Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705a.jpg" width="353">
US sales of light vehicles in June recovered all of recent months&#39; weakness and rose to the highest level in nearly four years, according to the Autodata Corporation. At 17.53M, sales rose 5.2% from May and rose 13.8% versus a depressed level one year ago.
Sales of light trucks surged 11.9% m/m to the highest level since 2001. The gain lifted the average level of truck sales so far this year 1.6% versus the first six months of 2004. Sales of US made trucks were notably strong, rising 13.2% m/m and 25.1% y/y. Domestics account for 88% of total light truck sales in the US.
Despite the drag on truck sales from higher gasoline prices, Bureau of Labor Statistics&#39; data indicates that truck prices firmed this year through May versus deflation from 2002 to 2004. Gasoline prices rose to an average $2.22 per gallon (15.3% y/y) during the latest week. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705b.jpg" width="353"> 
Car sales fell for the second consecutive month in June and for the fourth month this year. The 2.9% m/m decline left the average level of car sales 1.6% above last year.
Imports&#39; share of the US market for new vehicles fell sharply to 19.6% in June versus 20.2 during the first five months of 2005.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">June</th>
<th scope="col">May</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">Total</td>
<td>17.53</td>
<td>16.67</td>
<td>13.8%</td>
<td>16.88</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.31</td>
<td>7.53</td>
<td>3.9%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>10.22</td>
<td>9.14</td>
<td>22.1%</td>
<td>9.39</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
U.S. Factory Inventories Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 5, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705d.jpg" width="353">
Factory inventories were unchanged in May following a downwardly revised slight decline in April. Three month growth in inventories fell to 2.7% (AR) from the peak rate of growth near 12% in March and that slowdown explains much of the slowdown in factory output growth.
Slower rates of inventory accumulation continue notable in the furniture industry where three month growth fell to 2.3% from versus the high of 28.4% and in the electrical equipment industry where growth in inventories fell to 6.0% with outright decumulation in May. The level of computer inventories has been declining this year with three month growth at -4.6% versus a peak of 13% last summer.
Factory shipments were roughly unchanged in May but three month growth improved to 9.2% due to rebounds in computers and heavy duty trucks.
Orders to the factory sector jumped 2.9% due to the unrevised 5.5% surge in durable goods orders.
Unfilled orders jumped 1.9% due to the 10.6% spike in unfilled orders for aircraft &amp; parts. Less transportation altogether backlogs fell 0.1% (+7.6% y/y). The ratio of unfilled orders to shipments outside of transportation has moved sideways since early last year. 
Trends in Hours, Balanced Growth and the Role of Technology in the Business Cycle from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf">here</a>.<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </a><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705c.jpg" width="353"> <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705e.jpg" width="353">

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">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>
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<td class="firstcol">Inventories</td>
<td>0.0%</td>
<td>-0.0%</td>
<td>7.7%</td>
<td>7.5%</td>
<td>-1.3%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.9%</td>
<td>0.7%</td>
<td>9.3%</td>
<td>10.9%</td>
<td>3.7%</td>
<td>-1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.0%</td>
<td>0.7%</td>
<td>7.2%</td>
<td>10.5%</td>
<td>2.6%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>7.5%</td>
<td>9.1%</td>
<td>4.2%</td>
<td>-6.1%</td>
</tr>
</tbody>
</table>
Revised German Retail Sales Data 
by <a href="/comment/Curley.html">Louise Curley</a> July 5, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050705f.jpg" width="353">
Retail sales provided another positive statistic for Germany in May. The volume of retail sales was up 1.2% in May on a seasonally adjusted basis from April and the value was up 1.8%. On a seasonally unadjusted basis, the volume of retail sales was 2.7% over May 2004 and the value was 3.2% over the same period.
The recently revised series for German retail sales shows a somewhat better picture over the past few years than that previously reported. For example the new data show that retail sales increased 1.2% in 2004 instead of declining 1.7% as reported earlier. For 2003 the difference was much smaller--a decline of 0.5% vs. one of 0.6% reported earlier.
The headline series excludes automobiles and gas stations and is shown seasonally adjusted and unadjusted for values and volumes. Data on automobiles and gas stations are released some weeks after the retail sales release. However, a memo item is included in the current release that shows total retail sales including estimated automobiles and gas stations on a seasonally adjusted bases in value and volume terms. The two value series are shown in the attached chart. It may seem strange that the total excluding automobiles and gas stations is at times higher than the total including these items. But these data are index numbers relative to the year 2003, not absolute levels. Except for the items just noted most of the data are not seasonally adjusted. .

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<th scope="col" class="firstcol">German Retail Sales ex Automobiles and Gas Stations</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>
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<td class="firstcol">Value (2003=100)</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;&nbsp; Not seasonally adjusted</td>
<td>98.8</td>
<td>103.4</td>
<td>95.8</td>
<td>-4.45</td>
<td>3.13</td>
<td>101.4</td>
<td>100.0</td>
<td>100.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Seasonally adjusted</td>
<td>102.2</td>
<td>100.4</td>
<td>98.1</td>
<td>1.79</td>
<td>4.18</td>
<td>100.7</td>
<td>100.1</td>
<td>100.5</td>
</tr>
<tr>
<td class="firstcol">SA Value incl autos &amp; gas stations</td>
<td>102.2</td>
<td>100.8</td>
<td>98.9</td>
<td>1.39</td>
<td>3.34</td>
<td>101.0</td>
<td>100.2</td>
<td>99.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Volume 2000 Prices (2003=100)</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;&nbsp; Not seasonally adjusted</td>
<td>98.0</td>
<td>102.7</td>
<td>95.4</td>
<td>94.58</td>
<td>2.73</td>
<td>101.2</td>
<td>100.0</td>
<td>100.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Seasonally adjusted</td>
<td>101.3</td>
<td>100.1</td>
<td>98.0</td>
<td>1.20</td>
<td>3.37</td>
<td>100.7</td>
<td>100.1</td>
<td>100.5</td>
</tr>
<tr>
<td class="firstcol">SA Value incl autos &amp; gas stations</td>
<td>100.9</td>
<td>100.0</td>
<td>98.3</td>
<td>0.90</td>
<td>2.64</td>
<td>100.6</td>
<td>100.2</td>
<td>100.2</td>
</tr>
<tr class="odd">
<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>
<td>&nbsp;</td>
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<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td>&nbsp;</td>
<td>&nbsp;</td>
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US sales of light vehicles in June recovered all of recent months' weakness and rose to the highest level in nearly four years, according to the Autodata Corporation. At 17.53M, sales rose 5.2% from May and rose 13.8% versus a [...]

U.S. Vehicle Sales Led Higher By Truck Rebound

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701e.jpg" width="353">
The Japanese labor market looks to be turning around. We last wrote about these employment data three months ago, and in that discussion, Louise Curley called them &quot;disappointing&quot; for February. Another weak performance followed in March. But April and May have seen strong gains in jobs, totaling 830,000, and the unemployment rate, at 4.4% in both months, is the lowest since late 1998. The number unemployed has been below 3.0 million in four of the last six months, also the lowest since that late 1998 period.
Further, overall labor force participation - employment plus unemployment as a percentage of the working age population - has started to rise. From a recent peak of just under 64% in early 1997, this ratio moved down steadily to a low of barely 60% just last November. It has since added 0.8 percentage point, an indication of rising consumer confidence.
Employment is seeing gains in both manufacturing and non-manufacturing sectors. Factory jobs are still lower than than a year ago, but they rose 300,000 in May, a large monthly gain. Nonmanufacturing employment touched 50.0 million for the first time in May, an increase of 270,000 on the month. [These figures cover nonagricultural employment only.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701f.jpg" width="353">
These employment results bear out what business leaders told the Bank of Japan in the quarterly TANKAN survey. Its &quot;headline series&quot;, the diffusion index for large manufacturing companies, reached +18 in Q2, up 4 points from Q1 and also 4 points higher than the forecast these company managers had made three months ago. This is particularly encouraging after that Q1 result fell short of both the preceding quarter and its own forecast. The special linked TANKAN index Haver reports in the G10 database, which covers all enterprises in all industries, is hovering right around 0, also its best performance since late 1997.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN1.HTM">Japan</a></th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">May 2004</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">Employment (millions)</td>
<td>63.95</td>
<td>63.53</td>
<td>63.12</td>
<td>63.48</td>
<td>63.30</td>
<td>63.16</td>
<td>63.29</td>
</tr>
<tr>
<td class="firstcol">Change (thousands)</td>
<td>420</td>
<td>410</td>
<td>-270</td>
<td>0.7%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (millions)</td>
<td>2.96</td>
<td>2.93</td>
<td>2.97</td>
<td>3.08</td>
<td>3.13</td>
<td>3.50</td>
<td>3.59</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.4</td>
<td>4.4</td>
<td>4.5</td>
<td>4.6</td>
<td>4.7</td>
<td>5.2</td>
<td>5.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate* (%)</td>
<td>60.8</td>
<td>60.5</td>
<td>60.1</td>
<td>60.5</td>
<td>60.4</td>
<td>60.8</td>
<td>61.2</td>
</tr>
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The Japanese labor market looks to be turning around. We last wrote about these employment data three months ago, and in that discussion, Louise Curley called them "disappointing" for February. Another weak performance followed in [...]

Japanese Employment, Unemployment and TANKAN All Show Improvement

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701d.jpg" width="353">
The total value of construction put in place fell in May for the fourth month this year. The 0.9% decline followed a revised 1.1% drop in April. Consensus expectations had been for a 0.5% increase.
The 2004 increase in total construction spending was revised up to 11.1% from 8.9% as a result of a strengthened gain in residential building to 18.5% from 13.9%.
Since then private residential building activity has fallen sharply, down 4.9% during the last three months. The value of new single family building, however, has continued to rise by 0.5% (7.6% y/y) in May. Building on new multi-family units fell 0.9% (15.0% y/y).
Nonresidential building slipped 1.6% (+5.0% y/y) due to a 1.2% (+2.4% y/y) decline in office building.
Public construction spending rose 1.7% but the steam came out of spending on highways &amp; streets, nearly one third of the value of public construction spending, as y/y growth slowed to 5.4% from the high of 19.7% in February.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</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>
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<td class="firstcol">Total</td>
<td>-0.9%</td>
<td>-1.1%</td>
<td>8.2%</td>
<td>11.1%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.6%</td>
<td>-1.5%</td>
<td>7.0%</td>
<td>13.8%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.7%</td>
<td>-2.2%</td>
<td>7.8%</td>
<td>18.5%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.6%</td>
<td>0.6%</td>
<td>5.0%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.7%</td>
<td>0.2%</td>
<td>7.1%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
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The total value of construction put in place fell in May for the fourth month this year. The 0.9% decline followed a revised 1.1% drop in April. Consensus expectations had been for a 0.5% increase. The 2004 increase in total [...]

U.S. Construction Spending Fell After Strengthened Gain Last Year

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701c.jpg" width="353">
The University of Michigan&#39;s final reading of consumer sentiment in June extended the early-month improvement and rose 10.5% versus May to 96.0, the highest level this year. Consensus expectations had been for a lesser increase to 94.6.
During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE, although the correlation has fallen in recent years.
The reading of current economic conditions improved sharply late in the month and for June overall rose 7.9% to the highest level since late 2000.
Consumer expectations added slightly to the gain earlier in the month and surged 12.9% following five months of decline.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Consumption Taxes: Macroeconomic Effects and Policy Issues from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/Pdf/2Q05garn.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td class="firstcol">Consumer Sentiment</td>
<td>96.0</td>
<td>86.9</td>
<td>0.4%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>113.2</td>
<td>104.9</td>
<td>6.1%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>85.0</td>
<td>75.3</td>
<td>-4.0%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
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The University of Michigan's final reading of consumer sentiment in June extended the early-month improvement and rose 10.5% versus May to 96.0, the highest level this year. Consensus expectations had been for a lesser increase to [...]

U.S. Consumer Sentiment Extended Increase

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701b.jpg" width="353">
In June, the Composite Index of activity in the manufacturing sector compiled by the Institute of Supply Management rose 2.4 points to 53.8 and recovered all of the prior month&#39;s decline. Consensus expectations had been for stability at 51.5.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
New orders recovered all of the decline during the prior two months with a 5.5 point rise to 57.2. The index of export orders, however, fell to the lowest since December 2001.
The employment index improved modestly to 49.9 but remained below the break even level of 50 for a second month. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701a.jpg" width="353">
The production index (55.6) rose moderately while the inventories index was unchanged and below 50 for the third consecutive month.
The prices paid index again fell sharply to the lowest since early 2002. During the last twenty years there has been an 81% correlation between vendor delivery speed and prices.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;04</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">Composite Index</td>
<td>53.8</td>
<td>51.4</td>
<td>61.2</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>57.2</td>
<td>51.7</td>
<td>61.8</td>
<td>63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>50.5</td>
<td>58.0</td>
<td>81.0</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
</body>
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In June, the Composite Index of activity in the manufacturing sector compiled by the Institute of Supply Management rose 2.4 points to 53.8 and recovered all of the prior month's decline. Consensus expectations had been for stability [...]

ISM Factory Index Recovered Some

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701b.jpg" width="353">
In June, the Composite Index of activity in the manufacturing sector compiled by the Institute of Supply Management rose 2.4 points to 53.8 and recovered all of the prior month&#39;s decline. Consensus expectations had been for stability at 51.5.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
New orders recovered all of the decline during the prior two months with a 5.5 point rise to 57.2. The index of export orders, however, fell to the lowest since December 2001.
The employment index improved modestly to 49.9 but remained below the break even level of 50 for a second month. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701a.jpg" width="353">
The production index (55.6) rose moderately while the inventories index was unchanged and below 50 for the third consecutive month.
The prices paid index again fell sharply to the lowest since early 2002. During the last twenty years there has been an 81% correlation between vendor delivery speed and prices.

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;04</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">Composite Index</td>
<td>53.8</td>
<td>51.4</td>
<td>61.2</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>57.2</td>
<td>51.7</td>
<td>61.8</td>
<td>63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>50.5</td>
<td>58.0</td>
<td>81.0</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Extended Increase 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701c.jpg" width="353">
The University of Michigan&#39;s final reading of consumer sentiment in June extended the early-month improvement and rose 10.5% versus May to 96.0, the highest level this year. Consensus expectations had been for a lesser increase to 94.6.
During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE, although the correlation has fallen in recent years.
The reading of current economic conditions improved sharply late in the month and for June overall rose 7.9% to the highest level since late 2000.
Consumer expectations added slightly to the gain earlier in the month and surged 12.9% following five months of decline.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Consumption Taxes: Macroeconomic Effects and Policy Issues from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/Pdf/2Q05garn.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">June</th>
<th scope="col">May</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">Consumer Sentiment</td>
<td>96.0</td>
<td>86.9</td>
<td>0.4%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>113.2</td>
<td>104.9</td>
<td>6.1%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>85.0</td>
<td>75.3</td>
<td>-4.0%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Fell After Strengthened Gain Last Year  
by <a href="/comment/Moeller.html">Tom Moeller</a> July 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050701d.jpg" width="353">
The total value of construction put in place fell in May for the fourth month this year. The 0.9% decline followed a revised 1.1% drop in April. Consensus expectations had been for a 0.5% increase.
The 2004 increase in total construction spending was revised up to 11.1% from 8.9% as a result of a strengthened gain in residential building to 18.5% from 13.9%.
Since then private residential building activity has fallen sharply, down 4.9% during the last three months. The value of new single family building, however, has continued to rise by 0.5% (7.6% y/y) in May. Building on new multi-family units fell 0.9% (15.0% y/y).
Nonresidential building slipped 1.6% (+5.0% y/y) due to a 1.2% (+2.4% y/y) decline in office building.
Public construction spending rose 1.7% but the steam came out of spending on highways &amp; streets, nearly one third of the value of public construction spending, as y/y growth slowed to 5.4% from the high of 19.7% in February.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</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">Total</td>
<td>-0.9%</td>
<td>-1.1%</td>
<td>8.2%</td>
<td>11.1%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.6%</td>
<td>-1.5%</td>
<td>7.0%</td>
<td>13.8%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.7%</td>
<td>-2.2%</td>
<td>7.8%</td>
<td>18.5%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.6%</td>
<td>0.6%</td>
<td>5.0%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.7%</td>
<td>0.2%</td>
<td>7.1%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

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

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Andrew Cates

**The global business cycle** 
The recent sharp decline in the Future Output Balance in the global composite PMI survey reflects a sudden deterioration in global business expectations. The sweeping tariffs, introduced in April 2025, have generated heightened uncertainty around trade policy and sparked fears of retaliatory actions from key trading partners. As a result, businesses worldwide are scaling back their expectations for future output, wary of rising costs, disrupted demand flows, and a broader shift toward protectionism that could undermine global economic momentum.

250507Z1.jpg

Note: The extreme declines in the Future Output Balance that were recorded in the early months of 2020 (at the height of the COVID pandemic) have been removed from this chart.

**Global supply chain pressures**
Still, despite the marked deterioration in global business expectations, this second chart below provides a reassuring counterpoint: as of now, there is little evidence that global supply chain pressures have materially intensified. Both the New York Fed’s Global Supply Chain Pressure Index and the Baltic Exchange Dry Index remain relatively subdued, especially compared to the pandemic-era spikes of 2020–2022. While there has been heightened concern following the April 2025 US tariff announcements, these trade policy shifts have yet to translate into measurable physical disruption in logistics or freight rates. The stability of these indices suggests that although sentiment has taken a hit, global shipping networks and supply flows are, for now, absorbing the shock. However, this calm may prove fragile if the policy environment hardens further or retaliatory trade actions begin to compound the strain.

250507Z2.jpg

**Expectations for central banks’ policy rates** 
Adding to the picture of mounting economic caution, the latest Blue Chip Financial Forecasts survey reveals that expectations for policy easing over the next 12 months have become even more pronounced than in previous months. While earlier surveys had already pointed to a further extension of the global rate-cutting cycle, the latest results suggest forecasters now anticipate a deeper and more aggressive round of monetary easing—most notably from the US Federal Reserve, which is now expected to deliver nearly a full percentage point in rate cuts over the next 12 months. The sharp deterioration in business sentiment is reshaping the macro narrative: central banks are no longer simply guiding inflation lower, but are instead preparing to confront the risk of a deeper, demand-driven slowdown.

250507Z3.jpg

**Energy prices and inflation** 
Adding further context to the growing expectations for policy easing, oil prices have dropped sharply in recent weeks—driven by mounting concerns over global growth, as reflected in weakening business sentiment and softer demand indicators. The chart below provides a longer-run perspective on why this matters: energy prices have historically played a central role in shaping the global inflation trajectory. The strong positive correlation (r = 0.83) between median world energy price inflation and median core consumer price inflation underscores the powerful pass-through effects energy costs can have on broader price dynamics. While core inflation tends to be stickier, this historical relationship makes clear that sustained declines in energy prices often foreshadow broader disinflationary trends.

250507Z4.jpg

**Intangibles versus tangibles** 
Shifting focus from short-term cyclical risks to longer-term structural dynamics, the next chart below underscores a fundamental transformation in the composition of US investment: the economy has increasingly been built on intangibles. Over the past several decades, investment in intangible assets—such as software, intellectual property, R&D, and brand equity—has steadily climbed and, since the mid-2010s, has overtaken investment in both structures and equipment as a share of GDP. This shift reflects the rise of a knowledge-based, innovation-driven economy, but it also introduces new forms of vulnerability. Unlike physical capital, intangible assets rely heavily on trust, reputation, legal protections, and global openness. In this context, escalating trade frictions and a more confrontational US economic stance—as signalled by the recent tariff wave—risk eroding the goodwill and institutional credibility that underpin much of the value created by intangibles. If geopolitical uncertainty undermines the perceived reliability of US intellectual property protections or weakens global collaboration, it could pose a deeper structural challenge to future growth than any immediate cyclical downturn.

250507Z5.jpg

**Investment in Artificial Intelligence**
The centrality of intangibles to the US growth model is nowhere more evident than in the explosion of private investment in artificial intelligence. As this chart illustrates, global AI investment has surged over the past decade—reaching new highs in 2024—and the United States has consistently accounted for the lion’s share of that spending. This reflects not only America’s previous leadership in frontier technologies but also its dependence on intangible capital, from algorithms and data infrastructure to human expertise and institutional trust. However, this dominance also underscores the strategic stakes of current policy choices. In an environment of rising trade tensions and potential fragmentation, the foundations of US leadership in AI—cross-border collaboration, data openness, and global market access—could be at risk.

250507Z6.jpg

Financial market sentiment has rebounded in recent weeks, buoyed by signs of de-escalation in the US-led trade war and growing confidence that central banks—particularly the Federal Reserve—will step in with more rate cuts to cushion any fallout. Yet beneath the surface, a more sobering picture of the global economy persists. For example, latest PMI surveys reveal that global business expectations have slumped to their lowest levels since the pandemic, reflecting widespread unease about the growth outlook (chart 1). While supply chain pressures have so far remained contained, suggesting no repeat of the logistical chaos seen during the pandemic (chart 2), the latest Blue Chip Financial Forecasts survey reveals that forecasters are now pencilling in deeper and more widespread monetary easing than previously anticipated—an acknowledgment that demand is faltering (chart 3). Falling oil prices further reinforce this view: they are both a symptom of weakening global demand and a potential source of disinflation, reducing the urgency for central banks to maintain tight policy (chart 4). At the structural level, the US economy's increasing reliance on intangible assets—ranging from intellectual property to reputation—has made it more vulnerable to geopolitical frictions and the erosion of global trust (chart 5). This risk is compounded by America's dominant role in AI investment, a sector symbolic of both its economic strengths and its exposure to international perceptions (chart 6). The longer-term challenge, then, is not just navigating the current downturn, but ensuring that the institutional goodwill and cross-border openness that support the modern US economy are not sacrificed in a more fragmented and uncertain global order.

Charts of the Week: Relief Rally Meets Recession Risk

250507J1.jpg

250507K1.jpg

At today’s meeting of the Federal Open Market Committee, the target range for the Fed funds rate was left unchanged at 4.25% to 4.50%. This followed reductions at three consecutive meetings in the fall of 2024. Rates remain below the high of 5.25% to 5.50% in place in mid-September. Today’s target range matched expectations in the Action Economics Forecast Survey.

The statement following the meeting indicated that, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”

“The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

The Fed continued, “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.”

250507L1.jpg

250507M1.jpg

- FOMC holds funds rate target at late-December level.
- Risk assessments include higher unemployment & inflation.

FOMC Targeted Funds Rate Range Is Unchanged; Increased Risks Acknowledged

Kathleen Stephansen, CBE

250507F4.jpg

250507G4.jpg

Consumer credit outstanding rose $10.2 billion (1.9% y/y) during March after declining by $0.6 billion (+1.7% y/y) during February, revised from a decline of $0.8 billion (+1.7% y/y. A $10.0 billion rise had been expected in the Action Economics Forecast Survey. As a percentage of disposable personal income, consumer credit was 22.4% in March, compared to 22.9% one year earlier.

Nonrevolving credit outstanding rose $8.3 billion (1.5% y/y) in March after easing $0.3 billion (1.3% y/y) in February. Nonrevolving credit held by depository institutions declined 7.8% y/y in March after declining 9.0% y/y in February. Finance company debt holdings rose 0.8% y/y, while credit union holdings eased 1.9% y/y in March. Nonrevolving debt held by the federal government rose 3.4% y/y.

In March, revolving credit outstanding, which includes credit cards, rose $1.9 billion (2.9% y/y) following a decline of $0.3 billion (2.9% y/y) in February. Revolving credit outstanding held by depository institutions fell 1.5% y/y. Revolving credit held by finance companies dropped 12.2% y/y, while that held by credit unions rose 3.7% y/y.

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s **USECON** database. The Action Economics forecast figures are contained in the **AS1REPNA** database.

250507H4.jpg

250507I4.jpg

- Consumer credit rises close to expectations.
- Nonrevolving and revolving credit rise.


U.S. Consumer Credit Rebounded in March

250507A20.jpg

250507B20.jpg

Mortgage applications increased 11.0% (26.0% y/y) in the week ended May 2, after declining 4.2% in the week ended April 25, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications to purchase a home rose 11.1% (12.9% y/y) in the week ended May 2 after declining 4.4% in the previous week. Loan applications to refinance a home loan also increased 11.1% (51.0% y/y) in the latest week after falling 3.7% in the prior week.

The effective interest rate on a 30-year fixed rate loan of 7.03% in the week ended May 2 compared to 7.08% in the prior week. The effective rate on a 15-year fixed rate loan of 6.34% in the week ended May 2 followed 6.36% in the prior week. The rate on a 30-year jumbo loan declined to 6.99% in the latest week from 7.06% in the prior week, while the rate on a 5-year ARM eased	to 6.08% in the week ended May 2 from 6.12% in the prior week.

The share of applications to refinance an existing mortgage slipped to 37.1% in the week ended May 2 from 37.3% in the prior week. The share of loans with an adjustable rate rose to 8.3% in the latest week from 7.4% one week earlier.

The average size of a mortgage loan rose 4.2% (3.8% y/y) to $400,200 in the week ended May 2, after slipping 0.7% to $384,100 in the prior week. The average size of a loan to purchase a home increased 1.0% (0.2% y/y) to $444,300 in the latest week from $440,100 in the week prior. The average size of a loan to refinance an outstanding mortgage increased 12.3% (27.6% y/y) last week to $325,400 from $289,800 one week earlier.

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.

- Purchase & refinancing loan applications jump.
- Effective interest rates remain range-bound.
- Average loan size increases.

Mortgage Applications Surge as Interest Rates Ease Last Week

250506J8.jpg

250506K8.jpg

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.

Economy in Brief: July 2005

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U.S. Vehicle Sales Led Higher By Truck Rebound

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