Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050907a.jpg" width="353">
Non-farm labor productivity last quarter was revised down to 1.8% from 2.2%. Consensus expectations had been for 2.1% growth. Growth in output was lowered to 4.1% from 4.4% reported initially while hours worked were raised to 2.2% from 2.1%.
Unit labor cost growth was revised sharply higher to 2.5% from 1.3% reflecting the reduction in productivity, but compensation costs were raised even more to 4.4% from 3.5%.
Factory sector productivity growth was similarly reduced to 3.6% (4.6% y/y) from 4.1% due to a lowered estimate of output.An upward revision to manufacturing compensation growth to 8.4% from 6.6% raised unit Labor costs sharply to 4.7% (4.3% y/y) from 2.3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050907b.jpg" width="353">
Reported for the first time, nonfinancial corporate sector productivity surged 6.8% (6.3% y/y) and the spike lowered unit labor costs by 2.6% (+0.3% y/y). Output rose 9.5% (8.0% y/y). This measure is gleaned from the income side of the National Income &amp; Product Accounts (NIPA) as opposed to the non-farm and manufacturing figures which are derived from the output side. 
Analysis of the Economic &amp; Budgetary Effects of Hurricane Katrina from the US Congressional Budget Office can be found <a href="http://www.cbo.gov/ftpdocs/66xx/doc6627/09-06-ImpactKatrina.pdf">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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;05 (Revised)</th>
<th scope="col">2Q &#39;05 (Prelim.)</th>
<th scope="col">1Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.8%</td>
<td>2.2%</td>
<td>3.2%</td>
<td>2.2%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>4.4%</td>
<td>3.5%</td>
<td>5.5%</td>
<td>6.5%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.5%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>4.2%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
Chain Store Sales Flat 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 7, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050907c.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales were flat last week following four successive weeks of decline during August. 
The ICSC indicated that &quot;The results for this past week reflect the fallout of Hurricane Katrina as national sales were held back by about one percentage point as stores were closed in the path of the hurricane.&#148;
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC fell in the latest week by 0.1% (+0.2% y/y) following a 0.2% decline the week prior. 
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">09/03/05</th>
<th scope="col">08/27/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>455.4</td>
<td>455.5</td>
<td>3.8%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Lower Rates Spurred Mortgage Applications 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 7, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050907d.jpg" width="353">
The total number of mortgage applications jumped 6.8% last week and recovered to the highest level since late July, according to the Mortgage Bankers Association.
Mortgage applications to refinance surged 7.7% w/w to the highest level since July as the effective interest rate on a conventional 30-year mortgage fell further to 5.87% from 5.98% the prior week. The effective rate on a 15-year mortgage also fell to 5.47%.
Purchase applications surged 6.1% after two weeks of sharp decline but the average level in August fell 1.3% from July. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">09/02/05</th>
<th scope="col">08/26/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>771.6</td>
<td>722.5</td>
<td>11.5%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>499.1</td>
<td>470.6</td>
<td>4.9%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,357.1</td>
<td>2,187.8</td>
<td>20.9%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Industrial Production Gains in Europe:  Can That Pattern Be Sustained? 
by <a href="/comment/Stone.html">Carol Stone</a> September 7, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050907e.jpg" width="353">
Industrial production in Europe appears to be holding up well, according to data for four countries reported today for July. Month-to-month movements are a bit erratic, but trends are distinctly upward, nonetheless.
As Louise Curley explained here yesterday, Germany&#39;s manufacturing sector is growing, at least for the present. Her commentary on factory sales data cited their 3.8% gain in July. The production behind those sales was up 1.3%, with total industrial output (excluding construction) up 1.1%. This was the second marked increase in a row after a sluggish performance in the winter and spring. The July gains were widespread across individual industries, with only petroleum refining, machinery and electrical equipment experiencing declines; that in machinery followed spike in June.
In Norway, total industrial production was up 1.1% in July after a drop of 6.2% in June. Oil and gas extraction dominates Norwegian industry; that sector rose after two sharp declines, and has been on an extended downtrend. By contrast, Norway&#39;s factories saw a small downtick in July, but prior increases have pushed their year-on-year performance to 4.0% growth, a pick-up after a small increase in 2004 and annual declines running all the way back through 1999. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050907f.jpg" width="353">
In Hungary and Slovakia, modest increases in July followed declines in June, but year-on-year gains are substantial, at 5.8% and 4.7%, respectively. These countries&#39; industrial sectors have been expanding vigorously for at least the last four years, and the gains in Hungary for one version of its index go back to 1993.
Thus, as we indicated at the beginning, European industry seems stronger than might have perhaps been expected, given the high level of the euro and the high level of energy prices. However, this latter factor in particular may yet become burdensome for these nations. Louise Curley also pointed out here yesterday that domestic new orders in Germany have already turned flat. So it remains to be seen how long the recent gains in European production can be sustained.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production*</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">Year/Year</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">Germany</td>
<td>1.1</td>
<td>1.4</td>
<td>0.6</td>
<td>3.0</td>
<td>0.4</td>
<td>-1.0</td>
</tr>
<tr>
<td class="firstcol">Norway</td>
<td>1.1</td>
<td>-6.2</td>
<td>-3.4</td>
<td>2.0</td>
<td>-4.1</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Oil &amp; Gas Extraction</td>
<td>1.2</td>
<td>-9.5</td>
<td>-5.7</td>
<td>-1.5</td>
<td>-1.7</td>
<td>-1.5</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>-0.1</td>
<td>1.1</td>
<td>4.0</td>
<td>1.5</td>
<td>-4.3</td>
<td>-0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary</td>
<td>1.2</td>
<td>-1.6</td>
<td>5.8</td>
<td>8.4</td>
<td>6.6</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">Slovakia</td>
<td>0.2</td>
<td>-0.5</td>
<td>4.7</td>
<td>4.2</td>
<td>5.0</td>
<td>6.4</td>
</tr>
</tbody>
</table>


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Non-farm labor productivity last quarter was revised down to 1.8% from 2.2%. Consensus expectations had been for 2.1% growth. Growth in output was lowered to 4.1% from 4.4% reported initially while hours worked were raised to 2.2% [...]

2Q U.S. Productivity Revised Down

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050906b.jpg" width="353">
July data on manufacturing sales and new orders for Germany, released today, present a mixed picture. Manufacturing and mining sales in nominal terms to the German domestic market increased 2.28% in July, one of the few times in recent years that the increase in domestic sales was greater than that of foreign sales, which were up only 0.49%. The trend in new orders, however, suggests that stepped up growth in domestic sales and the deceleration of foreign sales growth may be short lived. Domestic new orders declined by 0.29%. in July while foreign new orders rose sharply--8.24%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050906c.jpg" width="353">
New orders and sales are obviously closely related as shown in the first chart which plots total sales and new orders lagged one month. The correlation between the two series is .90. The second and third charts, contrast foreign and domestic sales and foreign and domestic new orders. Domestic new orders and sales have shown little growth over the past five years. Foreign orders and sales have shown a good upward trend since 2003 in spite of a rise in the Euro over much of this period until recently. Growth in the manufacturing industry is Germany is still highly dependent on foreign demand.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050906d.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Manufacturing New Orders and Sales (2000=100)</th>
<th scope="col">Jul&nbsp; 05</th>
<th scope="col">Jun 05</th>
<th scope="col">Jul 04</th>
<th scope="col">M/M %</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">New Orders Total Nominal</td>
<td>114.6</td>
<td>110.4</td>
<td>105.8</td>
<td>3.80</td>
<td>8.32</td>
<td>104.8</td>
<td>98.9</td>
<td>98.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>102.2</td>
<td>102.5</td>
<td>98.3</td>
<td>-0.29</td>
<td>3.97</td>
<td>98.3</td>
<td>94.6</td>
<td>94.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>130.1</td>
<td>120.2</td>
<td>115.1</td>
<td>8.24</td>
<td>13.03</td>
<td>112.9</td>
<td>104.3</td>
<td>102.5</td>
</tr>
<tr>
<td class="firstcol">Sales, Manufacturing &amp; Mining</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>111.1</td>
<td>109.5</td>
<td>106.9</td>
<td>1.46</td>
<td>3.93</td>
<td>105.2</td>
<td>100.7</td>
<td>100.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>103.0</td>
<td>100.7</td>
<td>100.6</td>
<td>2.28</td>
<td>2.39</td>
<td>99.4</td>
<td>96.9</td>
<td>97.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>124.2</td>
<td>123.6</td>
<td>117.1</td>
<td>0.49</td>
<td>6.06</td>
<td>114.5</td>
<td>106.7</td>
<td>106.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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July data on manufacturing sales and new orders for Germany, released today, present a mixed picture. Manufacturing and mining sales in nominal terms to the German domestic market increased 2.28% in July, one of the few times in [...]

Manufacturing Sales and New Orders in Germany

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050906a.jpg" width="353">
The Institute for Supply Management reported that the Business Activity Index for the non-manufacturing sector rebounded in August from the prior month&#39;s decline and jumped 4.5 points to 65.0, the highest level since April of last year. Consensus expectations had been for near stability at 60.
Since the series&#39; inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
Orders rose solidly for the second consecutive month to the highest level in two years and the employment index rose 3.4 points to the highest level since February. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power backpedaled but just a bit. The 3.2 point decline reversed about one third of the jump in July.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
Survey Says ..., analyzing BLS&#39;s employment surveys, from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20050901/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>65.0</td>
<td>60.5</td>
<td>59.3</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>67.1</td>
<td>70.3</td>
<td>70.1</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>


</html>

The Institute for Supply Management reported that the Business Activity Index for the non-manufacturing sector rebounded in August from the prior month's decline and jumped 4.5 points to 65.0, the highest level since April of last [...]

ISM Non-Manufacturing Index Rebounded

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050906a.jpg" width="353">
The Institute for Supply Management reported that the Business Activity Index for the non-manufacturing sector rebounded in August from the prior month&#39;s decline and jumped 4.5 points to 65.0, the highest level since April of last year. Consensus expectations had been for near stability at 60.
Since the series&#39; inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
Orders rose solidly for the second consecutive month to the highest level in two years and the employment index rose 3.4 points to the highest level since February. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power backpedaled but just a bit. The 3.2 point decline reversed about one third of the jump in July.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
Survey Says ..., analyzing BLS&#39;s employment surveys, from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20050901/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>65.0</td>
<td>60.5</td>
<td>59.3</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>67.1</td>
<td>70.3</td>
<td>70.1</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>
Manufacturing Sales and New Orders in Germany 
by <a href="/comment/Curley.html">Louise Curley</a> September 6, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050906b.jpg" width="353">
July data on manufacturing sales and new orders for Germany, released today, present a mixed picture. Manufacturing and mining sales in nominal terms to the German domestic market increased 2.28% in July, one of the few times in recent years that the increase in domestic sales was greater than that of foreign sales, which were up only 0.49%. The trend in new orders, however, suggests that stepped up growth in domestic sales and the deceleration of foreign sales growth may be short lived. Domestic new orders declined by 0.29%. in July while foreign new orders rose sharply--8.24%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050906c.jpg" width="353">
New orders and sales are obviously closely related as shown in the first chart which plots total sales and new orders lagged one month. The correlation between the two series is .90. The second and third charts, contrast foreign and domestic sales and foreign and domestic new orders. Domestic new orders and sales have shown little growth over the past five years. Foreign orders and sales have shown a good upward trend since 2003 in spite of a rise in the Euro over much of this period until recently. Growth in the manufacturing industry is Germany is still highly dependent on foreign demand.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050906d.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Manufacturing New Orders and Sales (2000=100)</th>
<th scope="col">Jul&nbsp; 05</th>
<th scope="col">Jun 05</th>
<th scope="col">Jul 04</th>
<th scope="col">M/M %</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">New Orders Total Nominal</td>
<td>114.6</td>
<td>110.4</td>
<td>105.8</td>
<td>3.80</td>
<td>8.32</td>
<td>104.8</td>
<td>98.9</td>
<td>98.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>102.2</td>
<td>102.5</td>
<td>98.3</td>
<td>-0.29</td>
<td>3.97</td>
<td>98.3</td>
<td>94.6</td>
<td>94.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>130.1</td>
<td>120.2</td>
<td>115.1</td>
<td>8.24</td>
<td>13.03</td>
<td>112.9</td>
<td>104.3</td>
<td>102.5</td>
</tr>
<tr>
<td class="firstcol">Sales, Manufacturing &amp; Mining</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>111.1</td>
<td>109.5</td>
<td>106.9</td>
<td>1.46</td>
<td>3.93</td>
<td>105.2</td>
<td>100.7</td>
<td>100.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>103.0</td>
<td>100.7</td>
<td>100.6</td>
<td>2.28</td>
<td>2.39</td>
<td>99.4</td>
<td>96.9</td>
<td>97.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>124.2</td>
<td>123.6</td>
<td>117.1</td>
<td>0.49</td>
<td>6.06</td>
<td>114.5</td>
<td>106.7</td>
<td>106.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050902b.jpg" width="353">
US sales of light vehicles slipped 19.0% m/m to 16.79M last month, according to the Autodata Corporation, as the allure of manufacturers&#39; successful employee price discount programs faded
Sales of US made cars and trucks plummeted 21.8% m/m and fell 1.0% y/y. Truck sales fell nearly one third m/m (-5.0% y/y) and car sales fell 3.6% (+5.3% y/y).
Sales of imported cars &amp; trucks also fell in August by 6.1% m/m (+6.2% y/y). 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">Aug</th>
<th scope="col">July</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>16.79</td>
<td>20.72</td>
<td>0.4%</td>
<td>16.87</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.78</td>
<td>8.08</td>
<td>6.8%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.01</td>
<td>12.65</td>
<td>-4.6%</td>
<td>9.37</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
</body>
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US sales of light vehicles slipped 19.0% m/m to 16.79M last month, according to the Autodata Corporation, as the allure of manufacturers' successful employee price discount programs faded Sales of US made cars and trucks plummeted [...]

U.S. Vehicle Sales Slipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050902a.jpg" width="353">
August non-farm payrolls rose 169,000. The gain was shy of Consensus expectations for a 190,000 increase but increases in both July and June were revised upward to 242,000 and 175,000, respectively.
These job figures are the last before the devastating effects of Hurricane Katrina are tallied. Early estimates suggest that 500,000 to 750,000 workers will be absent from upcoming payroll counts as a result.
Factory sector payrolls fell further in August by 14,000, higher than the 9,000 average loss during the last twelve months. A diffusion index measuring one month change in factory payrolls of 45.8% indicates that job losses were widespread amongst industries. The twelve month diffusion dropped to 33.3%, indicating that only one third of manufacturing establishments have added to job counts during that period.
Private service producing industries payrolls increased 141,000 (2.1% y/y) in August following an upwardly revised 198,000 July gain. Professional &amp; business services jobs rose 29,000 (3.1% y/y), education &amp; health services rose 43,000 (2.3% y/y) and financial jobs rose 15,000 (2.3% y/y). The one month diffusion index of 57.2% indicated that job creation was fairly broad amongst industry.
Construction jobs jumped 25,000 (4.0% y/y) while total government employment rose 15,000 (0.8% y/y).
The unemployment rate from the household survey dropped to 4.9%, a four year low as employment rose 373,000 (2.0% y/y) and the labor force rose 268,000 (1.5% y/y). The labor force participation rate rose to 66.2%, the highest since July 2004.
The index of aggregate hours worked (employment times hours worked) rose 0.1% (2.4% y/y) after an upwardly revised 0.3% rise in July. The first two months of the third quarter stood 0.4% above the second. Hours worked in 2Q increased 2.8% (AR) from 1Q05.
Average hourly earnings rose a slight 0.1%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>169,000</td>
<td>242,000</td>
<td>1.7%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-14,000</td>
<td>-6,000</td>
<td>-0.8%</td>
<td>-1.2%</td>
<td>-4.9%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.7</td>
<td>33.7</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.7%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.9%</td>
<td>5.0%</td>
<td>5.4%</td>
<td>5.5%</td>
<td>6.0%</td>
<td>5.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

August non-farm payrolls rose 169,000. The gain was shy of Consensus expectations for a 190,000 increase but increases in both July and June were revised upward to 242,000 and 175,000, respectively. These job figures are the last [...]

Before Katrina, U.S. Payrolls On An Up Trend

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050902a.jpg" width="353">
August non-farm payrolls rose 169,000. The gain was shy of Consensus expectations for a 190,000 increase but increases in both July and June were revised upward to 242,000 and 175,000, respectively.
These job figures are the last before the devastating effects of Hurricane Katrina are tallied. Early estimates suggest that 500,000 to 750,000 workers will be absent from upcoming payroll counts.
Factory sector payrolls fell further in August by 14,000, higher than the 9,000 average loss during the last twelve months. A diffusion index measuring one month change in factory payrolls of 45.8% indicates that job losses were widespread amongst industries. The twelve month diffusion dropped to 33.3%, indicating that only one third of manufacturing establishments have added to job counts during that period.
Private service producing industries payrolls increased 141,000 (2.1% y/y) in August following an upwardly revised 198,000 July gain. Professional &amp; business services jobs rose 29,000 (3.1% y/y), education &amp; health services rose 43,000 (2.3% y/y) and financial jobs rose 15,000 (2.3% y/y). The one month diffusion index of 57.2% indicated that job creation was fairly broad amongst industry.
Construction jobs jumped 25,000 (4.0% y/y) while total government employment rose 15,000 (0.8% y/y).
The unemployment rate from the household survey dropped to 4.9%, a four year low as employment rose 373,000 (2.0% y/y) and the labor force rose 268,000 (1.5% y/y). The labor force participation rate rose to 66.2%, the highest since July 2004.
The index of aggregate hours worked (employment times hours worked) rose 0.1% (2.4% y/y) after an upwardly revised 0.3% rise in July. The first two months of the third quarter stood 0.4% above the second. Hours worked in 2Q increased 2.8% (AR) from 1Q05.
Average hourly earnings rose a slight 0.1%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>169,000</td>
<td>242,000</td>
<td>1.7%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-14,000</td>
<td>-6,000</td>
<td>-0.8%</td>
<td>-1.2%</td>
<td>-4.9%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.7</td>
<td>33.7</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.7%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.9%</td>
<td>5.0%</td>
<td>5.4%</td>
<td>5.5%</td>
<td>6.0%</td>
<td>5.8%</td>
</tr>
</tbody>
</table>
U.S. Vehicle Sales Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050902b.jpg" width="353">
US sales of light vehicles slipped 19.0% m/m to 16.79M last month, according to the Autodata Corporation, as the allure of manufacturers&#39; successful employee price discount programs faded
Sales of US made cars and trucks plummeted 21.8% m/m and fell 1.0% y/y. Truck sales fell nearly one third m/m (-5.0% y/y) and car sales fell 3.6% (+5.3% y/y).
Sales of imported cars &amp; trucks also fell in August by 6.1% m/m (+6.2% y/y). 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">Aug</th>
<th scope="col">July</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>16.79</td>
<td>20.72</td>
<td>0.4%</td>
<td>16.87</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.78</td>
<td>8.08</td>
<td>6.8%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.01</td>
<td>12.65</td>
<td>-4.6%</td>
<td>9.37</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
</body>
</html>

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

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250707A2.jpg

250707D2.jpg

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

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

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

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


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

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

250707B2.jpg

250707C2.jpg

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

FIBER: Industrial Commodity Prices Surge in Latest Four Weeks

Robert Brusca

250707E.jpg

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

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

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

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

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

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

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

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

Germany

German IP Is Making Progress Across Most Sectors

Tian Yong Woon

This week, we look at the latest US trade developments and their implications for Asia, as the US’ 90-day tariff pause expires on Wednesday (July 9). Market sentiment had already turned cautious ahead of the deadline, reflecting heightened uncertainty around US trade policy (chart 1). This unease was reinforced by President Trump’s announcement that tariff notices would be sent to trading partners, starting with 12 to 15 to be sent on Monday. A modest source of relief came from US Treasury Secretary Bessent, who indicated that some countries could be granted an extra three weeks to negotiate. However, any resulting tariffs are still set to take effect on August 1. Bessent also confirmed that around 100 economies will now face a baseline 10% tariff. If this is upheld—and if 10% remains the floor—it implies that more than 20 economies have lost their previous preferential treatment, further worsening their trade position (chart 2).

In contrast, Vietnam reached a deal last week, cutting its tariff rate from 46% to 20%, though the agreement includes a 40% tariff on “transshipments.” In return, the US secured tariff-free access to Vietnamese markets. While 20% is a clear improvement, it remains high relative to the current 10% reprieve and could feed through to higher US consumer prices—particularly given Vietnam’s key role in electronics exports (chart 3). Japan, meanwhile, is under pressure to open its rice market or face tariffs of up to 35%. However, any concessions would be politically sensitive, particularly with upper house elections approaching. In the meantime, Japan has already ramped up rice imports to help ease domestic shortages (chart 4). All this comes as central banks in Australia, New Zealand, South Korea, and Malaysia meet this week. The Reserve Bank of Australia is widely expected to cut rates amid easing inflation to further support growth (chart 5), while South Korea’s central bank is seen likely to hold steady, wary of rising home prices and mortgage growth (chart 6).

**Latest US tariff developments**
Market sentiment turned cautious late last week as the US’ tariff pause neared its end. Understandably, this unease was reinforced by President Trump’s announcement that tariff notices would be sent to trading partners, starting with 12 to 15 to be sent on Monday. The earlier sense of relief—when tariffs appeared to have been delayed—has faded, giving way to renewed uncertainty. As this shift in sentiment takes hold, equity performance across advanced Asia has weakened in recent days, as shown in chart 1. Amid the resurfacing uncertainty, there is a modest point of reprieve. While this Wednesday (July 9) marks the end of the US' 90-day tariff pause, US Treasury Secretary Scott Bessent has indicated that some countries may be granted an additional three weeks to continue negotiations. Furthermore, any new resulting tariff rates will only take effect on August 1. The extension offers more time to talk—but not a delay in implementation. That said, progress on trade discussions with the US has been limited for most Asian economies—and may even have deteriorated for some, such as Japan, which will be addressed in a later section.

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Digging deeper into the details, Bessent also noted that around 100 economies and territories will now face a baseline tariff of 10%. If this is accurate—and if the 10% rate remains the floor—it suggests that many of the economies and territories originally assigned that baseline rate, roughly 20 or more, have now been excluded. In effect, their relative position has worsened. In the Asia-Pacific region, key economies to watch in this context include Australia, New Zealand, and Singapore, among others, as shown on chart 2. Notably, these countries have not been actively engaged in substantive trade negotiations with the US—perhaps understandably so. Furthermore, based on recent messaging from the US, it appears that the original “Liberation Day” tariff schedule may no longer apply. This raises a broader and more consequential question: Will the new rates be grounded in a clear justification or mechanism—and if so, what might that be?

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

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**Japan**
Turning to Japan, the country is walking a tightrope between avoiding the economic fallout of renewed US tariffs and being seen as capitulating to US trade demands. Among those demands is a push for Japan to open up its market further—particularly for US rice. President Trump has criticized Japan as being “spoiled” for resisting such moves and has threatened tariffs of 30–35%, significantly higher than the 24% “Liberation Day” rate. Complying with US demands could be politically costly for the Japanese government. Any concession on rice would likely be viewed as a blow to Japanese farmers—a key part of Prime Minister Ishiba’s political base. The issue is especially sensitive with upper house elections approaching. At the same time, Japan is grappling with a domestic rice shortage that has been driving prices higher. Given rice’s central role in the Japanese diet, the shortage is a major cost-of-living concern. In response, Japan has already ramped up rice imports, as shown in chart 4, including by bringing forward a tariff-free tender—originally scheduled for September—for 30,000 tons from the US, Australia, and Thailand. However, relative to Japan’s actual consumption needs, this incremental supply is just a drop in the bucket.

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**Central bank decisions this week**
This week’s renewed US trade uncertainty threatens to complicate a series of central bank decisions across the region. The central banks of Australia, New Zealand, South Korea, and Malaysia are all set to announce policy rate decisions just as the US’ 90-day tariff pause expires. If the so-called “Liberation Day” tariffs are reinstated, they could pose fresh downside risks to regional trade and growth, forcing policymakers to reassess their outlooks. Some central banks already have a clear easing bias. For example, the Reserve Bank of Australia is widely expected to cut rates this week—its third cut in the current cycle—as inflation continues to moderate (chart 5) and domestic growth remains sluggish.

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

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Asia

Economic Letter from Asia: The Final Countdown?

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

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

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

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

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

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

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

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

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

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

Economy in Brief: September 2005

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