imports surged 27.9% (56.0% y/y) following a 3.1% February gain. Auto imports rose 6.6% (8.7% y/y) after a 1.2% rise. Capital goods imports rose 4.2% (22.5% y/y) following a 1.1% rise. Foods, feeds & beverage imports eased 0.4% (+11.1% y/y) following a 2.0% weakening. Industrial supplies & materials imports declined 12.4% (+39.5% y/y) after weakening 4.6% in February. Petroleum imports by end-use fell 4.1% (-10.2% y/y) after a 2.9% decline. Nonpetroleum imports increased 6.0% (34.8% y/y) after holding steady in February.

The inflation-adjusted goods trade deficit (customs value) deepened to $150.9 billion in March from $136.9 billion in February. Real exports rose 1.6% (5.3% y/y) after a 3.0% February increase, while real imports rose 5.8% (29.8% y/y) in March following a 0.5% February slip.

The services trade surplus narrowed to $23.0 billion in March after decreasing to $23.8 billion in February. It reached a peak of $25.7 billion in November of last year. Service exports fell 0.9% (+5.7% y/y) after a 0.8% decline in February. Construction services exports rose 1.0% (37.7% y/y) after increasing 2.6% in February. Travel services exports fell 7.1% (-3.7% y/y) and financial exports increased 0.9% (7.3% y/y). Transport exports rose 3.1% (2.4% y/y). Service imports eased 0.1% (+10.8% y/y) in March following a 0.8% gain. Maintenance & repair services declined 1.5% (+32.1% y/y) while imported transport services increased 1.2% (1.7% y/y). Imported travel services fell 2.2% (5.3% y/y) while charges for use of intellectual property rose 1.0% (13.6 y/y).

The U.S. goods trade deficit with China narrowed to a seasonally adjusted $24.8 billion in March from $26.6 billion in February. Exports to China declined 8.2% (-10.5% y/y) while imports weakened 7.2% (-2.7% y/y). The deficit with the European Union deepened to a record $48.3 billion in March from $30.9 billion in February. Exports rose 10.9% (14.5% y/y) while imports soared 34.0% (65.4% y/y). The deficit with Japan deepened to $5.8 billion from $5.2 billion in February. Exports rose 1.8% (8.8% y/y) and imports rose 6.4% (9.9% y/y).

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

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- Goods deficit grows as imports surge ahead of tariff imposition.
- Exports edge higher, led by autos.
- Petroleum product imports fall as crude oil prices decline.

U.S. Trade Deficit Deepens to Record in March

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Retail gasoline prices for all grades improved to an average $3.27 per gallon (-13.1% y/y) in the week ended May 5 and reversed the prior week’s easing to $3.26. Prices were $3.37 per gallon to begin the month but remained above their low of $3.13 in the week of December 9. An earlier high was $3.79 in the week ending April 22, 2024. The all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel eaed to $3.50 per gallon (-10.2% y/y) in the week of May 5 from $3.51 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil declined to $59.64 per barrel (-26.4% y/y) in the week ended May 2, after rising to $63.09 per barrel in the prior week. Prices remained below a high of $91.45 in the week of September 29, 2023. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $57.13 per barrel. The price of European Brent crude oil declined to $63.50 per barrel (-25.9% y/y) in the week of May 2 from $67.92 in the previous week. Prices remained well below a recent high of $95.61 in the week of September 29, 2023 and compared to a peak of $127.40 in the week of June 10, 2022.

Natural gas prices improved to an average $3.09 per mmbtu (+88.4% y/y) in the week ended May 2, after falling to $3.00/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday’s price was $3.26/mmbtu.

Gasoline demand rose 3.2% y/y in the four weeks ending April 25 following a 0.4% y/y decline in the prior four weeks. Demand for all petroleum products improved 0.3% y/y in the four weeks ending April 25 after a 0.4% y/y rise in the previous four-week period. Crude oil input to refineries eased 0.1% y/y in the four weeks ending April 25 after a 1.3% y/y decline in the prior four weeks.

Gasoline inventories slipped 0.7% y/y in the week ending April 25 after a 1.2% y/y rise in the week ending April 18. Residual fuel oil inventories fell 18.7% y/y in the week of April 25, after a 19.0% y/y fall in the prior week. Crude oil inventories rose 1.4% y/y in the week of April 25 after a 2.6% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories fell w/w to 25.5 days in the week of April 25 from 26.4 days in the prior. The recent low was 22.9 days in the week of November 8. The supply of crude oil eased w/w to 27.9 days in the week of April 25 after three weeks at 28.3 days, and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices edge higher.
- Crude oil prices decline.
- Natural gas costs rise.

U.S. Energy Prices Remain Mixed in Latest Week

Robert Brusca

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Not many respondents are showing absolute slowing. Only five this month. Only six over the last three months on average. The median total PMI score fell to 49.7 showing contraction in April from 51.1 in March. The average fared slightly better. The 12-months to 6-months to 3-months show a moderate but consistent slowing. The breadth of slowing is wide with 60.9% of survey respondents slowing over three months compared to six months.

The percentile standings show the most strength for the BRIC group with reading above 50% (that marks the median). All other groupings have standings below the 50% mark indicating that they are below their respective medians of the last four-plus years.

Over every horizon from 12-months to 6-months to 3-months, more than 50% of the respondents show a weakening (slowing) in their PMI responses.

Among the largest economies, only Italy has a composite PMI standing above its median (above 50%).

Only 9 of 24 respondents have PMI ranked percentile standings above the 50% mark. That underlines the weakness in composite conditions and the breadth of the weakness.
 
Services sectors no longer are providing the lift to offset ongoing weakness in manufacturing. The differences among countries are narrowing.

Economic conditions across countries may be narrowing for several reasons, one being that the COVID period and then the shock reaction to Russia's invasion from Ukraine put all countries on the same timeline as central banks have been leaning against the shockwaves from those 2 events. As a result of those events, inflation flared but has more recently been falling. Still, inflation continues to be over the top of targets with the European Monetary Union right now making the most progress and Japan facing more late cycle weakness with excessive inflation than other countries in the mix. More recently aggressive tariff policy the United States has put all countries on their back foot and puts everyone on notice that the future has become a lot more uncertain. Central banks that were progressing toward rate cuts now are worried about the possibility of more inflation from tariffs or from the possibility of recession from tariffs - tariffs up the ante on uncertainty as well as on risk. What we see in this month's PMI statistics is a gradual continued erosion as the perceived risk here is that things get steadily but slowly worse as firms, investors, and consumers began to pull in their horns and prepare for something bad to happen not knowing what that might be.

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Global Composite PMIs Erode

Tian Yong Woon

This week, we focus on trade developments between the US and major Asian economies. Early indications coming out of US-India trade talks seem encouraging, with terms such as “forward most-favoured-nation” for the US and “zero-for-zero” tariffs appearing in news reports — terms which, if enacted, would represent a significant win for the US. India stands to benefit greatly as well if key exports to the US, such as pharmaceuticals (chart 1), receive substantial tariff relief. The benefits could be strongly mutual if a deal also grants the US greater access to India’s large auto consumer market, particularly for major US electric vehicle (EV) producers, given that EV adoption in India remains at a very early stage (chart 2).

Turning to South Korea, discussions also appear to be progressing at a healthy pace, although details remain limited and ongoing domestic political challenges continue to hinder substantive breakthroughs. Nonetheless, the South Korean won has shown signs of stabilisation, while local equity markets have remained buoyant (chart 3). Recent trade data for April has also provided some investor relief, as weak exports to the US were more than offset by a strong performance in semiconductor shipments (chart 4).

In Japan, the race to secure a trade deal with the US is well underway, with automotive exports expected to be a key focal point given their significance to Japan’s economy and the US being a major export destination (chart 5). China, however, remains a notable outlier, with formal trade talks with the US not yet underway. Still, the US-China trade relationship continues to be the most closely watched, given its scale and potential impact on global growth and trade dynamics. While markets await China’s official April trade data, early indicators such as port activity already suggest a decline in bilateral trade flows (chart 6).

**US-India trade talks**
US-India trade discussions have reportedly been progressing rapidly, with both sides having already finalized in April the terms of reference for talks, setting the stage for formal negotiations. One early sign of favourable momentum is India’s possible offering of a “forward most-favoured-nation” clause to the US. This would ensure the US always receives the most favourable tariff terms, ahead of any other trade partner. If enacted, this would be a significant win for the US and a major leap forward in the US-India trade relationship. Another reported breakthrough involves India’s reported proposal of “zero-for-zero” tariffs on steel, auto components, and pharmaceuticals—offered on a reciprocal basis up to a certain quantity. If agreed, this would be mutually beneficial, especially as pharmaceuticals remain one of the US economy’s key imports from India, as shown in chart 1. On a separate note, and more recently, India’s phone exports to the US have reportedly gained prominence. With steep US tariffs on China, firms like Apple are increasingly incentivised to accelerate production shifts to India.

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Additionally, India’s proposed “zero-for-zero” tariff plan for auto parts may galvanise US access to India’s large domestic auto market, which has remained comparatively insulated due to high import tariffs. Another area to watch in the trade talks is electric vehicle (EV) imports, especially given US EV giant Tesla’s continued interest in expanding into the Indian market. That said, EV adoption in India remains in its early stages by many measures. While India has an immense middle class with future sales potential, EVs accounted for only about 2% of new cars sold in 2023, as shown in chart 2. This is well below levels seen in other Asian economies like China, or leaders in this space like Norway, where nearly all new cars sold are EVs. Challenges remain in unlocking the domestic Indian market—particularly around affordability and the underdeveloped state of EV infrastructure.

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**US-South Korea trade talks**
Discussions on the US-South Korea trade front also appear to be progressing at a steady pace, with technical talks reportedly having concluded in Washington last week. However, details remain limited, and full-scale negotiations have not yet begun. Complicating matters is South Korea’s domestic political landscape. With the country heading into a snap presidential election on June 3, Vice Industry Minister Park has said there is no chance of a comprehensive deal being reached before then. Still, both sides have committed to working toward an agreement before the expiration of Trump’s 90-day reciprocal tariff pause on July 8. In financial markets, the won continues to swing but remains above its year-to-date lows (chart 3). Meanwhile, South Korean equities have been lifted by a softening in trade rhetoric from both the US and China, as well as optimism around the US-South Korea talks.

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Turning to the hard trade data, South Korea’s more complete April numbers offered some initial relief to investors. The economy still managed to post moderate export growth, surprising many, despite a nearly 7% y/y decline in exports to the US, as shown in chart 4. One of the key drivers was semiconductors, which recorded double-digit y/y growth for the second consecutive month. However, these figures likely do not yet reflect the full initial impact of the steep mutual tariffs between the US and China. Firmer indications may emerge in the coming months. By then, though, attention will likely have shifted toward the outcome of US trade talks with key partners, as the end of its 90-day reciprocal tariff pause draws near.

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**US-Japan trade talks**
Turning to Japan, there is a sense of cautious optimism, with Japan’s chief trade negotiator Akazawa expressing hope for a US-Japan trade deal by June, following the second and most recent round of talks held in Washington last week. A key point of interest is whether Japan can negotiate an exemption from the current 25% automotive tariffs imposed by the US. This is especially significant given the importance of the US as a destination for Japanese auto exports, as shown in chart 5, and the central role the sector plays in Japan’s broader manufacturing economy. Also worth noting is a recent clarification by Japan’s Finance Minister Kato, who walked back earlier remarks and stated that Japan will not use the sale of US Treasuries as a bargaining tool. The clarification may help defuse a potential point of friction between the two sides as trade discussions continue.

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**US-China trade developments**
Turning to US-China trade developments — while progress here has lagged, this relationship remains the most closely watched, given its potentially large impact if meaningful movement occurs. Recent messaging from both sides has softened, stepping back from the fiery exchanges and tariff escalations seen earlier in April, offering some interim relief for investors. China has reportedly exempted certain US imports from tariffs, including specific pharmaceutical and industrial chemical products. However, on US-China trade talks, they remain at a very early stage, with China merely “evaluating” the prospect of negotiations with the US. This suggests we are still far from anything resembling a formal deal. Investors are now closely watching for first-round effects of US tariffs, which are expected to appear in China’s April trade numbers due later this week. Early signs point to a slowdown. For example, vessel traffic at the Los Angeles–Long Beach port remains at range lows, hinting at reduced shipments from China.

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Asia

Economic Letter from Asia: Art of the Deal

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The U.S. ISM Services PMI rose to 51.6 during April, after falling sharply to 50.8 in March from 53.5 in February, according to today’s report by the Institute for Supply Management. The reading indicated service sector expansion for the tenth consecutive month, although the rate of expansion has slowed significantly. The index hit a recent high of 55.8 in October of last year and remains below the all-time high of 67.5 in November 2021. The Action Economics Forecast Survey expected 50.2 for April.

Haver Analytics constructs a composite index combining the services index and the manufacturing index released on Thursday. This index rose to 51.2 in Apri from 50.6 in March. The latest figure remains above its June low of 49.1.

Amongst the services component series, the employment index led last month’s improvement in the overall index. It rose to 49.0 after falling sharply to 46.2 in March. Higher employment was reported by a slightly improved 14.6% (NSA) of respondents while a lessened 16.4% reported a decline. The new orders index rose to 52.3 after falling to 50.4 in March. A higher 22.4% (NSA) of respondents reported a rise in orders while a lessened 15.3% reported a decline. Reporting slower delivery speeds, the supplier delivery series edged up to 51.3 in April after falling to 50.6 in March. Working lower, the business activity series declined to 53.7 after rising to 55.9 in March. A higher 26.2% (NSA) of respondents reported improved activity while a lessened 14.0% reported deterioration.

On the inflation front, the prices index surged to 68.9 in April after easing to 62.8 in March. A greatly increased 39.6% (NSA) of respondents reported higher prices while a lessened 1.9% reported lower prices. The index was increased from its December 2022 low 53.1 and stood at its highest level since October 2022.

Additionally, the new export orders index increased to 48.6 (NSA) in April following a decline to 45.8 in March from 52.1 in February. Just 14.8% of survey respondents reported higher exports while an increased 17.7% reported a decline. The imports index plummeted to 44.3 last month from 52.6 in March. A greatly lessened 4.7% of respondents reported higher imports while a doubled 16.2% reported a decline. The inventory change index jumped to 53.4, a six-month high. The order backlog index edged up to 48.0 in April after falling sharply to 47.4 in March. A lessened 12.2% of respondents reported higher backlogs while a fewer 16.2% reported a decline. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while below 50 suggests	 contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Total index remains near nine-month low.
- Employment, new orders & supplier deliveries edge up. Business activity weakens. 
- Prices Index strengthens to roughly two-year high.

Economy in Brief: June 2005

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