Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080609a.jpg" align="left" border="0" height="265" width="353">
The National Association of Realtors reported that the level
of pending sales of existing homes rose an unexpected 6.3% during
April. A slight decline in sales had been the Consensus expectation.
While a m/m rise in sales is normally expected due to the
warming of temperatures after Winter, the m/m increase was the series'
strongest. Nevertheless, sales remained down 13.1% from last April
after the 14.6% decline during all of 2007.
These figures are analogous to the new home sales data from
the Commerce Department in that they measure existing home sales when
the sales contract is signed, not at the time the sale is closed. The
series dates back to 2001.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080609b.jpg" align="right" border="0" height="265" width="353">
The regional figures indicate a surprising improvement in
sales out West which rose 8.3% and by 4.0% y/y. That was the first y/y
increase since the middle of 2005. Elsewhere in the country, sales
continued to meander with a 1.9% m/m decline in sales in the Northeast.
A 13.0% rise in sales in the Midwest left them still down 13.2% from
last year as it followed a 10.4% March drop. Sales in the South rose
4.6% m/m but remained down a hefty 22.5% from a year earlier.
The Realtors association indicated in an earlier report that
the number of homes on the market &amp; available for sale surged a
not seasonally adjusted 10.5% (7.9% y/y) during April. The rise was
indeed strong and rivaled past year's April gains. However, it likely
reflected a rise usual for the Spring sales season. It followed five
months when home inventories declined. As a result the y/y change in
the inventory of unsold homes held steady with the prior three months
at 7.9% which was down sharply from the 40% growth rates logged during
2006.
At the current sales rate there was an 11.2 months' supply of
homes on the market versus an 8.9 months' average during all of last
year, a 6.5 months' supply in 2006 and a 4.5 months' supply in 2005.
The latest figure was elevated by the low sales rate.
The pending home sales data are available in Haver's PREALTOR
database and the number of homes on the market are in the REALTOR
database.

<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/@W5/@W507/@W507.HTM">Pending
Home Sales (2001=100)&nbsp;</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>88.2&nbsp;</td>
<td>&nbsp;83.0</td>
<td>&nbsp;&nbsp; -13.1%</td>
<td>95.7</td>
<td>112.1&nbsp;</td>
<td>124.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>79.3</td>
<td>80.8</td>
<td>-12.3</td>
<td>85.6</td>
<td>98.5</td>
<td>108.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>83.7</td>
<td>74.1</td>
<td>-13.2</td>
<td>89.6</td>
<td>102.0</td>
<td>116.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>88.8</td>
<td>84.9</td>
<td>-22.5</td>
<td>107.3</td>
<td>127.3</td>
<td>134.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>98.8</td>
<td>91.2</td>
<td>4.0</td>
<td>92.1</td>
<td>109.5</td>
<td>128.6</td>
</tr>
</tbody>
</table>
German Industrial Output
TrendsHead Lower&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 9, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080609d.jpg" align="left" border="0" height="265" width="353">
German industrial output in April fell by 0.8% for the second
straight month, held back by dropping construction sector output.
However, the sector indices for consumer goods and intermediate goods
tumbled in April as well. Capital goods output is now down in two of
the last three months and is lower by 1.9% at an annual rate compared
to Q1. Manufacturing IP is flat or lower in the three recent months and
is falling at a 1.3% annual rate in Q2. Manufacturing orders are off
even more sharply, at a 9.3% annual rate in the new quarter. 
 

The signal from orders is clear. It has not yet hit IP with
full force. For now German IP is off in the quarter and more slowing is
coming in the pipeline. 


<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Total
German IP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">IP total</td>
<td>-0.8%</td>
<td>-0.8%</td>
<td>0.2%</td>
<td>-5.8%</td>
<td>2.4%</td>
<td>4.8%</td>
<td>-3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>-2.5%</td>
<td>0.8%</td>
<td>-0.8%</td>
<td>-9.5%</td>
<td>-2.7%</td>
<td>-0.6%</td>
<td>-4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>1.7%</td>
<td>-2.2%</td>
<td>-0.7%</td>
<td>-4.8%</td>
<td>5.2%</td>
<td>8.9%</td>
<td>-1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediary Goods</td>
<td>-2.2%</td>
<td>0.9%</td>
<td>1.2%</td>
<td>-0.3%</td>
<td>4.2%</td>
<td>5.7%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol" colspan="8">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>-2.9%</td>
<td>-13.1%</td>
<td>3.1%</td>
<td>-42.5%</td>
<td>-2.2%</td>
<td>-2.3%</td>
<td>-38.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG IP</td>
<td>-0.7%</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>-4.1%</td>
<td>3.3%</td>
<td>5.7%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Orders</td>
<td>-1.8%</td>
<td>-0.5%</td>
<td>-0.6%</td>
<td>-11.1%</td>
<td>-5.1%</td>
<td>4.0%</td>
<td>-9.3%</td>
</tr>
</tbody>
</table>
OECD CLIs Point to Further Slowing
Except Japan 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 9, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080609c.jpg" align="left" border="0" height="265" width="353">
The OECD composite leading indicators (CLIs) show fang growth
trends for the OEC and highly accelerated slowing in the US. The main
regions show an accelerated slowing is in progress, even EMU with a six
month growth rate of -23.1% compared to -1.3% for the previous three
months. Japan alone shows a rebound in place and forceful one with a
current six month growth rate of 4.7% up sharply from -7.2% over the
previous six months. 


<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="5" scope="col">OECD
Trend-restored leading Indicators </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="5">Growth progression-SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>3-Mos</td>
<td>6-Mos</td>
<td>12-Mos</td>
<td>Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD</td>
<td>-1.6%</td>
<td>-1.8%</td>
<td>-1.6%</td>
<td>1.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD7</td>
<td>-2.7%</td>
<td>-3.1%</td>
<td>-2.6%</td>
<td>0.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD Europe</td>
<td>-4.8%</td>
<td>-3.3%</td>
<td>-2.3%</td>
<td>1.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD Japan</td>
<td>5.0%</td>
<td>4.7%</td>
<td>-1.5%</td>
<td>0.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD US</td>
<td>-4.3%</td>
<td>-5.2%</td>
<td>-2.9%</td>
<td>0.8%</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">Six
month readings at 6-Mo
Intervals:</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6-Mo Ago</td>
<td>12-Mo Ago</td>
<td>18-Mo Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD</td>
<td>-1.8%</td>
<td>-1.5%</td>
<td>2.2%</td>
<td>0.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD7</td>
<td>-3.1%</td>
<td>-2.0%</td>
<td>1.2%</td>
<td>-0.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD Europe</td>
<td>-3.3%</td>
<td>-1.3%</td>
<td>0.9%</td>
<td>1.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD Japan</td>
<td>4.7%</td>
<td>-7.2%</td>
<td>0.0%</td>
<td>-0.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD US</td>
<td>-5.2%</td>
<td>-0.5%</td>
<td>1.9%</td>
<td>-0.4%</td>
</tr>
<tr class="grey2">
<td colspan="5" class="firstcol">Slowdowns
indicated by BOLD RED</td>
</tr>
</tbody>
</table>
German Trade Surplus Bulges Again
in April&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 9, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080609e.jpg" align="left" border="0" height="265" width="353">
Despite weakening industrial output and fast decelerating
orders German trade flows produced a larger surplus again in April.
Exports rose by 1.2% in the month as imports dropped by a large 2.1%.
Over the last three months import growth is off at an 8% pace, while
for exports growth has decelerated from 6.8% Yr/Yr to 5% over six
months to 1% over 3-months. 
 

The month&#8217;s rise in the surplus does not repeal the trend of
fading German export orders. German export trends themselves are still
fading. But the trade balance is, as the name suggests, a balance
between what is bought and what is sold. In April although exports are
still part of a declining trend, imports contracted and did so sharply,
thrusting the trade scene into a surplus. 
 

Weak growth at home is another factor that will come to be
caused by a weakness in exports since Germany&#8217;s whole economy is
reliant on trade and on its ability to export. The signals from
weakening orders are due to hit the economy in time. For this month
there is nothing inconsistent about the broad export slowdown trend and
the rise in the trade surplus. The export slowdown is still in place. 


<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">German
Trade trends for goods </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">m/m%</td>
<td colspan="5">% Saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>3-M</td>
<td>6-M</td>
<td>12-M</td>
<td>12-M Prev</td>
<td>2-Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance*</td>
<td>&#8364;&#8364; 17.73</td>
<td>&#8364;&#8364; 15.25</td>
<td>&#8364;&#8364; 16.44</td>
<td>&#8364;&#8364; 16.92</td>
<td>&#8364;&#8364; 16.93</td>
<td>&#8364;&#8364; 14.41</td>
<td>&#8364;&#8364; 12.66</td>
</tr>
<tr>
<td class="firstcol" colspan="8">EXPORTS</td>
</tr>
<tr class="odd">
<td class="firstcol">All Exports</td>
<td>1.2%</td>
<td>-0.8%</td>
<td>1.0%</td>
<td>5.0%</td>
<td>6.8%</td>
<td>18.3%</td>
<td>36.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>--</td>
<td>-0.8%</td>
<td>2.8%</td>
<td>0.6%</td>
<td>5.0%</td>
<td>7.3%</td>
<td>10.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Motor Vehicles</td>
<td>--</td>
<td>0.8%</td>
<td>6.0%</td>
<td>5.0%</td>
<td>7.2%</td>
<td>10.1%</td>
<td>9.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>--</td>
<td>-2.3%</td>
<td>16.7%</td>
<td>5.6%</td>
<td>10.2%</td>
<td>4.3%</td>
<td>15.3%</td>
</tr>
<tr>
<td class="firstcol" colspan="8">IMPORTS</td>
</tr>
<tr class="odd">
<td class="firstcol">All Imports</td>
<td>-2.1%</td>
<td>0.6%</td>
<td>-8.0%</td>
<td>8.3%</td>
<td>5.8%</td>
<td>12.5%</td>
<td>34.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>--</td>
<td>2.9%</td>
<td>44.8%</td>
<td>7.0%</td>
<td>8.2%</td>
<td>-3.3%</td>
<td>23.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Motor Vehicles</td>
<td>--</td>
<td>4.3%</td>
<td>57.7%</td>
<td>15.0%</td>
<td>9.9%</td>
<td>9.3%</td>
<td>9.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>--</td>
<td>-4.1%</td>
<td>6.7%</td>
<td>-2.0%</td>
<td>0.7%</td>
<td>3.6%</td>
<td>21.3%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">*Eur Blns;
mo or period average;
Shaded area trends lag one Month</td>
</tr>
</tbody>
</table>
More Discouraging News From Japan:
Economic Indicators Pointing To Recession And Economy Watchers Continue
Gloomy 
by <a href="/comment/Curley.html">Louise
Curley</a> June 9, 2008


In its assessment of the April, composite leading, lagging and
coincident indicators Japan's Cabinet Office remarked that the
indicators were "signaling a possible turning point." The first chart,
in which we plot the composite indexes for the last 22 years and the
Japanese recessions in that period, appears to bear out the Cabinet
Office's assessment.
The May survey of the Economy Watchers was also released
today. The Economy Watchers have been reducing their appraisals of
current and future conditions since early 2006 and their appraisals are
now at levels reached in the last recession as can be seen in the
second chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080609f.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080609g.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">JAPAN</th>
<th scope="col">May 
08</th>
<th scope="col">Apr 
08&nbsp;</th>
<th scope="col">May 
07&nbsp;</th>
<th scope="col">M/M 
CHG</th>
<th scope="col">Y/Y&nbsp; 
CHG&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol" colspan="9">Economy
Watchers
Survey&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Current Conditions</td>
<td>32.1</td>
<td>35.5</td>
<td>46.8</td>
<td>-9.58</td>
<td>-31.41</td>
<td>44.9</td>
<td>51.4</td>
<td>44.9</td>
</tr>
<tr class="even">
<td class="firstcol">Future Conditions</td>
<td>35.1</td>
<td>36.1</td>
<td>50.0</td>
<td>-2.77</td>
<td>-29.80</td>
<td>46.9</td>
<td>52.9</td>
<td>51.5</td>
</tr>
<tr>
<td class="firstcol">Economic Indicators(
2005=100)</td>
<td>Apr 
08</td>
<td>Mar 
08&nbsp;</td>
<td>Apr 
07&nbsp;</td>
<td>M/M 
CHG</td>
<td>Y/Y 
CHG</td>
<td>2007</td>
<td>2006</td>
<td>2005</td>
</tr>
<tr class="even">
<td class="firstcol">Leading</td>
<td>92.8</td>
<td>90.8</td>
<td>98.4</td>
<td>2.20</td>
<td>-5.69</td>
<td>97.4</td>
<td>102.4</td>
<td>100.0</td>
</tr>
<tr class="even">
<td class="firstcol">Coincident</td>
<td>101.7</td>
<td>102.4</td>
<td>104.4</td>
<td>-0.68</td>
<td>-2.59</td>
<td>104.8</td>
<td>103.8</td>
<td>100.0</td>
</tr>
<tr class="even">
<td class="firstcol">Lagging</td>
<td>103.0</td>
<td>104.9</td>
<td>106.9</td>
<td>-1.81</td>
<td>-3.65</td>
<td>105.7</td>
<td>104.8</td>
<td>100.0</td>
</tr>
</tbody>
</table>
</body></html>

The National Association of Realtors reported that the level of pending sales of existing homes rose an unexpected 6.3% during April. A slight decline in sales had been the Consensus expectation. While a m/m rise in sales is normally [...]

U.S. Pending Home Sales in April Rose Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080606a.jpg" width="353">
From the Bureau of Labor Statistics household sector survey, the unemployment rate surged to 5.5% in May from an April level of 5.0%. A level of 5.1% had been expected. The increase owed to a 285,000 worker decline in employment which unwound most of a 362,000 advance during April. During the last three months this measure of employment has risen at a 0.1% annual rate. The level of the unemployed, however, shot up at a 74.8% rate over the last three months.
The May employment decline had an inordinate effect in lifting the unemployment rate since the labor force surged by 577,000 (1.2% y/y), its firmest rise since last September. The increase was driven by a rise in the labor force participation rate, perhaps due to seasonal patterns, to 66.2% which was the highest level since March of last year.
The average duration of unemployment slipped to 16.6 weeks from 16.9 in April. Those figures are down from the averages of the prior several years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080606b.jpg" width="353">
From the establishment survey nonfarm payrolls fell 49,000, the fifth consecutive monthly drop. The decline compared to expectations for a 60,000 worker decline. During the last three months payrolls fell at a 0.5% annual rate. That compared to a rate of decline in excess of 2.0% by the end of the last recession.
So far in the second quarter, the level of aggregate hours worked (employment multiplied by hours worked) is down at a 0.9% rate from 1Q. With 2% growth in productivity, that suggests 1% growth in real GDP.
Factory sector jobs fell 26,000 and at 3.5% rate over the last three months. That remained near the fastest rate of decline since 2003 but during the 2001 recession employment dropped at a 10% rate.
Construction sector employment fell hard again by 34,000 in May. Here the rate of job loss has been exceptionally large. The 6.6% rate of decline during the last three months has been in place since December and it rivals the worst rate of job loss in the construction sector since 1991.
Hiring in the service sector also slackened. An 8,000 increase in May payrolls followed a downwardly revised 72,000 April rise. The 0.2% rate of gain during the last three months compares to 1.6% to 1.8% growth during the last three years.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080606c.jpg" width="353">
Private service sector hiring weakened even more dramatically to a 0.1% three-month growth rate from 1.5% to 2.1% growth during the prior four years. Job loss in the retail sector has led the weakness with a 2.4% 3-month rate of decline. Jobs in the information sector also have been falling at a 1.6% rate, about the same rate of decline as in the professional &amp; business services sector. These declines have been offset by 4.4% growth in the number of jobs in education and 3.3% growth health care jobs. The number of finance sector jobs has been unchanged for three months while temporary help services jobs, often a leading indicator of employment growth, have been declining at a 10.9% rate. Real estate sector jobs also have been unchanged for three months, an improvement from a 4% rate of decline earlier this year.
Government sector jobs rose 17,000 and has increased at a 0.8% rate during the last three months. Local government hiring has been strongest and is up at a 1.1% since February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080606d.jpg" width="353">
The one month diffusion index, which measures the breadth of job gain or loss (50 is the break-even level) continued to portend further job loss as it stood at 45.4%. The three- month index remained even weaker at 44.9%. The three-month figure for the factory sector was an abysmal 24.4%.
Average hourly earnings increased a modest 0.3% and three-month growth slipped to 3.0% after 4.0% growth during 2006 and 2007. Factory sector earnings rose 2.4% y/y while private service sector earnings rose 3.7% y/y.
Financial Market Developments and Credit Conditions is today&#39;s speech by Fed Governor Randall S. Kroszner and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/kroszner20080606a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment: 000s</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-49</td>
<td>-28</td>
<td>-88</td>
<td>0.2%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Previous</td>
<td>--</td>
<td>-20</td>
<td>-81</td>
<td>--</td>
<td>1.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-26</td>
<td>-49</td>
<td>-46</td>
<td>-2.5%</td>
<td>-1.9%</td>
<td>-0.5%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-34</td>
<td>-52</td>
<td>-39</td>
<td>-5.1%</td>
<td>-1.0%</td>
<td>4.9%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
<td>33.8 (May &#39;07)</td>
<td>33.8</td>
<td>33.9</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3</td>
<td>0.1%</td>
<td>0.3%</td>
<td>3.5%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.5%</td>
<td>5.0%</td>
<td>5.1%</td>
<td>4.5% (May &#39;07)</td>
<td>4.6%</td>
<td>4.6%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
</body>
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From the Bureau of Labor Statistics household sector survey, the unemployment rate surged to 5.5% in May from an April level of 5.0%. A level of 5.1% had been expected. The increase owed to a 285,000 worker decline in employment which [...]

U.S. Jobless Rate of 5.5% Highest Since 2004, Payrolls Fell A Fifth Month

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605c.jpg" align="left" border="0" height="265" width="353">
As the dollar fell and euro rose German authorities gloated
about the resilience of their economy. German economic statistics have
largely remained firm and vibrant in the face of ever diminishing
competitiveness, as the euro rose. Well the bloom is off the rose (or
the rise) now. Orders are now giving that erstwhile optimism is
rightful comeuppance. German orders have now fallen month-to-month for
FIVE straight months lead by five straight months of foreign orders
dropping. During this span, domestic orders fell in three months, were
flat in one and rose in another - the most recent month of April posted
a small gain for domestic orders. German foreign order weakness is
concentrated within the Euro Area rather than in transactions that more
explicitly cross exchange rate lines. Still, within the Zone German
&#8216;exporters&#8217; continue to face competition from other producers domiciled
outside of the zone and producing with other currency-based production
costs&#8230; like the dollar. 
 

For the moment German own-country orders are holding up better
than foreign orders. Both sets of orders are still UP on the year (last
12-months), foreign orders by 3.4% and domestic orders by 4.8%, But
over three and six months foreign orders are dropping at an astonishing
-19% and -10% rate respectively. Meanwhile, over three and six months,
domestic orders&#8217; annual rates of decline are the far more modest pace
of -1.7% and -0.9%. That&#8217;s so far. No country, especially within the
strong currency Euro-Area is an island, and Euro Area weakness abounds. 
 

Still dogging Germany is the fact that domestic consumption
has not picked up. Orders for consumer goods lead the way lower.
Despite a sharp April bounced back in capital goods orders the series
remains mired in three-month and six-month negative growth trends with
weakness accelerating. Its fellow EMU members are fading fast, just as
growth is fading also in the UK. 
 

The central banks in EMU and the UK are continuing to hold
firm to fight food and energy inflation. Meanwhile each looks set to
open up a larger GDP gap which will help to fight inflation along with
that strong euro, at least for EMU. Manufacturing sales are starting to
lose their zest in Germany. If the ECB was once worried about second
round effects if will now find its region populated by workers that are
going to be more concerned about jobs than about wages. Eventually that
development will breed different behavior on the part of the ECB but
that is still a long way off. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">German Orders and Sales By Sector and Origin </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Real and SA</td>
<td colspan="3">% M/M</td>
<td colspan="5">% Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
<td>QTR-2-Date</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>-1.8%</td>
<td>-0.5%</td>
<td>-0.6%</td>
<td>-11.1%</td>
<td>-5.7%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-13.2%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>-3.8%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>-19.2%</td>
<td>-10.1%</td>
<td>3.4%</td>
<td>6.8%</td>
<td>-23.4%</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>0.3%</td>
<td>-0.8%</td>
<td>0.0%</td>
<td>-1.7%</td>
<td>-0.9%</td>
<td>4.8%</td>
<td>7.0%</td>
<td>-1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">Real Sector Sales</td>
</tr>
<tr>
<td class="firstcol">MFG/Mining</td>
<td>-0.9%</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>-5.8%</td>
<td>-3.0%</td>
<td>5.2%</td>
<td>5.1%</td>
<td>-7.3%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-1.8%</td>
<td>0.2%</td>
<td>-1.8%</td>
<td>-12.9%</td>
<td>-6.7%</td>
<td>-0.9%</td>
<td>2.0%</td>
<td>-13.0%</td>
</tr>
<tr>
<td class="firstcol">Cons Durables</td>
<td>0.2%</td>
<td>-0.9%</td>
<td>-0.3%</td>
<td>-4.0%</td>
<td>-2.0%</td>
<td>3.5%</td>
<td>-0.1%</td>
<td>-3.0%</td>
</tr>
<tr>
<td class="firstcol">Cons Non-Durable</td>
<td>-2.1%</td>
<td>0.3%</td>
<td>-2.0%</td>
<td>-14.4%</td>
<td>-7.5%</td>
<td>-1.6%</td>
<td>2.3%</td>
<td>-14.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>2.4%</td>
<td>-2.6%</td>
<td>-0.8%</td>
<td>-3.9%</td>
<td>-2.0%</td>
<td>9.5%</td>
<td>4.5%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-4.2%</td>
<td>1.6%</td>
<td>1.7%</td>
<td>-4.1%</td>
<td>-2.1%</td>
<td>3.5%</td>
<td>7.7%</td>
<td>-14.9%</td>
</tr>
<tr>
<td class="firstcol">All MFG-Sales</td>
<td>-0.8%</td>
<td>-0.6%</td>
<td>-0.2%</td>
<td>-6.2%</td>
<td>-3.2%</td>
<td>4.8%</td>
<td>4.8%</td>
<td>-7.3%</td>
</tr>
</tbody>
</table>
</body></html>

As the dollar fell and euro rose German authorities gloated about the resilience of their economy. German economic statistics have largely remained firm and vibrant in the face of ever diminishing competitiveness, as the euro rose. [...]

German Orders Lose Their Froth Faster Than Day-old Beer

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605f.jpg" width="353">
The Mortgage Bankers&#39; Association reported that during the 1st quarter of this year, foreclosures were started on .99% of all mortgages outstanding. That latest level was again by far the highest foreclosure rate on record. Foreclosure rates on both prime and subprime mortgages rose sharply.
Foreclosures on all prime mortgage loans rose to 0.54% of loans outstanding from 0.41% during 4Q &#39;07. The latest remained nearly double the rate during the prior nine years.
Rates for prime fixed rate mortgages rose slightly to 0.29% of loans outstanding from 0.22% during 4Q. There were 27.7 million of these loans on the books. Of the 6.4 million prime adjustable rate mortgages outstanding, the foreclosure rate rose to 1.55%, up from quarterly rates near 0.2% a few years ago.
As bad as the above data on prime debt was, the figures on subprime mortgage debt continued far worse. In total, the rate of foreclosure on subprime mortgages rose to 4.06% of outstanding loans during 1Q &#39;08. There were 5.5 million of these loans in the &quot;pool.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605g.jpg" width="353">
The foreclosure rate on subprime fixed rate debt rose to 1.80% of loans outstanding. That was up by more than half from the quarterly running rate in early 2006.There were 2.7 million of these loans outstanding. On variable rate subprime debt foreclosures also surged to 6.35% of loans outstanding from 5.29% during 4Q. There were 2.6 million of these loans on the books.
By the country&#39;s regions the Northeast saw an increase in the overall rate of foreclosure to 0.71% last quarter from 0.51% during 1Q &#39;07. In the Midwest that rate rose to 0.98% from 0.79% a year earlier. The West saw an increase to 1.21% of loans outstanding from 0.49% in 1Q &#39;07 and in the South foreclosures were started in 1Q on 0.96% of loans versus 0.54% one year earlier.
Today&#39;s testimony by Fed Vice ChairmanDonald L. Kohn, Condition of the Banking System, can be found <a href="http://www.federalreserve.gov/newsevents/testimony/kphn20080605a.htm"> here</a>
These data series are available in Haver&#39;s MBAMTG database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mortgages in Foreclosure (%)</th>
<th scope="col">1Q &#39;08</th>
<th scope="col">4Q &#39;07</th>
<th scope="col">1Q &#39;07</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">All Mortgages</td>
<td>0.99</td>
<td>0.83</td>
<td>0.58</td>
<td>2.84</td>
<td>1.84</td>
<td>1.64</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Conventional Prime</td>
<td>0.54</td>
<td>0.41</td>
<td>0.25</td>
<td>1.30</td>
<td>0.77</td>
<td>0.72</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Fixed Rate</td>
<td>0.29</td>
<td>0.22</td>
<td>0.17</td>
<td>0.79</td>
<td>0.56</td>
<td>0.61</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; ARM</td>
<td>1.55</td>
<td>1.06</td>
<td>0.53</td>
<td>3.23</td>
<td>1.19</td>
<td>0.75</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Subprime</td>
<td>4.06</td>
<td>3.44</td>
<td>2.43</td>
<td>11.71</td>
<td>7.23</td>
<td>5.66</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Fixed Rate</td>
<td>1.80</td>
<td>1.52</td>
<td>1.30</td>
<td>5.55</td>
<td>4.24</td>
<td>4.33</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; ARM</td>
<td>6.35</td>
<td>5.29</td>
<td>3.23</td>
<td>17.08</td>
<td>8.80</td>
<td>6.07</td>
</tr>
</tbody>
</table>
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The Mortgage Bankers' Association reported that during the 1st quarter of this year, foreclosures were started on .99% of all mortgages outstanding. That latest level was again by far the highest foreclosure rate on record. [...]

U.S. Mortgage Foreclosures Rose Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605d.jpg" width="353">
The net worth of the U.S. household sector deteriorated during 1Q to $55.97 trillion, down from the 3Q &#39;07 record level of $58.196B. Net worth last quarter also fell 1.0% from a year earlier value of $56.532B
Household sector assets fell $1.6 trillion (-2.2%, +0.4% y/y) due to a $255.8 billion decline (-1.0%, +0.4% y/y) in tangible asset values. Real estate asset values fell 1.4% (-0.4% y/y). Financial asset values fell a harder 2.9% (+0.5% y/y) with the lower stock market. Total liabilities grew 0.7% (6.4% y/y).
Credit market debt outstanding owed by all sectors of the economy grew 8.5% AR (9.0 % y/y) during the first quarter of 2008 as the government&#39;s larger budget deficit boosted government debt obligations by 5.7% y/y. Still, the y/y rise was about half the peak 10.9% rise during 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605e.jpg" width="353">
Household sector credit debt growth slowed to a 3.0% quarterly rate (6.4% y/y) with the slower economy. That was half the growth during 2004. As home purchases dropped, households&#39; obligations on mortgages grew just 2.7% (5.5% y/y) and that was the lowest quarterly gain since early 1993. Consumer credit dropped at a 2.1% rate (+6.0% y/y) while bank loans surged to another high.
Credit market debt owed by the nonfinancial corporate business sector grew at a quarterly rate of 8.3% (10.8% y/y) which was near the strongest gain in ten years. The non-corporate business sector&#39;s debt owed also sped up (13.2% y/y).
Credit market debt growth owed by the financial sector decelerated to a 4.6% rate (10.2% y/y).
Banking Globalization, Monetary Transmission, and the Lending Channel is a paper recently presented by authors from the Federal Reserve Bank of New York. It is available <a href="http://www.bundesbank.de/download/vfz/konferenzen/20080522_eltville/paper_cetorelli_goldberg.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/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a> (Y/Y % Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">1Q &#39;08</th>
<th scope="col">4Q&#39;07</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">Total Credit Market Debt Outstanding</td>
<td>--</td>
<td>8.5</td>
<td>9.0</td>
<td>9.0</td>
<td>9.4</td>
<td>8.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>11%</td>
<td>5.7</td>
<td>4.9</td>
<td>4.9</td>
<td>3.9</td>
<td>7.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>5.9</td>
<td>6.8</td>
<td>6.8</td>
<td>10.2</td>
<td>11.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>13%</td>
<td>10.8</td>
<td>11.1</td>
<td>11.1</td>
<td>8.2</td>
<td>4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfarm, NonCorporate Business</td>
<td>7%</td>
<td>13.2</td>
<td>13.4</td>
<td>13.4</td>
<td>12.6</td>
<td>13.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>10.2</td>
<td>11.2</td>
<td>11.2</td>
<td>10.0</td>
<td>8.5</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>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td>--</td>
<td>$55.970</td>
<td>$57.666</td>
<td>$57.666</td>
<td>$55.677</td>
<td>$51.716</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Tangible Assets: Households</td>
<td>--</td>
<td>$26.395</td>
<td>$26.650</td>
<td>$26.650</td>
<td>$25.964</td>
<td>$24.385</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Financial Assets: Households</td>
<td>--</td>
<td>$44.071</td>
<td>$45.405</td>
<td>$45.405</td>
<td>$43.175</td>
<td>$39.528</td>
</tr>
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The net worth of the U.S. household sector deteriorated during 1Q to $55.97 trillion, down from the 3Q '07 record level of $58.196B. Net worth last quarter also fell 1.0% from a year earlier value of $56.532B Household sector assets [...]

U.S. Household Net Worth Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605a.jpg" width="353">
Initial claims for unemployment insurance fell slightly last week to 357,000 from an upwardly revised 375,000 during the prior week. Consensus expectations had been for claims to remain unchanged.
The four week moving average of initial claims fell slightly week-to-week to 368,500 (19.4% y/y) and the recent average is up just slightly from April when claims averaged 364,000. These numbers are down from March when initial claims averaged 375,000.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605b.jpg" width="353">
In selected states, initial claims in California have been roughly stable (16.3% y/y) since last Fall. In New York claims also have been stable recently (11.7% y/y) and they have trended slightly lower in Ohio (21.1% y/y). In Pennsylvania initial claims recently have trended slightly higher (25.9% y/y) although in Florida the trend also is up (40.8% y/y). The trend in claims has been up sharply in Michigan (62.0% y/y). These figures are available in Haver&#39;s REGIONW database.
Continuing claims for unemployment insurance fell 16,000 after an upwardly revised 41,000 increase during the prior week. The latest level was near the highest since March 2004. The four week average of continuing claims rose to 3,085,750 and the number provides some indication of workers&#39; ability to find employment.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment held steady at 2.3% for the sixth week. That was the highest since 2004.
Yesterday&#39;s speech by Fed ChairmanBen S. Bernanke at Harvard University, Cambridge, MA is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20080604a.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/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">05/31/08</th>
<th scope="col">05/24/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;357</td>
<td>375</td>
<td>14.8%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,093</td>
<td>22.4%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance fell slightly last week to 357,000 from an upwardly revised 375,000 during the prior week. Consensus expectations had been for claims to remain unchanged. The four week moving average of [...]

U.S. - Rise in Initial Unemployment Insurance Claims Leveled Out

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605a.jpg" align="left" border="0" height="265" width="353">
Initial claims for unemployment insurance fell slightly last
week to 357,000 from an upwardly revised 375,000 during the prior week.
Consensus expectations had been for claims to remain unchanged.
The four week moving average of initial claims fell slightly
week-to-week to 368,500 (19.4% y/y) and the recent average is up just
slightly from April when claims averaged 364,000. These numbers are
down from March when initial claims averaged 375,000.
A claims level below 400,000 typically has been associated
with growth in nonfarm payrolls. During the last ten years there has
been a (negative) 76% correlation between the level of initial claims
and the m/m change in nonfarm payroll employment.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605b.jpg" align="right" border="0" height="265" width="353">
In selected states, initial claims in California have been
roughly stable (16.3% y/y) since last Fall. In New York claims also
have been stable recently (11.7% y/y) and they have trended slightly
lower in Ohio (21.1% y/y). In Pennsylvania initial claims recently have
trended slightly higher (25.9% y/y) although in Florida the trend also
is up (40.8% y/y). The trend in claims has been up sharply in Michigan
(62.0% y/y). These figures are available in Haver's REGIONW
database.
Continuing claims for unemployment insurance fell 16,000 after
an upwardly revised 41,000 increase during the prior week. The latest
level was near the highest since March 2004. The four week average of
continuing claims rose to 3,085,750 and the number provides some
indication of workers' ability to find employment.
The continuing claims numbers lag the initial claims figures
by one week.
The insured rate of unemployment held steady at 2.3% for the
sixth week. That was the highest since 2004.
Yesterday's speech by Fed ChairmanBen S. Bernanke at
Harvard University, Cambridge, MA is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20080604a.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/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">05/31/08</th>
<th scope="col">05/24/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;357</td>
<td>375</td>
<td>14.8%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,093</td>
<td>22.4%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
U.S. Household Net Worth Down Again 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 5, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605d.jpg" align="left" border="0" height="265" width="353">
The net worth of the U.S. household sector deteriorated during
1Q to $55.97 trillion, down from the 3Q '07 record level of $58.196B.
Net worth last quarter also fell 1.0% from a year earlier value of
$56.532B
Household sector assets fell $1.6 trillion (-2.2%, +0.4% y/y)
due to a $255.8 billion decline (-1.0%, +0.4% y/y) in tangible asset
values. Real estate asset values fell 1.4% (-0.4% y/y). Financial asset
values fell a harder 2.9% (+0.5% y/y) with the lower stock market.
Total liabilities grew 0.7% (6.4% y/y).
Credit market debt outstanding owed by all sectors of the
economy grew 8.5% AR (9.0 % y/y) during the first quarter of 2008 as
the government's larger budget deficit boosted government debt
obligations by 5.7% y/y. Still, the y/y rise was about half the peak
10.9% rise during 2003.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605e.jpg" align="right" border="0" height="265" width="353">
Household sector credit debt growth slowed to a 3.0% quarterly
rate (6.4% y/y) with the slower economy. That was half the growth
during 2004. As home purchases dropped, households' obligations on
mortgages grew just 2.7% (5.5% y/y) and that was the lowest quarterly
gain since early 1993. Consumer credit dropped at a 2.1% rate (+6.0%
y/y) while bank loans surged to another high.
Credit market debt owed by the nonfinancial corporate business
sector grew at a quarterly rate of 8.3% (10.8% y/y) which was near the
strongest gain in ten years. The non-corporate business sector's debt
owed also sped up (13.2% y/y).
Credit market debt growth owed by the financial sector
decelerated to a 4.6% rate (10.2% y/y).
Banking Globalization, Monetary Transmission, and the
Lending Channel is a paper recently presented by authors
from the Federal Reserve Bank of New York. It is available <a href="http://www.bundesbank.de/download/vfz/konferenzen/20080522_eltville/paper_cetorelli_goldberg.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/FFUNDS/@F2/@F201/@F201.HTM">Flow
of Funds</a> (Y/Y % Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">1Q '08</th>
<th scope="col">4Q'07</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">Total Credit Market Debt
Outstanding</td>
<td>--</td>
<td>8.5</td>
<td>9.0</td>
<td>9.0</td>
<td>9.4</td>
<td>8.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Federal Government</td>
<td>11%</td>
<td>5.7</td>
<td>4.9</td>
<td>4.9</td>
<td>3.9</td>
<td>7.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Households</td>
<td>28%</td>
<td>5.9</td>
<td>6.8</td>
<td>6.8</td>
<td>10.2</td>
<td>11.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Nonfinancial Corporate Business</td>
<td>13%</td>
<td>10.8</td>
<td>11.1</td>
<td>11.1</td>
<td>8.2</td>
<td>4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Nonfarm, NonCorporate Business</td>
<td>7%</td>
<td>13.2</td>
<td>13.4</td>
<td>13.4</td>
<td>12.6</td>
<td>13.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>10.2</td>
<td>11.2</td>
<td>11.2</td>
<td>10.0</td>
<td>8.5</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>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp;
Nonprofit Organizations (Trillions)</td>
<td>--</td>
<td>$55.970</td>
<td>$57.666</td>
<td>$57.666</td>
<td>$55.677</td>
<td>$51.716</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Tangible Assets:
Households</td>
<td>--</td>
<td>$26.395</td>
<td>$26.650</td>
<td>$26.650</td>
<td>$25.964</td>
<td>$24.385</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Financial
Assets: Households</td>
<td>--</td>
<td>$44.071</td>
<td>$45.405</td>
<td>$45.405</td>
<td>$43.175</td>
<td>$39.528</td>
</tr>
</tbody>
</table>
U.S. Mortgage Foreclosures Rose
Further 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 5, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605f.jpg" align="left" border="0" height="265" width="353">
The Mortgage Bankers' Association reported that during the 1st
quarter of this year, foreclosures were started on .99% of all
mortgages outstanding. That latest level was again by far the highest
foreclosure rate on record. Foreclosure rates on both prime and
subprime mortgages rose sharply.
Foreclosures on all prime mortgage loans rose to 0.54% of
loans outstanding from 0.41% during 4Q '07. The latest remained nearly
double the rate during the prior nine years.
Rates for prime fixed rate mortgages rose slightly to 0.29% of
loans outstanding from 0.22% during 4Q. There were 27.7 million of
these loans on the books. Of the 6.4 million prime adjustable rate
mortgages outstanding, the foreclosure rate rose to 1.55%, up from
quarterly rates near 0.2% a few years ago.
As bad as the above data on prime debt was, the figures on
subprime mortgage debt continued far worse. In total, the rate of
foreclosure on subprime mortgages rose to 4.06% of outstanding loans
during 1Q '08. There were 5.5 million of these loans in the "pool."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605g.jpg" align="right" border="0" height="265" width="353">
The foreclosure rate on subprime fixed rate debt rose to 1.80%
of loans outstanding. That was up by more than half from the quarterly
running rate in early 2006.There were 2.7 million of these loans
outstanding. On variable rate subprime debt foreclosures also surged to
6.35% of loans outstanding from 5.29% during 4Q. There were 2.6 million
of these loans on the books.
By the country's regions the Northeast saw an increase in the
overall rate of foreclosure to 0.71% last quarter from 0.51% during 1Q
'07. In the Midwest that rate rose to 0.98% from 0.79% a year earlier.
The West saw an increase to 1.21% of loans outstanding from 0.49% in 1Q
'07 and in the South foreclosures were started in 1Q on 0.96% of loans
versus 0.54% one year earlier.
Today's testimony by Fed Vice ChairmanDonald L.
Kohn, Condition of the Banking System, can be found <a href="http://www.federalreserve.gov/newsevents/testimony/kphn20080605a.htm">
here</a>
These data series are available in Haver's MBAMTG
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Mortgages
in Foreclosure (%)</th>
<th scope="col">1Q '08</th>
<th scope="col">4Q '07</th>
<th scope="col">1Q '07</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">All Mortgages</td>
<td>0.99</td>
<td>0.83</td>
<td>0.58</td>
<td>2.84</td>
<td>1.84</td>
<td>1.64</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
Conventional Prime</td>
<td>0.54</td>
<td>0.41</td>
<td>0.25</td>
<td>1.30</td>
<td>0.77</td>
<td>0.72</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Fixed Rate</td>
<td>0.29</td>
<td>0.22</td>
<td>0.17</td>
<td>0.79</td>
<td>0.56</td>
<td>0.61</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
ARM</td>
<td>1.55</td>
<td>1.06</td>
<td>0.53</td>
<td>3.23</td>
<td>1.19</td>
<td>0.75</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Subprime</td>
<td>4.06</td>
<td>3.44</td>
<td>2.43</td>
<td>11.71</td>
<td>7.23</td>
<td>5.66</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Fixed Rate</td>
<td>1.80</td>
<td>1.52</td>
<td>1.30</td>
<td>5.55</td>
<td>4.24</td>
<td>4.33</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
ARM</td>
<td>6.35</td>
<td>5.29</td>
<td>3.23</td>
<td>17.08</td>
<td>8.80</td>
<td>6.07</td>
</tr>
</tbody>
</table>
German Orders Lose Their FrothFaster Than Day-old Beer 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 5, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080605c.jpg" align="left" border="0" height="265" width="353">
As the dollar fell and euro rose German authorities gloated
about the resilience of their economy. German economic statistics have
largely remained firm and vibrant in the face of ever diminishing
competitiveness, as the euro rose. Well the bloom is off the rose (or
the rise) now. Orders are now giving that erstwhile optimism is
rightful comeuppance. German orders have now fallen month-to-month for
FIVE straight months lead by five straight months of foreign orders
dropping. During this span, domestic orders fell in three months, were
flat in one and rose in another - the most recent month of April posted
a small gain for domestic orders. German foreign order weakness is
concentrated within the Euro Area rather than in transactions that more
explicitly cross exchange rate lines. Still, within the Zone German
&#8216;exporters&#8217; continue to face competition from other producers domiciled
outside of the zone and producing with other currency-based production
costs&#8230; like the dollar. 
 

For the moment German own-country orders are holding up better
than foreign orders. Both sets of orders are still UP on the year (last
12-months), foreign orders by 3.4% and domestic orders by 4.8%, But
over three and six months foreign orders are dropping at an astonishing
-19% and -10% rate respectively. Meanwhile, over three and six months,
domestic orders&#8217; annual rates of decline are the far more modest pace
of -1.7% and -0.9%. That&#8217;s so far. No country, especially within the
strong currency Euro-Area is an island, and Euro Area weakness abounds. 
 

Still dogging Germany is the fact that domestic consumption
has not picked up. Orders for consumer goods lead the way lower.
Despite a sharp April bounced back in capital goods orders the series
remains mired in three-month and six-month negative growth trends with
weakness accelerating. Its fellow EMU members are fading fast, just as
growth is fading also in the UK. 
 

The central banks in EMU and the UK are continuing to hold
firm to fight food and energy inflation. Meanwhile each looks set to
open up a larger GDP gap which will help to fight inflation along with
that strong euro, at least for EMU. Manufacturing sales are starting to
lose their zest in Germany. If the ECB was once worried about second
round effects if will now find its region populated by workers that are
going to be more concerned about jobs than about wages. Eventually that
development will breed different behavior on the part of the ECB but
that is still a long way off. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">German
Orders and Sales By Sector and Origin </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Real and SA</td>
<td colspan="3">% M/M</td>
<td colspan="5">% Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
<td>QTR-2-Date</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>-1.8%</td>
<td>-0.5%</td>
<td>-0.6%</td>
<td>-11.1%</td>
<td>-5.7%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-13.2%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>-3.8%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>-19.2%</td>
<td>-10.1%</td>
<td>3.4%</td>
<td>6.8%</td>
<td>-23.4%</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>0.3%</td>
<td>-0.8%</td>
<td>0.0%</td>
<td>-1.7%</td>
<td>-0.9%</td>
<td>4.8%</td>
<td>7.0%</td>
<td>-1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">Real
Sector Sales</td>
</tr>
<tr>
<td class="firstcol">MFG/Mining</td>
<td>-0.9%</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>-5.8%</td>
<td>-3.0%</td>
<td>5.2%</td>
<td>5.1%</td>
<td>-7.3%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-1.8%</td>
<td>0.2%</td>
<td>-1.8%</td>
<td>-12.9%</td>
<td>-6.7%</td>
<td>-0.9%</td>
<td>2.0%</td>
<td>-13.0%</td>
</tr>
<tr>
<td class="firstcol">Cons Durables</td>
<td>0.2%</td>
<td>-0.9%</td>
<td>-0.3%</td>
<td>-4.0%</td>
<td>-2.0%</td>
<td>3.5%</td>
<td>-0.1%</td>
<td>-3.0%</td>
</tr>
<tr>
<td class="firstcol">Cons Non-Durable</td>
<td>-2.1%</td>
<td>0.3%</td>
<td>-2.0%</td>
<td>-14.4%</td>
<td>-7.5%</td>
<td>-1.6%</td>
<td>2.3%</td>
<td>-14.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>2.4%</td>
<td>-2.6%</td>
<td>-0.8%</td>
<td>-3.9%</td>
<td>-2.0%</td>
<td>9.5%</td>
<td>4.5%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-4.2%</td>
<td>1.6%</td>
<td>1.7%</td>
<td>-4.1%</td>
<td>-2.1%</td>
<td>3.5%</td>
<td>7.7%</td>
<td>-14.9%</td>
</tr>
<tr>
<td class="firstcol">All MFG-Sales</td>
<td>-0.8%</td>
<td>-0.6%</td>
<td>-0.2%</td>
<td>-6.2%</td>
<td>-3.2%</td>
<td>4.8%</td>
<td>4.8%</td>
<td>-7.3%</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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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

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.

U.S. Trade Deficit Narrows in June; the Smallest Since Sept. ’23

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The S&P Global PMI indexes once again showed mixed performance in July. Most large economies continue to do better, and the total PMI services sectors continue to make up for shortcomings in manufacturing.

**Stability on a low growth path**
In July, 24% of the reporting countries showed activity was slowing; that's down from 48% in both June and May and indicates some progress. Only five of the reporting jurisdictions have PMI values below 50 indicating economic contraction in July; that July figure compares to five in June and seven in May. Declining activity continues to be an unusual event. Medians and average readings for the group of 25 countries or regions show extreme stability in the recent months as well as across sequential averages.

**Growth moderately improves**
Comparing period averages from 12-months to six-months to three-months, unweighted readings of the U.S., the U.K., and European monetary union show extremely flat PMI values oscillating between values of 51.2 to 51.7 on those period averages; over three months, six months, and 12 months. The jurisdictions in the table show PMI readings below 50 are rare; once again declining activity is an unusual event. The proportion of reporters slowing over three months is 34.8% compared to 52.2% over six months and 30.4% over 12 months. Once again, we see these statistics tilted toward improving growth rather than towards slowing

**Summing up**
The queue percentile standings for the group in July have an average value at 48.4% which is below the 50% mark that coincides with the median for the period. This tells us the growth is largely worse than what its median has been over the past 4 1/2 years. On a queue ranking basis, the largest economies consistently perform better with readings above the 50% mark for the U.S. and for the European Monetary System including each of its four largest EMU economies (Germany, France, Italy, and Spain). Japan has a queue standing in its 57th percentile. However, China’s percentile standing is in its 26th percentile and the U.K. is at its 40.5 percentile. Not all large economies are in the catbird seat, but most are faring well despite the moderate growth track globally.

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Service Sectors Prop-up Global Economy

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Total factory orders declined 4.8% (+5.6% y/y) in June after surging 8.3% in May, revised from 8.2%, as reported by the U.S. Census Bureau. A 4.9% decline had been expected in the Action Economics Forecast Survey. A halving in orders for nondefense aircraft accounted for much of the June decline. Factory orders excluding transportation altogether rose 0.4% after increasing 0.3% in May, revised from 0.2%.

Durable goods orders fell 9.4% (+10.9% y/y) in June after 16.5% rise in May. The advance report indicated a 9.3% decline. Transportation orders fell 22.4% (+30.5% y/y). Automobile orders declined 3.1% (-2.7% y/y). Computer & electronic product orders increased 0.6% (5.2% y/y) while electrical equipment, appliances & components rose 0.1% (4.5% y/y). Machinery orders improved 0.3% (3.0% y/y). Furniture & related products increased 0.1% (1.1% y/y). Primary metals orders increased 0.6% (-0.5% y/y) while fabricated metals orders edged 0.1% (3.1% y/y) higher.

Nondurable goods orders, which equal nondurable goods shipments, rose 0.5% (0.6% y/y) in June after edging 0.1% higher in May. Shipments of petroleum & coal products rose 1.4% (-4.5% y/y) and beverage & tobacco products rose 1.5% (4.2% y/y). Food product shipments improved 0.4% (0.9% y/y) and textile product shipments rose a minimal 0.1% (1.9% y/y). To the downside, apparel shipments declined 0.9% (-4.7% y/y) and chemical product shipments eased 0.1% (+3.6% y/y). Paper products declined 0.3% (+0.7% y/y).

Total shipments increased 0.5% (1.8% y/y) in June following a 0.2% May increase. Excluding transportation, shipments rose 0.4% (1.3% y/y) in June after a 0.1% uptick in May. Shipments of durable goods industries rose 0.5% (3.0% y/y) in April, the seventh consecutive m/m rise.  Transportation equipment shipments rose 0.8% (4.3% y/y) as nondefense aircraft shipments fell 6.2% (+13.8% y/y). Machinery shipments rose 1.0% (1.5% y/y), and electrical equipment, appliances & components shipments increased 0.6 (4.6% y/y). Primary metals shipments rose 0.6% (2.4% y/y), fabricated metals shipment rose 0.2% (1.9% y/y), but furniture & related products eased 0.2% (+1.4% y/y).

Unfilled orders rose 1.0% (7.1% y/y) in June after a 3.4% jump in May. Excluding transportation, unfilled orders held steady (+0.8 y/y) after a 0.1% rise in May. Backlogs of durable goods increased 1.0% (7.1% y/y), reflecting a 2.1% rise (14.7% y/y) in nondefense aircraft and a 0.1% decline (-1.8% y/y) in machinery. Electrical equipment, appliances & components backlogs also rose 0.1% (1.0% y/y) while computer & electronic equipment backlogs eased 0.1% both m/m and y/y.
 
Inventories increased 0.2% (1.1% y/y) in June after edging 0.1% higher in May. Excluding transportation, inventories rose 0.2% (1.0% y/y) in June after a 0.1% uptick in May. Durable goods inventories rose 0.2% (1.5% y/y) in June, the same as in May, and rose 0.1% in both of the prior two months. Nondurable goods inventories increased 0.2% 0.5% y/y) after declines in both of the prior two months.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Total orders less transportation rise moderately.
- Shipments pick up.  
- Unfilled orders surge as inventories rise modestly.

U.S. Factory Orders Retreat in June, Largely Centered in Aircraft

Tian Yong Woon

This week, we examine the latest wave of trade developments across Asia as the US unveiled a full list of its modified reciprocal tariff rates, set to take effect on August 7. As anticipated, many of the updated rates are now lower than the original tariffs, with Cambodia and Vietnam seeing the sharpest reductions (chart 1). However, from peak tariff levels, China stands out—continuing to benefit from a 10% pause rate, down from triple-digit highs.

South Korea secured a deal just before the deadline, lowering its tariff from 25% to 15%. The new rate also applies to auto exports, offering relief to Korean automakers (chart 2). Thailand and Cambodia followed with US trade agreements after agreeing to an unconditional ceasefire following earlier military clashes. Their US-imposed tariffs dropped from 36% to 19%, highlighting how US trade policy can intersect with geopolitical interests and, in this case, may help reduce trade uncertainty (chart 3).

Malaysia, a key mediator in the ceasefire, also finalized a trade deal, reducing its tariff rate to 19% and gaining exemptions on key exports such as semiconductors (chart 4). Turning to Japan, while its US trade deal helped avert immediate tensions, the vague terms and a headline $550 billion investment—mostly in the form of loans—leave room for future friction (chart 5). China, however, remains a wildcard. Talks to extend its tariff pause are ongoing, but failure could see a return to extreme tariff levels (chart 6). Meanwhile, tech tensions linger, despite eased restrictions on Nvidia AI chip exports.

**Latest US tariff developments**
We gained further clarity on the new reciprocal tariff rates announced by the US administration last week, as the White House released a full list of the modified rates on Thursday. It also announced that the new rates will take effect on August 7, giving partner countries a bit more time to negotiate new terms. Overall, as earlier indications suggested, Trump’s post-pause tariff rates—regardless of whether trade deals were secured—have often ended up lower than the original rates, as shown in chart 1. The largest reductions from original tariff levels have so far come from Cambodia and Vietnam. However, when looking at the steepest reductions from peak tariff rates, China stands out. It continues to benefit from a 10% tariff pause—down sharply from the triple-digit rates imposed at the height of US-China trade tensions earlier this year. On the flipside, a handful of economies—including New Zealand, the Philippines, and Brunei—are now facing modified tariff rates that are actually higher than their original Liberation Day levels. Notably, the Philippines ended up in this group despite having secured a trade deal with the US.

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**South Korea**
As for South Korea, the US reduced its tariff rate to 15% just ahead of the August 1 deadline, a significant drop from the original Liberation Day rate of 25%. In return, South Korea committed to, among other terms, $350 billion in investments into the US. Of that total, $150 billion will go specifically toward shipbuilding cooperation—supporting the entry of Korean firms into the US shipbuilding industry—while the remaining $200 billion will be directed toward semiconductors and other sectors. Similar to Japan’s arrangement, the new 15% tariff rate will also apply to South Korean auto exports, likely providing relief to the country’s automakers. As shown in chart 2, South Korea’s vehicle exports—and, by extension, its export-driven growth—have come under pressure, with more recent headwinds stemming from the broad 25% auto tariffs imposed by the US. Notably, South Korea’s dealmaking pace with the US has been considered exceptionally swift, especially given that the country had only recently undergone an administrative transition following its presidential elections, leaving limited time to initiate formal trade negotiations.

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**Thailand and Cambodia**
Moving to other parts of Asia, one of the more notable developments last week was the signing of two additional US trade deals—specifically with Thailand and Cambodia. The two countries had recently been engaged in escalating border clashes but agreed to an unconditional ceasefire after mediation by Malaysia and the US. In reality, tensions between Thailand and Cambodia had been simmering for some time, likely driving in part the heightened uncertainty shown in chart 3, though other factors may have played a role. Notably, US President Trump stated that he had made it clear to both governments that no trade deal would be considered while they remained in conflict—an ultimatum that may have incentivized both sides to pursue de-escalation. Ultimately, US trade deals with both countries were announced, reducing their tariff rates from the original Liberation Day level of 36% to 19%. This illustrates how the US approach to dealmaking goes beyond trade, sometimes factoring in broader geopolitical considerations as well.

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**Malaysia**
Touching further on Malaysia, which played a key role in mediating the Thailand-Cambodia conflict mentioned earlier, a last-minute US-Malaysia trade deal also materialized shortly after the agreements with Thailand and Cambodia were hinted at. Under the new terms, Malaysia’s tariff rate was reduced to 19%, down from the original 24%. Malaysian Trade Minister Zafrul described the deal as a “win-win,” noting that Malaysia has either reduced or eliminated tariffs on nearly all American products. Notably—and perhaps offering some interim relief—Malaysia also secured tariff exemptions for its exports of semiconductors and pharmaceuticals. This is especially significant, as semiconductor exports account for a substantial share of Malaysia’s shipments to the US, as shown in chart 4.

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**Japan**
Turning to Japan, the recent US-Japan trade deal appears to have averted the worst for now. However, many key details remain unclear, particularly regarding Japan’s reported $550 billion investment into the US. While the headline figure is striking, Japan’s chief trade negotiator, Akazawa, later clarified that only 1–2% of the amount would constitute actual investment, with the remainder largely consisting of loans. More critically, the deal—like several other recent US-Asia trade agreements—was not accompanied by formal documentation, leaving its terms vague and, perhaps more concerning, open to future revision. These loose ends present ongoing risks to US-Japan economic relations and could potentially unwind recent market gains driven by trade optimism, as uncertainty remains and may yet resurface (see chart 5). This lingering uncertainty likely contributed to the Bank of Japan’s decision to hold its policy rate steady last week. The central bank adopted a wait-and-see approach before considering further rate hikes, while notably revising its inflation forecasts upward and presenting a slightly improved growth outlook for the fiscal year.

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**China**
Amid the recent flurry of US trade deals, one critical issue that may have slipped from the spotlight—but remains central to the global outlook —is China. Ongoing discussions between the two countries aim to extend China’s current tariff pause. If talks break down, US Treasury Secretary Scott Bessent has warned that the existing 10% tariff on Chinese exports could “boomerang” back to its previously exorbitant levels. This could potentially drive the US effective import tariff rate on China well above its already-elevated levels, as shown in chart 6. Meanwhile, the recent reversal of export restrictions by the US on Nvidia’s H20 AI chips may have brought temporary relief to China’s AI sector. However, Chinese authorities have raised national security concerns over the chips’ built-in tracking features and potential remote shutdown capabilities—adding yet another layer of complexity to the already tense US-China trade relationship and broader economic rivalry.

Economy in Brief: June 2008

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