Tom Moeller

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<p>The Institute for Supply Management reported that, for New York State, their
January index of business conditions expected in six months declined to 66.9,
the lowest level in nine months. In addition, the reading for current economic
conditions fell to 44.5, the first month below the breakeven level of 50 since
June 2013.</p>

<p>Pricing power, however, improved. The January index of prices paid rose to
67.5, its highest level since May 2011.</p>

<p>The ISM figures are diffusion indexes and can be found in Haver's<b> SURVEYS </b>database.
A diffusion index reading of more than 50% denotes growth while a reading of
under 50% implies a contraction.</p>

<p><b>Persistent Overoptimism about Economic Growth</b> from the Federal Reserve
Bank of San Francisco is available <a href="http://www.frbsf.org/economic-research/publications/economic-letter/2015/february/economic-growth-projections-optimism-federal-reserve/">here</a>.</p>

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
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      <th class="firstcol" scope="col" >ISM New York (Diffusion
        Index)</th>
      <th scope="col"  ><b>Jan</b></th>
      <th scope="col"  ><b>Dec</b></th>
      <th scope="col"  ><b>Nov</b></th>
      <th scope="col"  ><b>Jan'14</b></th>
      <th scope="col"  ><b>2014</b></th>
      <th scope="col"  ><b>2013</b></th>
      <th scope="col"  ><b>2012</b></th>
    </tr>
  </thead>
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      <td class="firstcol" >Economic Conditions Six Months Hence
        (SA)</td>
      <td  >66.9</td>
      <td  >72.9</td>
      <td  >70.5</td>
      <td  >70.0</td>
      <td  >69.5</td>
      <td  >65.0</td>
      <td  >64.9</td>
    </tr>
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      <td class="firstcol" >Current Economic Conditions (SA)</td>
      <td  >44.5</td>
      <td  >70.8</td>
      <td  >62.4</td>
      <td  >64.4</td>
      <td  >59.7</td>
      <td  >58.4</td>
      <td  >55.2</td>
    </tr>
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      <td class="firstcol" >Prices Paid (NSA)</td>
      <td  >67.5</td>
      <td  >54.5</td>
      <td  >62.5</td>
      <td  >63.0</td>
      <td  >61.2</td>
      <td  >55.3</td>
      <td  >56.4</td>
      </tr>
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The Institute for Supply Management reported that, for New York State, their January index of business conditions expected in six months declined to 66.9, the lowest level in nine months. In addition, the reading for current economic [...]

New York State Economic Conditions Deteriorate As Pricing Improves

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<p>The seven-month freefall in energy prices took a breather last week. Average <b>gasoline
prices</b> moved up 3 cents in the week ended February 2 to $2.07 per gallon,
reversing the prior week's decline. Prices peaked at $3.70 per gallon this past
June. Haver Analytics constructs factors adjusting for the seasonal variation in
pump prices. The seasonally adjusted price slipped, nevertheless, to a new low
of $2.24 per gallon last week from $2.25 during the week prior.</p>

<p>For the week ended January 30, <b>WTI crude oil prices</b> continued to work
lower to an average $45.57 per barrel (-53.2% y/y). In the last two days,
however, prices rallied to $49.57 per barrel. These prices compare to a June
peak of $107.95. Some of the recent improvement was to be expected this time of
year. The seasonally adjusted price generated by Haver Analytics continued lower
to $48.83 per barrel last week. Brent crude oil prices improved slightly to $46.74
per barrel last week (-57.0% y/y) then to $51.74 yesterday.</p>

<p><b>Natural gas</b> prices declined to $2.87 (-45.9% y/y) per mmbtu during the
week ended January 30, then fell to $2.63 yesterday.</p>

<p>The <b>demand</b> for all petroleum products increased 4.2% y/y and gasoline
demand improved 7.9% y/y. Inventories of crude oil and petroleum products
increased 6.9% y/y, the strongest rise in five years, and gasoline inventories
grew 1.7% y/y.</p>

<p>The energy price data are reported by the U.S. Department of Energy and
petroleum demand and inventory figures can be found in Haver's <b>WEEKLY </b>database.
The daily figures are in <b>DAILY</b> and greater detail on prices, demand and
production, along with regional breakdowns, are in <b>OILWKLY.</b></p>

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      <th class="firstcol" scope="col" >Weekly Energy Prices</th>
      <th scope="col" >02/02/15</th>
      <th scope="col" >01/26/15</th>
      <th scope="col" >01/19/15</th>
      <th scope="col" >Y/Y%</th>
      <th scope="col" >2014</th>
      <th scope="col" >2013</th>
      <th scope="col" >2012</th>
    </tr>
  </thead>
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      <td class="firstcol" >Retail Gasoline ($ per Gallon, Regular)</td>
      <td  >2.07</td>
      <td  >2.04</td>
      <td  >2.07</td>
      <td  >-37.2</td>
      <td  >3.36</td>
      <td  >3.51</td>
      <td  >3.62</td>
    </tr>
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      <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl.,
        WSJ)</td>
      <td  >45.57</td>
      <td  >46.54</td>
      <td  >47.07</td>
      <td  >-53.2</td>
      <td  >93.63</td>
      <td  >97.95</td>
      <td  >94.20</td>
    </tr>
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      <td class="firstcol" >Natural Gas ($/mmbtu, LA, WSJ)</td>
      <td  >2.87</td>
      <td  >2.94</td>
      <td  >3.06</td>
      <td  >-45.9</td>
      <td  >4.37</td>
      <td  >3.73</td>
      <td  >2.75</td>
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The seven-month freefall in energy prices took a breather last week. Average gasoline prices moved up 3 cents in the week ended February 2 to $2.07 per gallon, reversing the prior week's decline. Prices peaked at $3.70 per gallon this [...]

U.S. Gasoline and Crude Oil Prices Level Off

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<p>The value of construction put-in-place increased 6.1% last year
following a 5.7% rise in 2013. The rise was led by an improved 11.0% increase in
nonresidential building activity followed by an easier 5.1% gain in residential
building. Public sector building bounced 1.8% higher after declines in each of
the prior four years. Construction activity lost strength, however, by year end
as it improved 0.4% in December (2.2% y/y following a 0.2% decline. The rise compared
to expectations for a 0.6% increase in the Action Economics Forecast Survey.</p>

<p>The annual gain in nonresidential building activity reflected a
strong 18.7% rise in office construction as well as a 14.3% gain in power. For
December alone, office building lost no momentum and gained 1.7% (17.6% y/y).
Power construction, however, eased as the year progressed and was down 8.3% y/y.
That followed gains of one-third earlier in the year. Growth in residential
building activity slowed from a 20.4% rise in 2013 and a 14.4% increase in 2012.
By yearend, very modest monthly increase left the twelve-month comparison at
-4.0%. Much of that deterioration came as spending on improvements was off by
roughly one-third y/y by the end of the year. Single-family building still was
rising 11.0% y/y in December though that was down from a nearly one-third rise
in 2013. Multi-family sector activity gained 11.0% during all of last year but
momentum had slowed to 5.3% by year-end.</p>

<p>Public sector construction activity improved last year.
Transportation building rose 10.7% y/y as of December and building of highways
&amp; streets, which accounts for 30% of all public sector building activity,
rose 9.8% y/y. Transportation sector building rose 10.7% y/y by December and
4.5% for the full year.</p>

<p>The construction spending figures are in Haver's <b>USECON</b> database and
the expectations figure is contained in the <b>AS1REPNA</b> database. </p>

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      <th class="firstcol" scope="col" >Construction Put in Place (%)</th>
      <th scope="col" >Dec</th>
      <th scope="col" >Nov</th>
      <th scope="col" >Oct</th>
      <th scope="col" >Y/Y</th>
      <th scope="col" >2014</th>
      <th scope="col" >2013</th>
      <th scope="col" >2012</th>
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      <td class="firstcol" >Total</td>
      <td  >0.4</td>
      <td  >-0.2</td>
      <td  >1.4</td>
      <td  >2.2</td>
      <td  >6.1</td>
      <td  >5.7</td>
      <td  >9.2</td>
    </tr>
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      <td class="firstcol" >&nbsp; Private</td>
      <td  >0.1</td>
      <td  >0.5</td>
      <td  >0.4</td>
      <td  >0.4</td>
      <td  >7.9</td>
      <td  >10.1</td>
      <td  >16.0</td>
    </tr>
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      <td class="firstcol" >&nbsp;&nbsp;&nbsp; Residential</td>
      <td  >0.3</td>
      <td  >0.1</td>
      <td  >0.4</td>
      <td  >-4.0</td>
      <td  >5.1</td>
      <td  >20.4</td>
      <td  >14.4</td>
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      <td class="firstcol" >&nbsp;&nbsp;&nbsp; Nonresidential</td>
      <td  >-0.2</td>
      <td  >0.8</td>
      <td  >0.4</td>
      <td  >5.3</td>
      <td  >11.0</td>
      <td  >0.6</td>
      <td  >17.5</td>
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      <td class="firstcol" >&nbsp; Public</td>
      <td  >1.1</td>
      <td  >-1.8</td>
      <td  >4.1</td>
      <td  >6.7</td>
      <td  >1.8</td>
      <td  >-3.5</td>
      <td  >-2.8</td>
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The value of construction put-in-place increased 6.1% last year following a 5.7% rise in 2013. The rise was led by an improved 11.0% increase in nonresidential building activity followed by an easier 5.1% gain in residential building. [...]

U.S. Construction Spending Loses Strength During 2014

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<p>Factory sector activity has lost steam. The latest reading from the Institute
for Supply Management (ISM) declined to 53.5 following its December drop to
55.1. The number was the lowest since January 2014 and down from an August high
of 58.1. A reading of 54.8 was expected in the Action Economics Forecast Survey.</p>

<p>A sharp decline in new orders to 52.9 and a lower supplier delivery number,
also of 52.9, led the overall index lower. The latest new orders index was the
lowest in a year while the vendor delivery index represented the quickest
delivery speeds since September. A separate index of export orders fell to 49.5,
continuing a downtrend in place since early-2011. The employment reading index
fell to 54.1, its weakest figure since June. During the last ten years there has
been an 87% correlation between the jobs number and the m/m change in factory
sector employment. Production at 56.5 was at its lowest level since February but
inventories bounced up to the highest point in six months.</p>

<p>The prices paid index fell to 35.0 reflecting the decline in energy prices.
It was the lowest level since April 2009. To the downside, 41% of respondents
reported paying lower prices, the most since April 2009. Just 11% reported
paying higher prices, the fewest since July 2012.</p>

<p>Order backlogs also fell to the lowest level since July 2013 and inventories
showed the easiest rate of accumulation since April.</p>

<p>The figures from the Institute For Supply Management (ISM) are diffusion
indexes and can be found in Haver's <b>USECON</b> database. The expectations
number is in the <b>AS1REPNA</b> database.</p>

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      <th class="firstcol" scope="col" >ISM Mfg</th>
      <th scope="col"  >Jan</th>
      <th scope="col"  >Dec</th>
      <th scope="col"  >Nov</th>
      <th scope="col"  >Jan'14</th>
      <th scope="col"  >2014</th>
      <th scope="col"  >2013</th>
      <th scope="col"  >2012</th>
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      <td class="firstcol" >Composite Index</td>
      <td  >53.5</td>
      <td  >55.1</td>
      <td  >57.6</td>
      <td  >51.8</td>
      <td  >55.7</td>
      <td  >53.8</td>
      <td  >51.7</td>
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      <td class="firstcol" >&nbsp;New Orders</td>
      <td  >52.9</td>
      <td  >57.8</td>
      <td  >62.1</td>
      <td  >52.8</td>
      <td  >59.0</td>
      <td  >56.9</td>
      <td  >52.9</td>
    </tr>
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      <td class="firstcol" >&nbsp;Production</td>
      <td  >56.5</td>
      <td  >57.7</td>
      <td  >62.6</td>
      <td  >56.0</td>
      <td  >59.2</td>
      <td  >57.5</td>
      <td  >53.7</td>
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      <td class="firstcol" >&nbsp;Employment</td>
      <td  >54.1</td>
      <td  >56.0</td>
      <td  >54.6</td>
      <td  >52.6</td>
      <td  >54.5</td>
      <td  >53.2</td>
      <td  >53.8</td>
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      <td class="firstcol" >&nbsp;Supplier Deliveries</td>
      <td  >52.9</td>
      <td  >58.6</td>
      <td  >57.0</td>
      <td  >53.8</td>
      <td  >55.0</td>
      <td  >51.9</td>
      <td  >50.0</td>
    </tr>
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      <td class="firstcol" >&nbsp;Inventories</td>
      <td  >51.0</td>
      <td  >45.5</td>
      <td  >51.5</td>
      <td  >44.0</td>
      <td  >50.8</td>
      <td  >49.4</td>
      <td  >48.2</td>
    </tr>
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      <td class="firstcol" >Prices Paid Index (NSA)</td>
      <td  >35.0</td>
      <td  >38.5</td>
      <td  >44.5</td>
      <td  >60.5</td>
      <td  >55.6</td>
      <td  >53.8</td>
      <td  >53.2</td>
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Factory sector activity has lost steam. The latest reading from the Institute for Supply Management (ISM) declined to 53.5 following its December drop to 55.1. The number was the lowest since January 2014 and down from an August high [...]

U.S. ISM Manufacturing Index Is Weakest In Twelve Months

Robert Brusca

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Even with the manufacturing PMI rebound for the EMU in January, the broad brush shows PMI averages over shorter periods are still declining. France is a minor exception. Spain is accelerating and is a major exception (fourth largest EMU member!). The Netherlands is an exception. Ireland is net weaker over three months compared to six months. Greece, Austria, Italy France, Germany and the overall EMU each show three-month averages below their 12-month averages. Only Spain is stronger over its three-month than over its 12-month average by one point or more. Relative strength is a low hurdle in the EMU.
</p><p>
The queue standings show Spain at a raw score of 54.8 in its 98th queue percentile. Ireland at a raw score of 55.1 has a standing in its 80th percentile. Greece with a raw score showing a decline at 48.3, nonetheless, shows a queue standing in its 72nd percentile. Perhaps Greece is an example of the expression, "Been down so long it looks like up to me."
</p><p>
The Big Three EMU members are disappointing one way or another as the German raw manufacturing score of 50.9 has a weak 46.6 queue percentile standing. France and Italy each have raw diffusion scores, showing shrinkage with France's standing in its 53rd queue percentile and Italy's in its 50th queue percentile. This month whatever strength there is resides outside the three biggest members.
</p><p>
Outside the EMU space, Sweden is decelerating while the UK and Denmark are prevaricating. All three have 12-month PMI averages in the 54th percentile range, however. 
</p><p>
China's official manufacturing PMI slipped below the breakeven 50 mark in January. That adds to some of the gloom over economic prospects. Not surprisingly, Russia's PMI also fell and is quite weak as sanctions are weighing it down. Its renewed activities (which it denies) in Ukraine do not make the Russian outlook any better.
</p><p>
However, the plot of EMU and U.K. PMIs shows that there is stabilization taking place. This could be a very important development ahead of the start of QE. If QE can launch in a stable environment, instead of one that is deteriorating, its chances of success are better. Of course, there is still price deterioration and yield deterioration and growth, while stable in some aggregates, is still quite uneven and distinctive by EMU members. But at least there are some ways of looking at Europe in which its ills do not look uniformly bad.  
</p><p>
The euro exchange rate continues to weaken and has dropped below its `equilibrium' or PPP value on my assessment of that metric. This means it is now undervalued based on EMU averages. Member by member there will be differences on this score because members have had unique inflation experiences. At this exchange rate, Germany will be exceptionally competitive while countries in Southern Europe where inflation has been much higher may not benefit as much. Having said that, Spain is faring quite well.
</p>

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Even with the manufacturing PMI rebound for the EMU in January, the broad brush shows PMI averages over shorter periods are still declining. France is a minor exception. Spain is accelerating and is a major exception (fourth largest [...]

EMU Mfg PMIs Rise in January on 'Small Country' Strength

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<p><b>Personal consumption expenditures</b> declined 0.3% during December
following little-revised readings of 0.5% and 0.3% during the prior two months.
The figure matched expectations in the Action Economics Forecast Survey. For the
full year, spending rose 3.9%, its largest gain in three years. Lower prices
provided an impetus for personal spending. The PCE chain price index fell 0.2%
during each of the last two months following no change in October. As a result,
the y/y change of 0.7% was the weakest since 2009.</p>

<p>Motor vehicles and parts purchases fell 2.0% last month (+12.0% y/y) in
constant dollars but that followed a 4.9% November surge. Furnishings &amp;
appliance spending slipped 0.2% (+6.9% y/y) on the heels of a 1.3% jump.
Recreational goods &amp; vehicles purchases rose 0.2%, but by an outsized 12.0%
y/y. Apparel purchases gained 0.5% last month (5.9% y/y) after a 3.2% jump. Real
services purchases were unchanged (2.0% y/y) following two months of 0.3%
increase, though spending on restaurants and hotels gained 0.9% (4.3% y/y) for
the second month in the last three.</p>

<p>Despite all this spending, the <b>personal savings rate</b> suffered little
deterioration last year. The full-year rate of 4.8% compared to 4.9% in 2013,
and the December rate edged back to 4.9%. Personal saving rose 2.8% during the
year.</p>

<p><b>Personal income </b>rose an expected 0.3% during December (4.6% y/y)
following a like gain in November. For all of last year, income rose 3.9%,
roughly double the 2013 rise. Wages &amp; salaries inched up 0.1% (4.8% y/y) but
that followed a 0.6% rise. During all of last year, wages increased 4.3% after a
2.8% gain in 2013. Rental income gained 0.8% (7.6% y/y) pulling the full year
rise to 7.5%. Proprietors income rose 0.9% (5.3% y/y) and dividend income gained
0.4% (8.0% y/y) with improved corporate profitability. Interest income slipped
0.2% and fell 1.0% y/y with lower interest rates. Personal transfer receipts
increased 0.5% (5.6% y/y) rounding out a 4.4% rise during all of 2014, the
strongest rise in four years.</p>

<p>The 0.2% decline in the <b>chain price index</b> reflected a 5.2% drop (-11.9%
y/y) in energy prices while food prices rose 0.2% (3.0% y/y). Durable goods
prices were off 0.5% (-2.8% y/y) and nondurable goods prices fell 1.2% (-1.6%
y/y) with lower gasoline costs. Services prices ticked 0.1% higher (2.1% y/y).
The price index excluding food &amp; energy was flat m/m for the second straight
month and up 1.3% y/y.</p>

<p>The personal income &amp; consumption figures are available in Haver's <b>USECON</b>
database with detail in the <b>USNA</b> database. The consensus expectation
figures are in the <b>AS1REPNA</b> database.</p>

<p><a href="/comment/150202c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/150202c.png"></a>
      <a href="/comment/150202d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/150202d.png"></a></p>
      
      <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

  <thead>
    <tr>
      <th class="firstcol" scope="col" >Personal Income &amp; Outlays
        (%)</th>
      <th scope="col"  >Dec</th>
      <th scope="col"  >Nov</th>
      <th scope="col"  >Oct</th>
      <th scope="col"  >Y/Y</th>
      <th scope="col"  >2014</th>
      <th scope="col"  >2013</th>
      <th scope="col"  >2012</th>
    </tr>
  </thead>
  <tbody>
    <tr>
      <td class="firstcol" >Personal Income</td>
      <td  >0.3</td>
      <td  >0.3</td>
      <td  >0.4</td>
      <td  >4.6</td>
      <td  >3.9</td>
      <td  >2.0</td>
      <td  >5.2</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;&nbsp;Wages &amp; Salaries</td>
      <td  >0.1</td>
      <td  >0.6</td>
      <td  >0.3</td>
      <td  >4.8</td>
      <td  >4.3</td>
      <td  >2.8</td>
      <td  >4.5</td>
    </tr>
    <tr>
      <td class="firstcol" >Disposable Personal Income</td>
      <td  >0.3</td>
      <td  >0.3</td>
      <td  >0.4</td>
      <td  >4.5</td>
      <td  >3.8</td>
      <td  >1.0</td>
      <td  >4.9</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >Personal Consumption Expenditures</td>
      <td  >-0.3</td>
      <td  >0.5</td>
      <td  >0.3</td>
      <td  >3.6</td>
      <td  >3.9</td>
      <td  >3.6</td>
      <td  >3.7</td>
    </tr>
    <tr>
      <td class="firstcol" >Personal Saving Rate</td>
      <td  >4.9</td>
      <td  >4.3</td>
      <td  >4.5</td>
      <td  >4.1<br>
        (Dec '13)</td>
      <td  >4.8</td>
      <td  >4.9</td>
      <td  >7.2</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >PCE Chain Price Index</td>
      <td  >-0.2</td>
      <td  >-0.2</td>
      <td  >0.0</td>
      <td  >0.7</td>
      <td  >1.3</td>
      <td  >1.2</td>
      <td  >1.8</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;&nbsp;Less Food &amp; Energy</td>
      <td  >0.0</td>
      <td  >0.0</td>
      <td  >0.2</td>
      <td  >1.3</td>
      <td  >1.4</td>
      <td  >1.3</td>
      <td  >1.8</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >Real Disposable Income</td>
      <td  >0.5</td>
      <td  >0.4</td>
      <td  >0.3</td>
      <td  >3.7</td>
      <td  >2.4</td>
      <td  >-0.2</td>
      <td  >3.0</td>
    </tr>
    <tr>
      <td class="firstcol" >Real Personal Consumption Expenditures</td>
      <td  >-0.1</td>
      <td  >0.7</td>
      <td  >0.3</td>
      <td  >2.8</td>
      <td  >2.5</td>
      <td  >2.4</td>
      <td  >1.8</td>
     </tr>
              </tbody>
            </table>
            </span>
</body></html>

Personal consumption expenditures declined 0.3% during December following little-revised readings of 0.5% and 0.3% during the prior two months. The figure matched expectations in the Action Economics Forecast Survey. For the full [...]

U.S. Consumer Spending Logs Expected Decline; Savings Rate Firms

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<p>Real GDP growth last quarter slowed to 2.6% (AR, 2.5% y/y) from 5.0% in Q3.
For all of 2014, growth of 2.4% compared to 2.2% and 2.3% during the prior two
years. The latest gain fell short of a 3.3% rise in the Action Economics
Forecast Survey.&nbsp;&nbsp;&nbsp;&nbsp;</p>
<p>Overall growth in final sales decelerated to 1.8% (2.2% y/y) from 5.0% as net
export deterioration sapped one percentage point from growth, reversing its
addition in Q3. The subtraction occurred as imports grew at an 8.9% rate (5.3%
y/y), outpacing export growth of 2.8% (2.0% y/y). Working the other way, faster
inventory accumulation raised GDP growth last quarter by 0.8 percentage points.</p>
<p>Growth in domestic final demand slowed sharply to 2.8% (2.8% y/y) from 4.1%.
Holding back growth was a lessened 1.9% rise (5.5% y/y) in business fixed
investment, down from 8.9% in Q3. The slowdown reflected a 1.9% decline (+4.7%
y/y) in equipment spending, off from double-digit growth in the prior two
quarters. Government spending also declined 2.2% (+0.7% y/y), held back by a
12.6% drop (-0.4% y/y) in defense. State &amp; local government spending growth
was stable at 1.3% (1.1% y/y).</p>
<p>Faster growth in consumer spending picked up some of this slack. A 4.1% rise
(2.8% y/y) in consumption was the strongest since Q1 2006. Quicker 4.4% growth
(2.3% y/y) in spending on nondurables reflected a 13.4% rise (3.9% y/y) in
apparel and a 12.3% gain (2.9% y/y) in gasoline &amp; fuel oil, spurred by lower
prices. Services spending also picked up to 3.7% (2.1% y/y) from 2.5%. It was
sparked by a 6.0% jump (3.7% y/y) in restaurants &amp; accommodations as well as
a 5.9% surge (0.7% y/y) in recreation. Durable goods purchases eased to 7.5%
growth (8.4% y/y) from 9.2%. Motor vehicles &amp; parts purchases slowed to 6.4%
(10.4% y/y) from 11.2% though spending on furnishings &amp; household durables
remained firm at 5.7% (6.3% y/y). </p>
<p>Residential investment also grew at a slightly quicker 4.1% rate last quarter
(2.6% y/y), though this compares to double-digit growth in 2012 &amp; 2013.</p>
<p>The GDP chain price index was nearly unchanged (1.2% y/y) following a 1.4%
rise. The personal consumption price index fell at a 0.5% rate (+1.1% y/y). A
6.2% decline in the nondurable price index (-0.3% y/y) added to 3.6% decline
(-2.6% y/y) in the durables index. The services price index rose at a stable
2.0% rate (2.2% y/y). The PCE price index excluding food &amp; energy increased
at a 1.1% rate (1.4% y/y), its weakest rise Q2'13 </p>
<p>The latest GDP figures can be found in Haver's <b>USECON</b> and <b>USNA</b>
databases; <b>USNA</b> contains basically all of the Bureau of Economic
Analysis' detail in the national accounts, including the integrated economic
accounts and the recently added GDP data for U.S. Territories. The Action
Economics consensus estimates can be found in <b>AS1REPNA</b>.</p>
<p><b>Components of U.S. Financial Sector Growth, 1950-2013</b> from the Federal
Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/2014/1412anti.html">here</a>.</p>
<table class="centered" border="0" cellspacing="0" width="1871">
  <thead>
    <tr>
      <th class="firstcol" scope="col" width="821"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM" ;>Chained
        2009 $, %, AR</a></th>
      <th scope="col" width="149">Q4'14 (Advance Estimate)</th>
      <th scope="col" width="149">Q3'14</th>
      <th scope="col" width="149">Q2'14</th>
      <th scope="col" width="149">Q4 Y/Y</th>
      <th scope="col" width="150">2014</th>
      <th scope="col" width="150">2013</th>
      <th scope="col" width="150">2012</th>
    </tr>
  </thead>
  <tbody>
    <tr>
      <td class="firstcol" width="821">Gross Domestic Product</td>
      <td align="center" width="149">2.6</td>
      <td align="center" width="149">5.0</td>
      <td align="center" width="149">4.6</td>
      <td align="center" width="149">2.5</td>
      <td align="center" width="150">2.4</td>
      <td align="center" width="150">2.2</td>
      <td align="center" width="150">2.3</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="821">&nbsp; Inventory Effect</td>
      <td align="center" width="149">0.8</td>
      <td align="center" width="149">-0.0</td>
      <td align="center" width="149">1.4</td>
      <td align="center" width="149">0.3</td>
      <td align="center" width="150">0.1</td>
      <td align="center" width="150">0.0</td>
      <td align="center" width="150">0.1</td>
    </tr>
    <tr>
      <td class="firstcol" width="821">Final Sales</td>
      <td align="center" width="149">1.8</td>
      <td align="center" width="149">5.0</td>
      <td align="center" width="149">3.2</td>
      <td align="center" width="149">2.2</td>
      <td align="center" width="150">2.3</td>
      <td align="center" width="150">2.2</td>
      <td align="center" width="150">2.2</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="821">&nbsp; Foreign Trade Effect</td>
      <td align="center" width="149">-1.0</td>
      <td align="center" width="149">0.8</td>
      <td align="center" width="149">-0.3</td>
      <td align="center" width="149">-0.6</td>
      <td align="center" width="150">-0.1</td>
      <td align="center" width="150">0.3</td>
      <td align="center" width="150">0.1</td>
    </tr>
    <tr>
      <td class="firstcol" width="821">Domestic Final Sales</td>
      <td align="center" width="149">2.8</td>
      <td align="center" width="149">4.1</td>
      <td align="center" width="149">3.4</td>
      <td align="center" width="149">2.8</td>
      <td align="center" width="150">2.4</td>
      <td align="center" width="150">1.9</td>
      <td align="center" width="150">2.1</td>
    </tr>
    <tr class="grey3">
      <td class="firstcol" colspan="7" width="1717"><b>Demand Components</b></td>
    </tr>
    <tr>
      <td class="firstcol" width="821">Personal Consumption Expenditures</td>
      <td align="center" width="149">4.3</td>
      <td align="center" width="149">3.2</td>
      <td align="center" width="149">2.5</td>
      <td align="center" width="149">2.8</td>
      <td align="center" width="150">2.5</td>
      <td align="center" width="150">2.4</td>
      <td align="center" width="150">1.8</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="821">Business Fixed Investment</td>
      <td align="center" width="149">1.9</td>
      <td align="center" width="149">8.9</td>
      <td align="center" width="149">9.7</td>
      <td align="center" width="149">5.5</td>
      <td align="center" width="150">6.1</td>
      <td align="center" width="150">3.0</td>
      <td align="center" width="150">7.2</td>
    </tr>
    <tr>
      <td class="firstcol" width="821">Residential Investment</td>
      <td align="center" width="149">4.1</td>
      <td align="center" width="149">3.3</td>
      <td align="center" width="149">8.8</td>
      <td align="center" width="149">2.6</td>
      <td align="center" width="150">1.6</td>
      <td align="center" width="150">11.9</td>
      <td align="center" width="150">13.5</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="821">Government Spending</td>
      <td align="center" width="149">-2.2</td>
      <td align="center" width="149">4.4</td>
      <td align="center" width="149">1.7</td>
      <td align="center" width="149">0.7</td>
      <td align="center" width="150">-0.2</td>
      <td align="center" width="150">-2.0</td>
      <td align="center" width="150">-1.4</td>
    </tr>
    <tr class="grey3">
      <td class="firstcol" colspan="7" width="1717"><b>Chain-Type Price Index</b></td>
    </tr>
    <tr>
      <td class="firstcol" width="821">GDP&nbsp;&nbsp; &nbsp;&nbsp;</td>
      <td align="center" width="149">-0.0</td>
      <td align="center" width="149">1.4</td>
      <td align="center" width="149">2.1</td>
      <td align="center" width="149">1.2</td>
      <td align="center" width="150">1.5</td>
      <td align="center" width="150">1.5</td>
      <td align="center" width="150">1.8</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="821">Personal Consumption Expenditures</td>
      <td align="center" width="149">-0.5</td>
      <td align="center" width="149">1.2</td>
      <td align="center" width="149">2.3</td>
      <td align="center" width="149">1.1</td>
      <td align="center" width="150">1.3</td>
      <td align="center" width="150">1.2</td>
      <td align="center" width="150">1.8</td>
    </tr>
    <tr>
      <td class="firstcol" width="821">&nbsp;Less Food/Energy</td>
      <td align="center" width="149">1.1</td>
      <td align="center" width="149">1.4</td>
      <td align="center" width="149">2.0</td>
      <td align="center" width="149">1.4</td>
      <td align="center" width="150">1.4</td>
      <td align="center" width="150">1.3</td>
      <td align="center" width="150">1.8</td>
    </tr>
  </tbody>
</table>
</span>
<p>&nbsp;</p>
<span id="articletitle">Chicago Purchasing Managers Index Remains Weak; Prices
Collapse</span><br>
<span id="byline">by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;January
31, 2015</span><span id="articletext">
<p>Chicago purchasing managers indicated that their January Business Barometer
Index ticked higher to 59.4 but remained down from 64.5 reached three months ago.
The reading fell short of expectations for 57.9 in the Action Economics Forecast
Survey. <b>Haver Analytics </b>constructs an ISM-Adjusted Index, comparable to
the overall ISM index to be released Monday. Our figure declined to 56.2, the
lowest level in six months. During the last ten years, there has been a 62%
correlation between the adjusted Chicago Purchasing Managers index and real GDP
growth.</p>
<p>The new orders index improved slightly to 61.6 but remained well below the
high of 70.8 in May. The order backlog figure also rose to 51.9 and remained
under the 59.6 high last May. Employment improved to 60.1, its highest level
since November 2013. During the last ten years, there has been an 82%
correlation between the employment figure and the m/m change factory sector
employment. The production series also improved moderately. Offsetting these
gains was a collapse in the inventories number to 40.1, its lowest level since
July 2013. The supplier delivery index also fell to 54.9, indicating the
quickest delivery speeds in six months.&nbsp;&nbsp; </p>
<p>The index of prices paid collapsed to 44.2, the lowest point since the end of
the recession in 2009. Only 11 percent (NSA) of respondents reported paying
higher prices while 22 percent paid less.</p>
<p>The MNI Chicago Report is produced by MNI/Deutsche Borse Group in partnership
with ISM-Chicago. The survey covers a sample of over 200 purchasing
professionals in the Chicago area with a monthly response rate of about 50%. The
ISM-Adjusted headline index is calculated by Haver Analytics using these data to
construct a figure using the ISM methodology. The figures can be found in
Haver's <b>SURVEYS</b> database. The Consensus expectations figure is available
in <b>AS1REPNA</b>.</p>
<table class="centered" border="0" cellspacing="0" width="1871">
  <thead>
    <tr>
      <th class="firstcol" width="1029">Chicago Purchasing Managers Index (%,
        SA)</th>
      <th scope="col" width="119">Jan</th>
      <th scope="col" width="119">Dec</th>
      <th scope="col" width="120">Nov</th>
      <th scope="col" width="120">Jan'14</th>
      <th scope="col" width="120">2014</th>
      <th scope="col" width="120">2013</th>
      <th scope="col" width="120">2012</th>
    </tr>
  </thead>
  <tbody>
    <tr>
      <td class="firstcol" width="1029">ISM-Adjusted General Business Barometer</td>
      <td align="center" width="119">56.2</td>
      <td align="center" width="119">58.5</td>
      <td align="center" width="120">60.7</td>
      <td align="center" width="120">57.0</td>
      <td align="center" width="120">59.4</td>
      <td align="center" width="120">54.3</td>
      <td align="center" width="120">54.8</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="1029">General Business Barometer</td>
      <td align="center" width="119">59.4</td>
      <td align="center" width="119">58.8</td>
      <td align="center" width="120">60.7</td>
      <td align="center" width="120">60.1</td>
      <td align="center" width="120">60.7</td>
      <td align="center" width="120">56.1</td>
      <td align="center" width="120">54.6</td>
    </tr>
    <tr>
      <td class="firstcol" width="1029">&nbsp;&nbsp;Production</td>
      <td align="center" width="119">64.1</td>
      <td align="center" width="119">62.7</td>
      <td align="center" width="120">66.2</td>
      <td align="center" width="120">61.4</td>
      <td align="center" width="120">64.5</td>
      <td align="center" width="120">58.3</td>
      <td align="center" width="120">57.6</td>
    </tr>
    <tr>
      <td class="firstcol" width="1029">&nbsp;&nbsp;New Orders</td>
      <td align="center" width="119">61.6</td>
      <td align="center" width="119">59.8</td>
      <td align="center" width="120">61.6</td>
      <td align="center" width="120">64.3</td>
      <td align="center" width="120">63.8</td>
      <td align="center" width="120">59.2</td>
      <td align="center" width="120">55.1</td>
    </tr>
    <tr>
      <td class="firstcol" width="1029">&nbsp;&nbsp;Order Backlogs</td>
      <td align="center" width="119">51.9</td>
      <td align="center" width="119">48.0</td>
      <td align="center" width="120">52.3</td>
      <td align="center" width="120">57.6</td>
      <td align="center" width="120">54.2</td>
      <td align="center" width="120">48.9</td>
      <td align="center" width="120">48.0</td>
    </tr>
    <tr>
      <td class="firstcol" width="1029">&nbsp;&nbsp;Inventories</td>
      <td align="center" width="119">40.1</td>
      <td align="center" width="119">55.5</td>
      <td align="center" width="120">61.4</td>
      <td align="center" width="120">51.0</td>
      <td align="center" width="120">56.0</td>
      <td align="center" width="120">45.7</td>
      <td align="center" width="120">51.4</td>
    </tr>
    <tr>
      <td class="firstcol" width="1029">&nbsp;&nbsp;Employment</td>
      <td align="center" width="119">60.1</td>
      <td align="center" width="119">56.4</td>
      <td align="center" width="120">56.3</td>
      <td align="center" width="120">53.4</td>
      <td align="center" width="120">56.0</td>
      <td align="center" width="120">55.6</td>
      <td align="center" width="120">55.3</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="1029">&nbsp;&nbsp;Supplier Deliveries</td>
      <td align="center" width="119">54.9</td>
      <td align="center" width="119">58.3</td>
      <td align="center" width="120">58.0</td>
      <td align="center" width="120">55.1</td>
      <td align="center" width="120">56.5</td>
      <td align="center" width="120">52.5</td>
      <td align="center" width="120">54.9</td>
    </tr>
    <tr>
      <td class="firstcol" width="1029">&nbsp;&nbsp;Prices Paid</td>
      <td align="center" width="119">44.2</td>
      <td align="center" width="119">58.1</td>
      <td align="center" width="120">59.6</td>
      <td align="center" width="120">64.0</td>
      <td align="center" width="120">61.0</td>
      <td align="center" width="120">59.9</td>
      <td align="center" width="120">62.2</td>
    </tr>
  </tbody>
</table>
</span>

</body>

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Real GDP growth last quarter slowed to 2.6% (AR, 2.5% y/y) from 5.0% in Q3. For all of 2014, growth of 2.4% compared to 2.2% and 2.3% during the prior two years. The latest gain fell short of a 3.3% rise in the Action Economics [...]

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Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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Sandy Batten

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The luster fell a bit off the employment rose in June with nonfarm payrolls rising 57,000 against expectations of a 115,000 increase, according to today’s report from the Bureau of Labor Statistics. Moreover, the increases previously reported for April and May were revised down by a total of 74,000. Upon revision, payrolls increased 148,000 in April versus 179,000 previously reported and rose 129,000 in May versus 172,000 previously reported. The average increase over the past three months fell to 111,000 from 164,000 in May while the average increase over the past six months rose to 92,000 in June, its highest reading since February 2025, from 80,000 in May. Both remain on a modest uptrend and much stronger than payroll gains last year. In 2025, monthly payroll gains averaged only 10,000.

The weaker-than-expected payroll report was reinforced by a weak report from the **household survey**. While the number of unemployed fell 213,000 and the unemployment rate edged down to 4.2% from 4.3% in May, the number of employed slumped 507,000 in June, the largest monthly decline since May 2025 (with population adjustment to January 2026). The labor force plunged 720,000 with the labor force participation rate falling to 61.5%, its lowest level since March 2021.

Growth of average hourly earnings (AHE), a key variable for the Federal Reserve, was relatively well behaved in June. AHE increased 0.3% m/m, the same monthly gain as in May, in line with expectations. The y/y rate of advance edged up to 3.5% in June from 3.4% in May. Wage growth in private services-producing firms picked up in June, rising 0.4% m/m (3.4% y/y) versus 0.2% m/m (3.2% y/y) in May. Goods-producing wages increased 0.2% m/m in June after 0.3% monthly gains in both April and May with the y/y rate holding at 4.1%.

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In the **establishment survey**, private-sector employment was also weaker than expected in June, increasing only 49,000 against an expected 115,000 increase. Moreover, April and May figures were also revised down by a total of 50,000. Government employment rose 8,000 following a 32,000 increase in May. Private goods-producing employment increased 10,000, its largest monthly gain in three months with an 11,000 gain in construction and a 3,000 rise in manufacturing jobs, the first increase in three months. In contrast, services-producing employment increased only 39,000 in June, its weakest monthly performance in four months. Private education and health services jobs posted another solid gain of 69,000, up from 45,000 in May. However, retail jobs fell 7,500, their first monthly decline in four months, and leisure and hospitality jobs slumped 61,000, their largest monthly decline since December 2020, after increasing 40,000 in May. There had been speculation in the market that the World Cup would generate additional leisure and hospitality jobs, but this obviously failed to pan out. On a brighter note, although the one-month payroll diffusion index, a measure of the breadth of job gains, slipped to 54.4 in June from 56.0 in May, it remained well above the key 50 level that indicates that more industries were adding jobs than losing them.

The length of the workweek was unchanged at 34.3 hours in June with the aggregate weekly hours index edging up 0.1% m/m, the same monthly gain as in May. The aggregate hours index rose 1.3% q/q saar in Q2, the fastest quarterly gain in four quarters, providing a solid base for Q2 real GDP growth. The goods-producing workweek was unchanged at 40.1 hours, the highest since January 2023, while the private service-producing workweek edged down to 33.2 hours from 33.3 hours in May.

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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- U.S. nonfarm payrolls increased 57,000 in June with meaningful downward revisions to both April and May.
- The market consensus looked for a 115,000 increase.
- The unemployment rate edged down to 4.2% from 4.3%, due mostly to a large decrease in the labor force.
- Average hourly earnings rose 0.3% m/m (3.5% y/y), in line with expectations.

U.S. Payroll Employment Gains Smaller than Expected in June

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Unemployment rates in the European Monetary Union (EMU) were steady in May at 6.2%, the same level as in April, after April had fallen to 6.2% from 6.3%. The 6.2% reading is the lowest for the community since it was formed. Meanwhile, for the larger community, the EU, the unemployment rate has stabilized at 5.9%, the same as in April, again, a tick lower than it was in March. This 5.9% reading is a tick above the historic low for the European Union (EU). In both cases, the performance of these two economic conglomerations is quite excellent.

**Monthly**
The table looks at 12 of the most senior members of the monetary union, including an observation for the United Kingdom based on its claimant-count unemployment rate, presented at the bottom of the table. In May, the monetary union saw 4 of 12 members in the table with lower unemployment rates than they had in April. In April, five members had lower unemployment rates than in March. In March, seven members had lower unemployment rates than they posted in February. The progression to lower unemployment rates has slowed based on monthly data.

**Sequentially**
Looking at changes in the unemployment rates over broader sequential periods—three months, six months, and 12 months—6 out of 12 reporters have lower unemployment rates over three months; 7 have lower unemployment rates over six months; only 4 report unemployment rates that are lower over 12 months. The broader periods for comparison show changes in the unemployment rates that report more declines over the shorter and more recent periods compared to the longer/older periods. This is not the same trend leaning that we get from the last three months of data. It'll be good to watch these developments in the coming months to see if the tendency to lower unemployment rates is slowing or whether dropping unemployment is continuing in force.

**Rankings**
The ranking of unemployment rates since 1990 finds only three of these 12 monetary union members with unemployment rates above their medians. Those are Luxembourg, with a 98.2 percentile standing, Finland with an 81.9 percentile standing, and Austria with a 76.6 percentile standing. Italy, on the other hand, is reporting the lowest unemployment rate that it has seen during this period. The Greek unemployment rate has been this low or lower only about 3% of the time, while in Spain the unemployment rate has been this low or lower 11% of the time. For Portugal, the unemployment ranking figure has been weaker 13% of the time. The monetary union continues to report excellent labor market results even though economic growth has been relatively disappointing.

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**Summing up and central bankers**
In the wake of the monetary conference in the Sintra this past week, central banks featuring contributions from the European Central Bank, the Bank of England, the Federal Reserve, and the Bank of Canada, saw central bank heads talking about getting back to basics and stopping the use of some of the newer tools that had been pressed into service after the great financial crisis and during COVID. Bankers are getting back to basics to focus on short-term interest rates and say they will stop fiddling with the size of the balance sheet and to largely set aside the use of forward guidance. It will take time to determine what these changes are going to mean in terms of how policy performs and how markets will react. While there was a lot of discussion, and in some places concerns about the loss of forward guidance, what is clear is that, with forward guidance gone, there will be more volatility; however, the markets will be freer to price economic events themselves and will not be so stuck to the outlook of the central bank.  That could turn out to be a gigantic win for both markets and central bankers.

Europe

Unemployment Remains Quite Low in Europe

Andrew Cates

**Tightening Bias Intact, but Unevenly Distributed**
The July Blue Chip Financial Forecasts survey's expectations for policy rate changes over the next twelve months reveal a striking divergence across the major advanced economies, as chart 1 below makes clear. Across the board, the rate outlook is higher than it was in late February, before the US-Iran conflict escalated: the energy price shock and its inflationary consequences have left an imprint on the panel's thinking, even as oil prices have since retreated. Japan tops the list with an expected increase of around 40 basis points, reflecting the building pressure on the Bank of Japan to respond to yen weakness and still-elevated domestic inflation. Canada and the euro area also sit firmly in positive territory, with expected increases of around 30 and 20 basis points respectively. The US and the UK, by contrast, are in negative territory — the US barely so, the UK more distinctly, with the panel pencilling in modest rate reductions over the coming year. This pattern is not simply a reflection of where each economy sits in the inflation cycle. It also encodes a judgement about the current stance of monetary policy: in Japan, the euro area and Canada, policy is likely seen as insufficiently tight relative to the inflation challenge, and the conflict has reinforced that view. In the US and UK, by contrast, policy is judged to be closer to or already beyond neutral, meaning the next move is more likely to be an easing than a further tightening — even if, in the US case, that easing has been pushed well into 2027.

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**When Will the Next Move Come?**
Chart 2 below adds a timing dimension to the rate outlook, showing where the BCFF panel currently places the next policy move for the Fed, ECB, Bank of England and Bank of Japan. For the BoJ, the distribution is concentrated around the near term, with a significant share of respondents expecting action in September or October — consistent with the building pressure illustrated in chart 1 and with the BoJ’s next scheduled decision on 31 July. For the ECB, September or later than November emerge as the most likely timing for the next step. The Bank of England panel is more spread, with a meaningful share expecting action to come later. For the Fed, the dominant view places the next move firmly in the ‘later’ category, consistent with the BCFF consensus that the Fed funds rate will hold through the rest of 2026, with a first cut not expected until Q2 2027. Under chair Kevin Warsh, the June FOMC meeting delivered a hawkish dot plot that shifted some participants toward a hike before year-end, but the panel as a whole has not moved that far.

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**Headline Up, Core Contained: The Inflation Picture Across Advanced Economies**
One of the more reassuring features of the current inflation episode has been the limited pass-through from energy prices to underlying price dynamics. Across the advanced economies, headline CPI inflation has risen materially since the conflict escalated in March, driven overwhelmingly by consumer energy costs. Core inflation — stripping out food and energy — has edged higher, but only modestly, suggesting that second-round effects remain contained for now. In the United States, the pressures are arguably more alarming, with core PCE rising sharply between February and May to its highest level since October 2023. In the euro area, the focus this week has been firmly on Eurostat's June flash CPI estimate, published yesterday. Headline inflation fell back to 2.8% from a peak of 3.2% in May, as energy costs — the main driver of the surge since the conflict began — eased meaningfully. Crucially, core inflation also ticked down, and services inflation retreated as well. The June data therefore tell a broadly reassuring story: the energy shock is unwinding without leaving a lasting imprint on underlying price dynamics — precisely what the ECB will have been hoping for.

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**Consumer Price Expectations: Are Households Convinced?**
The aggregate inflation picture looks relatively contained at the macro level, but whether households are similarly reassured is a separate question. Chart 4 below draws on the European Commission's consumer survey data on price expectations — one of the more timely and widely watched indicators of inflation psychology in the euro area. The survey captures whether consumers expect prices to rise, stay the same or fall over the coming twelve months, and its relationship with actual inflation outturns has historically been close. A sustained elevation in consumer price expectations risks becoming self-fulfilling, feeding into wage demands and pricing behaviour in ways that complicate the ECB's task considerably. The June survey, however, brought an encouraging development: expectations fell steeply, suggesting that households have begun to register the reversal in energy prices and the broader easing of the inflationary impulse. That said, the absolute level of expectations remains elevated relative to the pre-conflict period, and one month's decline does not constitute a trend. Whether the June reading marks the beginning of a sustained normalisation — or proves a temporary dip before expectations re-anchor at a higher level — will be one of the key variables shaping the ECB's decision calculus in the months ahead.

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**Japan: A Weak Yen at the Worst Possible Time**
Japan occupies a particularly uncomfortable position in the current global conjuncture. The yen has depreciated to levels not seen since December 1986, with USD/JPY touching 162 this week. The move reflects the persistence of a large interest rate differential: even as the Bank of Japan has continued its gradual tightening, the Fed’s hawkish pivot under chair Kevin Warsh — with the mid-June FOMC dot plot signalling a possible hike before year-end — has reinforced the carry trade dynamics weighing on the currency. For Japan, which imports virtually all of its energy, yen weakness at a time of still-elevated global oil prices is a double burden, amplifying domestic inflation and squeezing real incomes. Verbal warnings from Japan’s Finance Ministry have had only a modest and short-lived effect on the exchange rate. The Bank of Japan’s next policy decision is on 31 July, and the pressure to act more decisively is building. The BCFF panel’s July survey revised upward its expectation for a stronger US dollar against the yen over the coming year — consistent with the fundamental picture that chart 5 below describes.

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**AI: Optimism on the Technology, Scepticism on the Price**
Returning to the BCFF survey, its special questions reveal a panel that continues to look beyond the current cyclical turbulence toward a longer-horizon structural narrative. On artificial intelligence, respondents are broadly optimistic: 45% expect a noticeable impact on US productivity and growth within one to three years, with a further 45% believing those effects are already becoming evident. That is a striking degree of conviction about a technology whose macro-level productivity impact remains, by most empirical measures, still to fully materialise. Yet the same panellists are considerably more cautious about financial markets than about the technology itself. Nearly all respondents believe that expected AI gains are already fully reflected — or even over-reflected — in current asset prices. Chart 6 below captures this tension. It is a combination — high conviction on transformative potential, high scepticism on current valuations — that has historically been associated with stretched risk premia and vulnerability to disappointment, even where the underlying technology story ultimately proves correct.

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Global financial markets have had a more settled feel this week, reflecting the continued unwinding of the geopolitical risk premium that had built up during the worst of the US-Iran conflict. Oil prices have fallen further, equity markets have been broadly supported, and incoming inflation data — notably the euro area’s June flash CPI estimate — have come in below expectations. The US holiday-shortened week ahead, with Independence Day on Friday, is likely to keep volumes thin and activity subdued. The bigger picture, however, remains one of tension between a more benign near-term inflation trajectory and central banks that may not yet be ready to stand down. In the charts below we look first at what the latest Blue Chip Financial Forecasts (BCFF) survey reveals about the expected change in and timing of policy rates across the major economies (charts 1 and 2), then at the divergence between headline and core inflation across the advanced economies (chart 3), and at what euro area consumers are more specifically expecting about inflation in the period ahead (chart 4). We turn next to Japan and the yen’s slide this week to 40-year lows (chart 5), and finally to the BCFF survey’s special questions on artificial intelligence and asset valuations (chart 6).

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Charts of the Week: Forecasters Hold Firm

Winnie Tapasanun

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The ISM U.S. manufacturing PMI fell to a lower-than-expected 53.3 in June, the first m/m fall since February, following a 1.3-point increase to 54.0 in May, according to data from the Institute for Supply Management. The June reading, above the 50 expansion-contraction threshold, indicated the U.S. manufacturing sector expanded for the sixth straight month, albeit at a slightly slower pace. A reading of 53.8 for June had been expected in the Action Economics Forecast Survey. The June manufacturing PMI, while above a contraction-level 49.0 in June 2025 and a low of 47.0 in October 2024, remained below a peak of 63.8 in March 2021.

The production index declined to 52.2 in June from 54.3 in May, indicating production expanded for the eighth consecutive month but at the slowest pace since December. The index was above a low of 44.8 in April 2025 but below a peak of 66.5 in March 2021. In June, 19.0% (NSA) of respondents reported higher production while 13.0% reported lower production. The new orders index slipped to 56.0 in June from 56.8 in May, signaling new orders grew for the sixth straight month following four successive months of contraction. The index remained well above a low of 41.8 in January 2023 but below a high of 67.0 in May 2021. In June, 22.3% (NSA) of respondents reported higher new orders while 13.4% reported declines. The inventories index climbed to 51.4 in June from 49.9 in May, marking the first expansion since April 2025. The index was slightly below a high of 52.7 in March 2025 but above a low of 43.8 in October 2024. Meanwhile, the supplier deliveries index fell to 57.4 in June from 60.6 in May and April, indicating slowing delivery performance for the seventh consecutive month after faster deliveries in November. In June, 18.1% (NSA) of respondents reported slower delivery speeds while 3.4% reported faster speeds.

On the labor front, the employment index improved to 49.7 in June from 48.6 in May, showing employment contracted for the 33rd straight month but at the slowest contraction pace since January 2025. The index was above a low of 44.1 in November 2025 but below a high of 56.5 in March 2022. In June, 16.2% (NSA) of respondents reported higher employment while 13.8% reported lower hiring.

On the pricing front, the prices paid index fell to a still-high 73.0 (NSA) in June, a 9.1-point drop—the largest decline since July 2022—from 82.1 in May, indicating raw materials prices rose for the 21st straight month but at the slowest rising pace since February. The index remained well above a low of 39.4 in December 2022 but below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. In June, 55.1% (NSA) of respondents reported higher prices while 9.2% reported price declines.

In other ISM series not included in the composite index, the new export orders index fell to 48.5 in June from 50.6 in May, indicating new export orders contracted for the third time in four months. The index was up from a low of 40.1 in May 2025 but down from a high of 52.4 in January 2025 and a peak of 57.1 in February 2022. The imports index edged down to 52.9 in June from 53.0 in May, suggesting imports expanded for the fifth successive month. The index was below its recent high of 54.9 in February but above a low of 39.9 in May 2025. The order backlog index decreased to 50.5 (NSA) in June from 52.2 in May, showing backlog levels grew at the slowest pace in six months. The index was below a high of 56.6 in February and a peak of 70.6 in May 2021 but well above a low of 37.5 in May 2023.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- ISM Mfg. PMI down slightly to 53.3 in June; sixth straight month above 50.
- Production (52.2) expands for the eighth consecutive mth.; new orders (56.0) for the sixth successive mth.
- Employment (49.7) contracts for the 33rd straight mth.; at the slowest contraction pace since Jan. ’25.
- Prices Index (73.0) at a four-month low, still indicating prices rising for the 21st consecutive mth.
- Exports (48.5) contract for the third time in four mths.; imports (52.9) continue to grow.

U.S. ISM Manufacturing PMI Still Expansionary in June; New Orders and Production Growing at a Slower Pace; Employment Contracting

Michael J. Moran

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The monthly report on construction activity receives scant attention in the financial press, and investors and traders in financial markets typically pay little heed. However, it is a valuable report for economists, as it provides a broad-based view of building activity, covering private residential and business construction, as well as government-related activity. The figures feed into the calculation of GDP. Unfortunately, results have been soft since early 2025.

Total construction activity rose 0.1 percent in May, marking the third consecutive increase. However, the gains have not been especially large, averaging 0.3%, and they have barely dented the string of weak readings in the preceding 17 months. The year-over-year change in May totaled -1.5%.

Private residential construction, the largest component of the total (41% share), rose 0.3% in May, adding to an average gain of 1.1% in the prior two months and leaving a year-over-year increase of 1.8% (chart, upper left). Most of the advance in the past year was the result of improvements to existing homes (up 8.1%). Construction of new multi-family units has shown little net change in the past year or so, while new single-family building has traced a mild downward trend (off 4.0% in the past year). Public construction has been flat in the past year, with both the federal government and state and local governments showing little net change (chart, upper right).

Private nonresidential construction (34% of the total) has received considerable press attention in the past few years because of explosive growth in the building of data centers. Growth has indeed been vigorous. Building started in 2020 and grew moderately at first, but this sector took off in 2022, about the time when artificial intelligence models became publicly available (chart, lower left, in levels to show the strong trend more clearly). Average annual growth for the three years ended 2025 totaled 48%.

Interestingly, despite the rapid growth in the building of data centers, the private nonresidential sector has been the weakest area of the construction report, with activity trending lower since early 2025 (chart, lower right). Some components of private nonresidential construction have held steady or improved (e.g. amusement & recreation, electric power), but three areas stand out on the soft side: general office, commercial, and manufacturing.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- Building activity in the US was firm in 2023 and 2024, but it has lost ground since then.
- Government-related construction and private residential building have been little changed in the past year or so.
- Private nonresidential construction has been notably weak, despite robust activity in the building of data centers.

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