Robert Brusca

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A breadth of expansion in October:
Industrial output has risen in October in seven of ten early reporting EMU members and has fallen in just two. This follows September when six of ten countries advanced. However, the drop in August output was so sharp and so widespread that three-month growth rates are still lower in five of ten EMU members. However, of the countries with output down sharply over three months, only Germany and Portugal have sequentially declining growth rates from 12 months to six months to three months. Only Finland has sequentially accelerating growth rates on that time path. 

Uneven quarter-to-date:
In the quarter-to-date, a calculation that takes the October level of output and calculates its annualized growth over the Q3 average, we find half of these countries are expanding and half are contracting. However, contracting IP is at a very slow pace in Germany and France but at a faster pace in Italy, the Netherlands and Portugal. Meanwhile, output is expanding at a brisk pace in the advancing countries: Finland, Spain, Malta, Greece and Ireland. These groups illustrate that some of the countries that have been the most depressed are starting to show some rebound. But the larger EMU members are still not doing very well and they are the ones that have the biggest impact on the EMU-area growth. Growth is not a numbers game by country; it is a weighted average numbers game and on that score there is still a lot of weakness in train.

Other Europe struggles:
The early reporting European countries that do not participate in the single currency arrangement are showing more weakness than strength; two of them Sweden and Norway show sequentially weakening growth rates of output. The U.K. is not sequentially weak, but it is showing weaker growth in more recent periods generally. The U.K. and Sweden are showing falling output in the quarter-to-date while Norway is advancing on that metric.

Large countries are laggards:
What is clear is that the EMU has very little momentum in its largest countries. Even though most nations showed output rises in October, in three of those with rising output, that expansion was just 0.1% in the month. The four largest EMU nations by GDP, Germany, France, Italy, and Spain, are still very much struggling.

EMU inflation connecting more dots...
Inflation too lags behind the ECB goals. Year-over-year inflation is at 0.7% in Germany, 0.7% in France, 0.8% in Italy, and 0% in Spain. In each of these countries, year-over-year core inflation is still too low: it's at 1.4% in Germany, 0.8% in France, 1.1% in Italy and 0.3% in Spain. These are not the inflation results that EMU members signed up for. Meanwhile the TLTRO program from the ECB has been once again lightly subscribed. Member country banks are simply not participating in this program with much gusto. Its impact is therefore being minimalized.

Oil prices to the rescue?
There may be some optimism that lower oil prices are partly to blame for the inflation undershoot and that they will yet provide a big boost to growth. The consumer stimulus will be less in Europe than in the U.S. because of the relatively greater role of taxes in European energy costs to consumers. In the U.S., we see surprising resilience in growth despite a more negative impact on industry from falling oil prices and no evidence of retardation in industry from a rising dollar. There is optimism that U.S. growth is breaking out and that it may have enough momentum to surge through these ill effects. But will it really? Maybe the lagged effects are simply still in train? If Europe is benefiting from the weak euro, why isn't the U.S. hurting from the strong dollar? November consumer spending in the U.S. was a bit better than expected. There is optimism about the possibility of consecutive quarters of 4% GDP growth. But there are also risks.

Things that are not what they have seemed:
It seems too optimistic to believe that the global economy could be under such pressure and that the U.S. will carry it all on its back - doesn't it? China's fiscal revenues are weakening as we found out in a report released today. On closer inspection, the rise in U.S. average hourly earnings in the November payroll report did not extend to production workers; it was an artifact of continued wage bifurcation (skewed income distribution). Japan is still weakening not rebounding after its consumption tax hike.

The continuing pressures on Europe:
Europe may stay weak longer than expected. Russia is still making trouble on its borders from the Baltic to Ukraine. Ukraine itself is near bankruptcy and is asking for a special package to prop it up. Can Europe really ignore the problems within its own community and yet join an aid package for Ukraine? The Russian economy is doing so badly and yet the Russian central bank is hiking rates with the economy skidding lower. Yet the ruble is not responding to that particular medicine. We continue to view Russia as a dangerous wounded bear. The Russian economy is in such shambles; Russia has little to lose from becoming more aggressive and Putin is just the guy to cross those old lines to restore Russia's greatness.

More risk than just Russia:
While risks continue to emanate from Russia and as weakness lingers in Europe, we also see growing risks in China and a lethargic economy in Japan. It's no wonder that the dollar is under upward pressure in this environment.

The U.S. as a bastion of growth?
The dollar (real effective dollar) is now above its PPP value for the only second time since it fell to an undervalued state in October 2004. However, the notion that the average real effective dollar is a good estimator of its PPP value (which is the calculation to which I refer) needs to be reconsidered in light of the some facts. The U.S. current account has been in continuous deficit since Q3 1991 and the deficit has averaged 3.1% of GDP over that period. The 2014 Q1 current account deficit is 2.6% of GDP and is reduced substantially by development of U.S. oil, not necessarily due to an improvement in overall U.S. competiveness. 

In 1971 as OPEC began to influence oil prices the U.S stopped having steady strings of current account surpluses. It had only one more episode of surpluses from Q1 1973 to Q2 1976 in which surpluses outweighed deficits. That episode was undoubtedly due to the contraction of imports in a very severe recession. Since then, the U.S. has been a chronic net importer- chronic.

Can the U.S endure? Or what has changed?
The question we need to ask is where anything has really changed to allow us to believe that the U.S. economy can really continue to grow with such an uncompetitive dollar? If the contraction in the current account is more due to the development of the oil patch, then we will not see any widespread improvement in industry outside that sector especially with a less competitive dollar. The stronger dollar will also help inflation to undershoot and reinforce the impact of falling oil prices helping to keep the Fed from hitting its inflation target. U.S. job growth has improved but the quality of job created has not.

Be careful what you believe:
In short, there are many more reasons to fear the weakness than to embrace the strength where we see episodically in the global economy. It is a very good time to think very deeply about how you think the economy works and what you think drives growth. We need to separate that which is trend and may not last from that which is fundamental and will continue to drive growth. When we do that, we can also separate what is illusory for that which may be sustainable. The world economy is running dry. When all its members come to drink at the last remaining oasis, will that sustain them or will they drink it dry too? Exactly how strong do you think the U.S. economy is and what is the real basis for this strength? Can Europe rely on it? What is Europe's real base of strength? What are the global risks? I think the answers to these questions are more disturbing than reassuring. 


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A breadth of expansion in October: Industrial output has risen in October in seven of ten early reporting EMU members and has fallen in just two. This follows September when six of ten countries advanced. However, the drop in August [...]

IP in EMU Members: Should We Believe the Weakness or the Strength?

Tom Moeller

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Overall retail sales including food services increased 0.7% during November
following a 0.5% October gain, revised from 0.3%. A 0.4% rise had been expected
in the Action Economics Forecast Survey. Sales excluding autos rose 0.5% (4.3%
y/y) following a 0.4% gain, revised from 0.3%. A 0.1% uptick had been expected.
During the last ten years, there has been a 58% correlation between the y/y
change in retail sales and the change in disposable personal income.

Higher motor vehicle sales led last month's total increase with a 1.7% gain
(8.6% y/y) on the heels of a 0.8% rise. The latest gain reflected a 4.5% rise
(5.6% y/y) in unit sales. Building materials &amp; garden equipment purchases
rose 1.4% (7.8% y/y) after a 0.4% improvement while clothing store sales jumped
1.2% (3.6% y/y), double the prior month's increase. Purchases from nonstore
retailers increased 1.0% (8.7% y/y) after a 1.6% rise. Sales of electronics
&amp; home furnishings gained 0.9% (6.8% y/y) and made up the prior month's
decline while furniture sales improved 0.5% (2.1% y/y) following a 0.7% rise.
Sales at general merchandise stores gained 0.5% (2.6% y/y) after a 0.1% uptick
while sporting goods store sales rose 0.3% (3.2% y/y) after a 1.8% jump.
Gasoline service station sales declined 0.8% (-2.1% y/y) with lower prices
following a 1.3% fall. Sales at eating &amp; drinking establishments rose 0.7%
(6.7% y/y), half the prior month's increase.

In the nondiscretionary spending categories, sales at health &amp; personal
care stores gained 0.8% (6.8% y/y) following four months of near 0.3% increase.
Food &amp; beverage stores gained 0.3% (4.1% y/y) after a 0.2% rise.

The retail sales figures are available in Haver's USECON database. The
Action Economics figures are in the AS1REPNA database.

Implied Taylor Rules among Forecasters from the Federal Reserve Bank
of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2014/1214/01monpol.cfm">here</a>.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Retail Spending (%)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 </tr>
 </thead>
 <tbody>
 <tr class="grey2">
 <td class="firstcol" >Total Retail Sales &amp; Food
 Services</td>
 <td >0.7</td>
 <td >0.5</td>
 <td >-0.1</td>
 <td >5.1</td>
 <td >4.2</td>
 <td >5.1</td>
 <td >7.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Excluding Autos</td>
 <td >0.5</td>
 <td >0.4</td>
 <td >0.1</td>
 <td >4.3</td>
 <td >3.0</td>
 <td >4.2</td>
 <td >6.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Non-Auto Less Gasoline &amp;
 Building Supplies</td>
 <td >0.6</td>
 <td >0.7</td>
 <td >0.3</td>
 <td >4.8</td>
 <td >3.2</td>
 <td >4.0</td>
 <td >5.4</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol" >Retail Sales</td>
 <td >0.7</td>
 <td >0.4</td>
 <td >-0.2</td>
 <td >4.9</td>
 <td >4.3</td>
 <td >5.0</td>
 <td >7.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Motor Vehicle &amp; Parts</td>
 <td >1.7</td>
 <td >0.8</td>
 <td >-0.7</td>
 <td >8.6</td>
 <td >9.3</td>
 <td >9.1</td>
 <td >9.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Retail Less Autos</td>
 <td >0.4</td>
 <td >0.3</td>
 <td >-0.1</td>
 <td >3.9</td>
 <td >3.0</td>
 <td >4.0</td>
 <td >7.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Gasoline Stations</td>
 <td >-0.8</td>
 <td >-1.3</td>
 <td >-0.8</td>
 <td >-2.1</td>
 <td >-0.4</td>
 <td >4.2</td>
 <td >18.3</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol" >Food Service &amp; Drinking Places
 Sales</td>
 <td >0.7</td>
 <td >1.4</td>
 <td >1.0</td>
 <td >6.7</td>
 <td >3.0</td>
 <td >5.9</td>
 <td >6.0</td>
 </tr>
 </tbody>
 </table>
 
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Overall retail sales including food services increased 0.7% during November following a 0.5% October gain, revised from 0.3%. A 0.4% rise had been expected in the Action Economics Forecast Survey. Sales excluding autos rose 0.5% (4.3% [...]

U.S. Retail Sales Improvement Led by Autos

The Mortgage Bankers Association reported that their total Mortgage Market Volume Index gained 7.3% last week (-6.0% y/y) following two weeks of decline. Applications to refinance a loan rebounded 13.2% (-7.1% y/y) but purchase [...]

U.S. Mortgage Loan Applications Rebound; Interest Rates Back Up

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The Federal Government reported a $56.8 billion budget deficit during
November compared to a $135.2 billion during November of last year. For the
first two months of Fiscal Year 2015, the deficit of $178.5 billion compares to
$-225.8 billion in the first two months of last year. For FY 2015, the Congressional Budget Office projects
the budget deficit will total $469 billion compared to $483.4 billion last year,
then rise to $556 billion in FY 2016

The decline in deficit so far this fiscal year occurred as outlays fell 4.0%
y/y. Spending on income security dropped 17.7% y/y in the first two months of
FY'15 with the improved economy and veterans benefits dropped 15.1% y/y.
Medicare payments were off 8.4% y/y and national defense outlays fell 7.2% y/y.
To the upside was spending on health care programs by 17.6% y/y and spending on
education, training &amp; social services by 15.6% y/y. Net interest spending
rose 5.8% y/y and social security spending increased 4.3% y/y.

Net revenues so far in FY 2015 increased 6.0% y/y. Corporate income taxes
surged by more than three-quarters y/y. Individual income taxes rose 5.9% y/y
and social insurance taxes gained 3.9%. Excise taxes increased 3.1% y/y.

Haver's basic data on Federal Government outlays and receipts are contained
in USECON. Considerable detail is given in the separate GOVFIN
database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
 <thead>
 <tr>
 <th class="firstcol" scope="col" >&nbsp;US Government Finance</th>
 <th scope="col" ></th>
 <th scope="col" >Nov</th>
 <th scope="col" >FY'14</th>
 <th scope="col" >FY'13</th>
 <th scope="col" >FY'12</th>
 <th scope="col" >FY'11</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Budget Balance</td>
 <td >--</td>
 <td >$-56.8 bil.</td>
 <td >$-483.4 bil.</td>
 <td >$-680.3 bil.</td>
 <td >$-1,089.2 bil.</td>
 <td >$-1,296.8 bil.</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;As a percent of GDP</td>
 <td >--</td>
 <td ></td>
 <td >2.8</td>
 <td >4.1</td>
 <td >6.8</td>
 <td >8.4</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" ></td>
 <td >% of Total</td>
 <td >FY'15 YTD</td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 </tr>
 <tr>
 <td class="firstcol" >Net Revenues (Y/Y % Change)</td>
 <td >100</td>
 <td >6.0%</td>
 <td >8.9%</td>
 <td >13.3%</td>
 <td >6.4%</td>
 <td >6.5%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Individual Income Taxes</td>
 <td >47</td>
 <td >5.9</td>
 <td >5.9</td>
 <td >16.3</td>
 <td >3.7</td>
 <td >21.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Corporate Income Taxes</td>
 <td >10</td>
 <td >83.7</td>
 <td >17.3</td>
 <td >12.9</td>
 <td >33.8</td>
 <td >-5.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Social Insurance Taxes</td>
 <td >34</td>
 <td >2.9</td>
 <td >8.0</td>
 <td >12.1</td>
 <td >3.2</td>
 <td >-5.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Excise Taxes</td>
 <td >3</td>
 <td >3.1</td>
 <td >11.1</td>
 <td >6.3</td>
 <td >9.2</td>
 <td >8.2</td>
 </tr>
 <tr>
 <td class="firstcol" ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 </tr>
 <tr>
 <td class="firstcol" >Net Outlays (Y/Y % Change)</td>
 <td >100</td>
 <td >-4.0</td>
 <td >1.4</td>
 <td >-2.4</td>
 <td >-1.7</td>
 <td >4.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;National Defense</td>
 <td >18</td>
 <td >-7.2</td>
 <td >-4.7</td>
 <td >-6.3</td>
 <td >-3.9</td>
 <td >1.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Health</td>
 <td >10</td>
 <td >17.6</td>
 <td >14.2</td>
 <td >3.1</td>
 <td >-7.0</td>
 <td >1.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Medicare</td>
 <td >14</td>
 <td >-8.4</td>
 <td >2.8</td>
 <td >5.5</td>
 <td >-2.8</td>
 <td >7.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Income Security</td>
 <td >16</td>
 <td >-17.7</td>
 <td >-4.3</td>
 <td >-1.1</td>
 <td >-9.1</td>
 <td >-4.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Social Security</td>
 <td >24</td>
 <td >4.3</td>
 <td >4.6</td>
 <td >5.2</td>
 <td >5.8</td>
 <td >3.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Veterans Benefits</td>
 <td >4</td>
 <td >-15.1</td>
 <td >7.7</td>
 <td >11.5</td>
 <td >-2.0</td>
 <td >17.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Education, Training, Employment
 &amp; Social Services</td>
 <td >3</td>
 <td >15.6</td>
 <td >25.9</td>
 <td >-21.9</td>
 <td >-10.3</td>
 <td >-20.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Interest</td>
 <td >6</td>
 <td >5.8</td>
 <td >3.0</td>
 <td >0.4</td>
 <td >-3.0</td>
 <td >15.8</td>
 </tr>

 </tbody>
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The Federal Government reported a $56.8 billion budget deficit during November compared to a $135.2 billion during November of last year. For the first two months of Fiscal Year 2015, the deficit of $178.5 billion compares to $-225.8 [...]

U.S. Budget Deficit Eases With Less Spending

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Japan's consumer confidence index in November fell to 37.7 from 38.9 in October. It was last weaker in April of this year. Japan's consumer confidence metric is a diffusion index. It was last above 50 (the expansion/contraction line of demarcation) in February of 2006. It has been over eight years since more households in this survey thought things were improving than thought things were deteriorating. That is a steep challenge to any attempt to brighten Japan's future by affecting expectations (as the BOJ is doing). Since March of 2004, when this report on Confidence began to be issued monthly instead of quarterly, the index has been lower than its current value only 18% of the time.

Japan has had debt problems lurking and threatening its success for well over twenty years. Japan's government has utilized supplemental budgets to try and boost or maintain government spending to keep growth aloft since at least the 1980s. But Japan is a country that has been victimized by its own success. Its determination to penetrate the US market with its exports and keep its position there led to an extraordinary appreciation of the yen. That in turn prompted a combination of responses ranging from outsourcing to increased capital intensity in manufacturing. Those responses for a while buffered Japan from the loss in competitiveness that stemmed from its overly strong exchange rate. But the yen's strength was ultimately Japan's undoing. For years Japan ran a persistent current account surplus and maintained surpluses even in the face of an overvalued yen because it was fearful of oil import costs and because it had a rapidly aging population leading it to have a high savings rate. 

Still, Japan's method to keep growth rolling in a high savings economy was to rely on a build-up of government debt. Debt's ratio to GDP is now enormous and puts Japan in an awkward position internationally especially with an aging AND shrinking population. Japan does owe most of its debt to its own residents. Its recent nuclear calamity led to a nationwide nuclear shutdown that increased oil imports and thrust its current account into deficit for a time. Other than that episode Japan has been accumulating international and domestic assets.

The result of the higher yen was to help boost already high living costs in Japan; that in turn caused many of Japan's youth to decide to forego family formation as a way to deal with high living costs. Japan had pioneered the multigenerational mortgage to help people purchase houses what would have been unattainable with conventional mortgage metrics given skyrocketing housing prices. 

Japan has "an ace in the hole", however. For years Japanese women have been essentially out of the work force or in it only tangentially. But Japanese women have begun to participate more in the job market. The BOJ is still full throttle with QE. These changes give Japan two new opportunities to get a leg up on growth. 

Japan's consumption tax hikes seem to have punched the air out of the economy much more than had been expected. The blow was so great and its effect has been so lasting that the second round of tax hikes has been postponed. However, not all the news in Japan is negative; the yen has slipped but it does not help the economy as it once did because there has been so much outsourcing. The LEI for Japan in November is up for the third month in a row although its gains are slowing. Women are participating in the economy to a greater extent and the BOJ policy of QE is still in force. 

Japan still has challenges ahead. One key might be for Japan's consumers to embrace a new way of life. It seems pretty clear that Japan will not in the future be the same as it was in the Post War period. The strong yen and excessive outsourcing to protect Japan's Kiritsu export markets has come at a heavy cost. But Japan is defiant about remaining a homogenous population; it will not solve the challenges of its shrinking population through immigration. That means Japan must find a new way to grow and a new way to prosper and to improve confidence.

Much of Japan's future revolves around its people's ability to navigate the economic maze that has become an ever changing challenge to prosperity. Japan seems to be trying to find a new way rather than just sticking to old practices that got it in trouble. That is the reason for hope. But hope has not yet become confidence.


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Japan's consumer confidence index in November fell to 37.7 from 38.9 in October. It was last weaker in April of this year. Japan's consumer confidence metric is a diffusion index. It was last above 50 (the expansion/contraction line [...]

Consumer Confidence in Japan Withers: What of the Future?

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Prices for industrial materials are showing broad-based decline. The
industrial commodity price index from the Foundation for International Business
and Economic Research (FIBER) fell 7.4% as of yesterday versus one year ago.
Declines amongst the component series were widespread

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The crude oil &amp; benzene grouping continued to lead the weakness
with a 20.0% y/y decline, reflecting a 35.9% y/y decline in the price of WTI
crude oil to $62.56 per barrel. That's down 41.8% since June. In addition,
prices for the petrochemical benzene fell just over one-third from late-June.
Prices in the miscellaneous category also were weak. They've softened 5.7%
from last year as natural rubber prices fell by more than one-third y/y. Framing
lumber also eased 5.7% y/y. Prices for random lengths of structural composite
have weakened since November but remain 7.4% higher y/y. Textile prices
also declined 4.1% during the last year, paced by a one-quarter y/y decline in
cotton prices. A 3.8% y/y increase in burlap prices countered this decline. Metals
prices were not quite as weak, but still fell 3.1% during the last year.
Aluminum prices have been buoyant, up 12.1% y/y. Steel scrap prices, however,
turned down recently by 14.3% y/y. Copper scrap prices are off 9.5% y/y.
Future support for commodity prices may be on the way. The current industrial
output projection from the National Association for Business Economics calls for
3.5% growth in industrial production in 2015. During the last ten years there
has been a 52% correlation between the three-month change in prices and the
change in industrial output.
Commodity price data can be found in Haver's DAILY, WEEKLY, USECON and
CMDTY databases.

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 <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" >FIBER Industrial Materials
 Price Index (1990=100)</th>
 <th scope="col" >12/09/14</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >All Items</td>
 <td>152.77</td>
 <td>-7.4</td>
 <td>169.0</td>
 <td>166.4</td>
 <td>173.0</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Textiles</td>
 <td>74.15</td>
 <td>-4.1</td>
 <td>78.2</td>
 <td>77.9</td>
 <td>86.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Cotton (cents per pound)</td>
 <td>58.01</td>
 <td>-24.8</td>
 <td>79.6</td>
 <td>74.5</td>
 <td>132.8</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Metals</td>
 <td>227.98</td>
 <td>-3.1</td>
 <td>236.3</td>
 <td>243.0</td>
 <td>278.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Aluminum ($ per metric ton)</td>
 <td>1,959.50</td>
 <td>12.1</td>
 <td>1,846.3</td>
 <td>2,019.6</td>
 <td>2,400.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Copper Scrap (cents per
 pound)</td>
 <td>293.2</td>
 <td>-9.5</td>
 <td>332.4</td>
 <td>360.6</td>
 <td>400.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Steel Scrap ($ per ton)</td>
 <td>309.00</td>
 <td>-14.3</td>
 <td>346.0</td>
 <td>366.7</td>
 <td>412.6</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Crude Oil &amp; Benzene</td>
 <td>166.37</td>
 <td>-20.0</td>
 <td>207.7</td>
 <td>204.1</td>
 <td>199.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Crude Oil (WTI, $ per
 Barrel)</td>
 <td>62.56</td>
 <td>-35.9</td>
 <td>97.9</td>
 <td>94.2</td>
 <td>95.0</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Miscellaneous</td>
 <td>190.06</td>
 <td>-7.1</td>
 <td>218.3</td>
 <td>205.3</td>
 <td>190.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Framing Lumber ($ per 1000
 board ft.)</td>
 <td>366</td>
 <td>-5.7</td>
 <td>383</td>
 <td>321</td>
 <td>273</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Natural Rubber (cents per
 pound)</td>
 <td>110.95</td>
 <td>-39.6</td>
 <td>189.9</td>
 <td>211.9</td>
 <td>262.3</td>
 </tr>
 
 
 </tbody>
</table>



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Prices for industrial materials are showing broad-based decline. The industrial commodity price index from the Foundation for International Business and Economic Research (FIBER) fell 7.4% as of yesterday versus one year ago. Declines [...]

FIBER: Industrial Commodity Prices Remain In Retreat

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The Mortgage Bankers Association reported that their total Mortgage Market
Volume Index gained 7.3% last week (-6.0% y/y) following two weeks of decline.
Applications to refinance a loan rebounded 13.2% (-7.1% y/y) but purchase
applications improved a lesser 1.3% (-4.5% y/y).
The effective interest rate on a 15-year mortgage nudged up w/w to 3.43%
following two weeks of decline. The effective rate on a 30-year fixed rate loan
also gained slightly to 4.19%. The rate on a Jumbo 30-year loan slipped to&nbsp;
4.11%. For adjustable 5-year mortgages, the effective interest rate of 3.18% was
stable w/w and remained down versus last year's 3.74% peak.
The average mortgage loan size improved to $255,400. For home purchases, it
declined to $276,000; for refinancings, it improved to $243,700.
Applications for fixed interest rate loans declined 4.8% y/y while adjustable
rate loan applications fell 19.7% y/y.
The survey covers over 75 percent of all U.S. retail residential mortgage
applications, and has been conducted weekly since 1990. Respondents include
mortgage bankers, commercial banks and thrifts. The base period and value for
all indexes is March 16, 1990=100. The figures for weekly mortgage applications
and interest rates are available in Haver's SURVEYW database.

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 <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" 0925 0918 >MBA Mortgage
 Applications (SA, 3/16/90=100)</th>
 <th scope="col" 0925 0918 >12/05/14</th>
 <th scope="col" 0925 0918 >11/28/14</th>
 <th scope="col" 0925 0918 >11/21/14</th>
 <th scope="col" 0925 0918 >Y/Y %</th>
 <th scope="col" 0925 0918 >2013</th>
 <th scope="col" 0925 0918 >2012</th>
 <th scope="col" 0925 0918 >2011</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" 0925 0918 >Total Market Index</td>
 <td 0925 0918 >372.3</td>
 <td 0925 0918 >347.0</td>
 <td 0925 0918 >374.5</td>
 <td 0925 0918 >-6.0</td>
 <td 0925 0918 >616.6</td>
 <td 0925 0918 >813.8</td>
 <td 0925 0918 >572.3</td>
 </tr>
 <tr>
 <td class="firstcol" 0925 0918 >&nbsp;Purchase</td>
 <td 0925 0918 >177.7</td>
 <td 0925 0918 >175.5</td>
 <td 0925 0918 >171.2</td>
 <td 0925 0918 >-4.5</td>
 <td 0925 0918 >197.5</td>
 <td 0925 0918 >187.8</td>
 <td 0925 0918 >182.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0925 0918 >&nbsp;Refinancing</td>
 <td 0925 0918 >1,518.7</td>
 <td 0925 0918 >1,341.1</td>
 <td 0925 0918 >1,549.0</td>
 <td 0925 0918 >-7.1</td>
 <td 0925 0918 >3,070.0</td>
 <td 0925 0918 >4,505.0</td>
 <td 0925 0918 >2,858.4</td>
 </tr>
 <tr>
 <td class="firstcol" 0925 0918 >15-Year Mortgage Effective
 Interest Rate (%)</td>
 <td 0925 0918 >3.43</td>
 <td 0925 0918 >3.36</td>
 <td 0925 0918 >3.41</td>
 <td 0925 0918 >3.78 
 (12/13)</td>
 <td 0925 0918 >3.42</td>
 <td 0925 0918 >3.25</td>
 <td 0925 0918 >3.97</td>
 </tr> 
 </tbody>
</table>



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The job openings rate during October ticked up to 3.3%, close to where
it's been for six months. The job openings rate is the number of job openings
on the last business day of the month as a percent of total employment plus job
openings. The actual number of job openings surged 21.0% y/y to 4.834
million. The Bureau of Labor Statistics reports these figures in its Job
Openings &amp; Labor Turnover Survey (JOLTS).
The private-sector job openings rate recovered to 3.6% its highest level
since April 2001, up from the recession low of 1.7%. The rate in leisure &amp;
hospitality businesses was 4.7%, the highest point since May. The rate in the
professional &amp; business services industries held at 4.6% for the third
straight month and in the health care &amp; social assistance sector it remained
high at 4.1%. The 3.1% rate in trade, transportation &amp; utilities industries
was up from the recession low of 1.2%. The 2.3% rate in the factory sector was
down after five months at 2.4%. The construction rate improved to 2.2%. The job
openings rate in the government sector fell m/m to 1.8%, its lowest level since
March..
The hires rate held at its cycle high of 3.6%. The hires rate is
the number of hires during the month divided by employment. The private
sector hires rate slipped to 4.1%. Amongst leisure &amp; hospitality firms the
rate held at 6.0%. The rate in professional &amp; business services retreated to
5.6% but in construction it improved to 5.0%. The hiring rate in education
slipped to 2.8% but in the factory sector it held at 2.3%. In the government
sector the hiring rate held at a low 1.4%. 
The number of hires slipped 0.4% m/m but increased 12.0% y/y. Private sector
hires rose 12.2% y/y. Professional &amp; business services hiring increased 21.8%
y/y and factory sector employment grew 20.1% y/y. Trade, transportation &amp;
utilities jobs rose 18.3% y/y. Hiring in the health care &amp; social assistance
sector improved 13.4% y/y and leisure &amp; hospitality sector employment
increased 8.6%. Government hiring rose 8.9% y/y.
The job separations rate jumped to 3.5% and the actual number of separations
increased 12.1% y/y. Separations include quits, layoffs, discharges, and
other separations as well as retirements. The private sector separations
rate held at 3.8%, while the government sector's rate inched remained at 1.4%.
The layoff &amp; discharge rate held near the record low of 1.2%. The
private sector layoff rate inched up m/m to 1.4% and the government's rate was
steady at 0.4%.
The JOLTS survey dates to December 2000 and the figures are available
in Haver's USECON database.
<table class="centered" width="1871" border="0" cellspacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="1025"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS
 (Job Openings &amp; Labor Turnover Survey, SA)</a></th>
 <th scope="col" width="120">Oct</th>
 <th scope="col" width="120">Sep</th>
 <th scope="col" width="120">Aug</th>
 <th scope="col" width="120">Oct.'13</th>
 <th scope="col" width="120">2013</th>
 <th scope="col" width="121">2012</th>
 <th scope="col" width="121">2011</th>
 </tr>
 </thead>
 <tbody>
 <tr class="grey3">
 <td class="firstcol" colspan="7" width="1746">Job Openings, Total</td>
 </tr>
 <tr>
 <td class="firstcol" width="1025">&nbsp;Rate (%)</td>
 <td align="center" width="120">3.3</td>
 <td align="center" width="120">3.2</td>
 <td align="center" width="120">3.4</td>
 <td align="center" width="120">2.8</td>
 <td align="center" width="120">2.8</td>
 <td align="center" width="121">2.6</td>
 <td align="center" width="121">2.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1025">&nbsp;Total (000s)</td>
 <td align="center" width="120">4,834</td>
 <td align="center" width="120">4,685</td>
 <td align="center" width="120">4,853</td>
 <td align="center" width="120">21.0%</td>
 <td align="center" width="120">7.4%</td>
 <td align="center" width="121">3.1%</td>
 <td align="center" width="121">22.4%</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colspan="7" width="1746">Hires, Total</td>
 </tr>
 <tr>
 <td class="firstcol" width="1025">&nbsp;Rate (%)</td>
 <td align="center" width="120">3.6</td>
 <td align="center" width="120">3.6</td>
 <td align="center" width="120">3.4</td>
 <td align="center" width="120">3.4</td>
 <td align="center" width="120">39.6</td>
 <td align="center" width="121">38.8</td>
 <td align="center" width="121">38.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1025">&nbsp;Total (000s)</td>
 <td align="center" width="120">5,055</td>
 <td align="center" width="120">5,075</td>
 <td align="center" width="120">4,742</td>
 <td align="center" width="120">12.0%</td>
 <td align="center" width="120">3.3%</td>
 <td align="center" width="121">4.2%</td>
 <td align="center" width="121">3.0%</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colspan="7" width="1746">Layoffs &amp; Discharges,
 Total</td>
 </tr>
 <tr>
 <td class="firstcol" width="1025">&nbsp;Rate (%)</td>
 <td align="center" width="120">1.2</td>
 <td align="center" width="120">1.2</td>
 <td align="center" width="120">1.2</td>
 <td align="center" width="120">1.1</td>
 <td align="center" width="120">14.6</td>
 <td align="center" width="121">15.5</td>
 <td align="center" width="121">15.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1025">&nbsp;Total (000s)</td>
 <td align="center" width="120">2.8%</td>
 <td align="center" width="120">2.1%</td>
 <td align="center" width="120">-6.2%</td>
 <td align="center" width="120">9.9%</td>
 <td align="center" width="120">-4.6%</td>
 <td align="center" width="121">1.2%</td>
 <td align="center" width="121">-4.8%</td>
 </tr>
 </tbody>
</table>
&nbsp;
U.S. Small Business Optimism Jumps to New High 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;December
9, 2014
The National Federation of Independent Business reported that its Small
Business Optimism Index for November improved to 98.1 following an unrevised
gain to 96.1 during October. The latest level was the highest since February
2007.
Improvement in the component series versus October included the percentage of
firms expecting higher real sales. The percentage planning to increase
employment rose to its highest level since July but the percentage indicating
few or no qualified applicants for job positions remained near its cycle high.&nbsp;

The percentage of companies indicated that now was a good time to expand the
business held near its recovery peak. The percentage indicating that credit was
harder to get ticked up m/m but remained near the lowest level since 2006. The
percentage planning to add to inventories slipped versus its recent high as did
the percentage planning capital expenditures.
On the pricing front, the percentage of firms raising prices returned to the
lowest level in nine months. The percentage planning price increases ticked
lower. Labor's pricing power firmed somewhat. The percentage of firms raising
worker compensation increased to its highest point in three months. The
percentage planning to raise compensation returned to its highest level since
March 2008.
The most important problems faced by small business were taxes (23%),
government requirements (22%), poor sales (12%), quality of labor (10%),
competition from large businesses (8%), insurance cost &amp; availability (7%),
cost of labor (5%), inflation (3%) and financial &amp; interest rates (3%).
Roughly 24 million small businesses exist in the U.S. and they create 80% of
all new jobs. The typical NFIB member employs 10 people and reports gross sales
of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS
database.
<table class="centered" width="1871" border="0" cellspacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="1206">National Federation of
 Independent Business</th>
 <th scope="col" width="94">Nov</th>
 <th scope="col" width="94">Oct</th>
 <th scope="col" width="94">Sep</th>
 <th scope="col" width="94">Nov'13</th>
 <th scope="col" width="95">2013</th>
 <th scope="col" width="95">2012</th>
 <th scope="col" width="95">2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="1206">Small Business Optimism Index (SA,
 1986=100)</td>
 <td align="center" width="94">98.1</td>
 <td align="center" width="94">96.1</td>
 <td align="center" width="94">95.3</td>
 <td align="center" width="94">92.5</td>
 <td align="center" width="95">92.4</td>
 <td align="center" width="95">92.2</td>
 <td align="center" width="95">91.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1206">Firms Expecting Higher Real Sales In Six
 Months (SA, Net %)</td>
 <td align="center" width="94">14</td>
 <td align="center" width="94">9</td>
 <td align="center" width="94">5</td>
 <td align="center" width="94">3</td>
 <td align="center" width="95">4</td>
 <td align="center" width="95">2</td>
 <td align="center" width="95">3</td>
 </tr>
 <tr>
 <td class="firstcol" width="1206">Firms Expecting Economy To Improve (SA,
 Net %)</td>
 <td align="center" width="94">13</td>
 <td align="center" width="94">-3</td>
 <td align="center" width="94">-2</td>
 <td align="center" width="94">-20</td>
 <td align="center" width="95">-15</td>
 <td align="center" width="95">-9</td>
 <td align="center" width="95">-9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1206">Firms Planning to Increase Employment
 (SA, Net %)</td>
 <td align="center" width="94">11</td>
 <td align="center" width="94">10</td>
 <td align="center" width="94">9</td>
 <td align="center" width="94">9</td>
 <td align="center" width="95">6</td>
 <td align="center" width="95">4</td>
 <td align="center" width="95">3</td>
 </tr>
 <tr>
 <td class="firstcol" width="1206">Firms With Few or No Qualified
 Applicants For Job Openings (SA, %)</td>
 <td align="center" width="94">45</td>
 <td align="center" width="94">45</td>
 <td align="center" width="94">42</td>
 <td align="center" width="94">44</td>
 <td align="center" width="95">39</td>
 <td align="center" width="95">35</td>
 <td align="center" width="95">32</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1206">Firms Reporting That Credit Was Harder
 To Get (SA, Net %)</td>
 <td align="center" width="94">5</td>
 <td align="center" width="94">4</td>
 <td align="center" width="94">7</td>
 <td align="center" width="94">6</td>
 <td align="center" width="95">6</td>
 <td align="center" width="95">8</td>
 <td align="center" width="95">10</td>
 </tr>
 <tr>
 <td class="firstcol" width="1206">Firms Raising Average Selling Prices
 (SA, Net %)</td>
 <td align="center" width="94">4</td>
 <td align="center" width="94">8</td>
 <td align="center" width="94">4</td>
 <td align="center" width="94">2</td>
 <td align="center" width="95">2</td>
 <td align="center" width="95">4</td>
 <td align="center" width="95">5</td>
 </tr>
 </tbody>
</table>

&nbsp;
U.S. Gasoline Price Decline Accelerates, Sparking Demand 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;December
9, 2014
The price for a gallon of regular gasoline slumped last week to an
average $2.68 (-18.0% y/y) versus $2.78 during the prior week. The 3.6% weekly
decline was the quickest since prices hit their peak in 2011. Prices remained
down versus an interim peak of $3.65 reached this past June. Haver Analytics
constructs factors adjusting for the seasonal variation in pump prices. The
seasonally adjusted price slipped to $2.92 per gallon.
WTI crude oil prices slumped to an average $67.20 last week (-30.2%
y/y) from $72.36 during the prior period. Yesterday prices were down further to
$63.05. The seasonally adjusted price generated by Haver declined to $69.36 per
barrel last week. Brent crude oil prices fell to $70.07 last week (-37.5% y/y)
and were $65.87 yesterday.
Natural gas prices declined last week to $3.65 per mmbtu (-7.3% y/y)
and fell further to $3.49 yesterday.
The demand for all petroleum products declined 0.6% y/y in the week
ended November 28 but gasoline demand improved 3.2% y/y as prices fell.
Inventories of crude oil and petroleum products increased 1.4% y/y but gasoline
inventories declined 1.8% y/y.
The energy price data are reported by the U.S. Department of Energy and can
be found in Haver's WEEKLY database. The daily figures are in DAILY
and the petroleum demand and inventory figures are in OILWKLY.
<table class="centered" width="1871" border="0" cellspacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="864">Weekly Energy Prices</th>
 <th scope="col" width="143">12/08/14</th>
 <th scope="col" width="143">12/01/14</th>
 <th scope="col" width="143">11/24/14</th>
 <th scope="col" width="143">Y/Y%</th>
 <th scope="col" width="143">2013</th>
 <th scope="col" width="144">2012</th>
 <th scope="col" width="144">2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="864">Retail Gasoline ($ per Gallon, Regular)</td>
 <td align="center" width="143">2.68</td>
 <td align="center" width="143">2.78</td>
 <td align="center" width="143">2.82</td>
 <td align="center" width="143">-18.0</td>
 <td align="center" width="143">3.51</td>
 <td align="center" width="144">3.62</td>
 <td align="center" width="144">3.52</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="864">Light Sweet Crude Oil, WTI ($ per bbl.,
 WSJ)</td>
 <td align="center" width="143">67.20</td>
 <td align="center" width="143">72.36</td>
 <td align="center" width="143">75.38</td>
 <td align="center" width="143">-30.2</td>
 <td align="center" width="143">97.95</td>
 <td align="center" width="144">94.20</td>
 <td align="center" width="144">95.14</td>
 </tr>
 <tr>
 <td class="firstcol" width="864">Natural Gas ($/mmbtu, LA, WSJ)</td>
 <td align="center" width="143">3.65</td>
 <td align="center" width="143">4.17</td>
 <td align="center" width="143">4.33</td>
 <td align="center" width="143">-7.3</td>
 <td align="center" width="143">3.73</td>
 <td align="center" width="144">2.75</td>
 <td align="center" width="144">3.99</td>
 </tr>
 </tbody>
</table>

&nbsp;
U.S. Wholesale Inventory Growth Outpaces Sales 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;December
9, 2014
Inventories in the wholesale sector during October
increased 0.4% (6.8% y/y) following an revised 0.4% September rise, earlier
reported as 0.3%. Nondurable goods inventories led the gain with a 1.2% increase
4.2% y/y), paced by a 3.2% gain (20.0% y/y) in drugs &amp; sundries. Paper &amp;
paper products inventories increased 1.6% (2.6% y/y) and groceries gained 1.1%
(4.1% y/y). To the downside were petroleum inventories, off 1.9% (-17.0% y/y),
and chemical inventories by 1.8% (+2.6% y/y). Durable goods inventories were
roughly unchanged (8.5% y/y) as a 1.6% rise (10.7% y/y) in hardware, plumbing
&amp; heating equipment was offset by a 1.4% drop (+7.9% y/y) in motor vehicles.
Furniture inventories also fell 0.7% (+3.6% y/y). 
Wholesale sector sales gained 0.2% (4.3% y/y) after no
change in September, last month reported a +0.2%. Durable goods sales improved
0.8% (6.0% y/y). Electronic product sales increased 1.9% (4.6% y/y) and computer
equipment sales rose 1.5% (2.9% y/y). Nondurable goods sales fell 0.3% (+2.8%
y/y) as petroleum sales declined 5.8% (-8.7% y/y). Chemical product sales
increased 3.0% (5.9% y/y) while paper product sales rose 1.0% (4.0% y/y).
The inventory-to-sales ratio was unchanged at 1.19 for
the third straight month. The durable goods ratio of 1.57 reflected 2.43 in the
machinery sector and 1.02 in electronic goods. The I/S ratio for nondurable
goods increased to 0.86 as apparel held at 1.90 and petroleum ticked up to 0.32.

The wholesale trade figures are available in Haver's USECON database.
<table class="centered" width="1871" border="0" cellspacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="957">Wholesale Sector - NAICS
 Classification (%)</th>
 <th scope="col" width="130">Oct</th>
 <th scope="col" width="130">Sep</th>
 <th scope="col" width="130">Aug</th>
 <th scope="col" width="130">Y/Y</th>
 <th scope="col" width="130">2013</th>
 <th scope="col" width="130">2012</th>
 <th scope="col" width="130">2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="957">Inventories</td>
 <td align="center" width="130">0.4</td>
 <td align="center" width="130">0.4</td>
 <td align="center" width="130">0.6</td>
 <td align="center" width="130">6.8</td>
 <td align="center" width="130">4.0</td>
 <td align="center" width="130">5.5</td>
 <td align="center" width="130">9.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="957">Sales</td>
 <td align="center" width="130">0.2</td>
 <td align="center" width="130">0.0</td>
 <td align="center" width="130">-0.8</td>
 <td align="center" width="130">4.3</td>
 <td align="center" width="130">4.3</td>
 <td align="center" width="130">4.8</td>
 <td align="center" width="130">12.4</td>
 </tr>
 <tr>
 <td class="firstcol" width="957">I/S Ratio</td>
 <td align="center" width="130">1.19</td>
 <td align="center" width="130">1.19</td>
 <td align="center" width="130">1.19</td>
 <td align="center" width="130">1.16 (Oct.'13)</td>
 <td align="center" width="130">1.17</td>
 <td align="center" width="130">1.18</td>
 <td align="center" width="130">1.15</td>
 </tr>
 </tbody>
</table>





</html>

The job openings rate during October ticked up to 3.3%, close to where it's been for six months. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job [...]

U.S. JOLTS: Job Openings Rate Improves as Hiring Remains Firm

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

Surging orders for computers and electronics propelling durable goods orders

Next year's inflation forecasts are on the rise and above target

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

260702E.jpg

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.

260702Z1.jpg

**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.

260702Z2.jpg

**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.

260702Z3.jpg

**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).

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/6WAWvuhdCIiVMfa7lArFBI?utm_source=generator&si=a00a7c7e625c4035" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

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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