Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105a.jpg" width="353">
On Friday, the Institute for Supply Management (ISM) reported that its December Composite Index of Activity in the manufacturing sector fell further to 32.4, the lowest level since the recession year of 1980. The index fell 3.8 points from November for the sixth consecutive monthly decline. The break-even level for this diffusion index of factory sector activity is a level of 50.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three-month growth in factory sector industrial production.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures.
The separate index of prices paid fell another 7.5 points to 18.0 which remained the lowest level since 1949. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.
During the last three months the ISM index composite index fell by nearly eighteen points, the steepest three-month decline since 1981, near the beginning of that year&#39;s recession. The current index level is, in addition, below the level reached during that downturn suggesting that the current drop in factory sector activity will exceed the five-to-seven percent rates of decline reached then.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105b.jpg" width="353">
The new orders index during December fell to a record low of 22.7. Only 5% of survey participants reported higher orders while 64% reported that orders fell. The export order index continued to reflect economic weakness outside of the U.S. as it fell to 35.5, the lowest level in this index&#39;s short twenty year history. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.
The production sub-series also fell to a record low of 25.5, off 26 points during the last six months. Sixty percent of survey participants reported lower production while seven percent indicated that production rose. In addition, the employment index fell 4.3 points to 29.9, the lowest reading since 1981. Fifty percent reported that they reduced employment. During the last twenty years there has been a 67% correlation between the level of the ISM employment index and the three-month growth in factory sector employment.
Deficits, Debt and Looming Disaster from the Federal Reserve Bank of St. Louis can be found <a href="http://www.stlouisfed.org/publications/re/2009/a/pages/debts.html"> here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">December &#39;07</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>32.4</td>
<td>36.2</td>
<td>48.4</td>
<td>45.6</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>22.7</td>
<td>27.9</td>
<td>46.9</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>29.9</td>
<td>34.2</td>
<td>48.7</td>
<td>43.3</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>18.0</td>
<td>25.5</td>
<td>68.0</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
</body>
</html>

On Friday, the Institute for Supply Management (ISM) reported that its December Composite Index of Activity in the manufacturing sector fell further to 32.4, the lowest level since the recession year of 1980. The index fell 3.8 points [...]

ISM Index Fell To The Lowest Since 1980

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105a.jpg" align="left" border="0" height="265" width="353">
On Friday, the Institute for Supply Management (ISM) reported
that its December Composite Index of Activity in the manufacturing
sector fell further to 32.4, the lowest level since the recession year
of 1980. The index fell 3.8 points from November for the sixth
consecutive monthly decline. The break-even level for this diffusion
index of factory sector activity is a level of 50.
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three-month growth in
factory sector industrial production.
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by using all of the positive
changes in activity added to one half of the zero change in activity
measures.
The separate index of prices paid fell another 7.5 points to
18.0 which remained the lowest level since 1949.
During the last twenty years there has been a 79% correlation between
the price index and the three-month change in the PPI for intermediate
goods.
During the last three months the ISM index composite index
fell by nearly eighteen points, the steepest three-month decline since
1981, near the beginning of that year's recession. The current index
level is, in addition, below the level reached during that downturn
suggesting that the current drop in factory sector activity will exceed
the five-to-seven percent rates of decline reached then.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105b.jpg" align="right" border="0" height="265" width="353">
The new orders index during December fell to a record low of
22.7. Only 5% of survey participants reported higher orders while 64%
reported that orders fell. The export order index continued to reflect
economic weakness outside of the U.S. as it fell to 35.5, the lowest
level in this index's short twenty year history. During the last ten
years there has been a 53% correlation between the index and the q/q
change in real exports of goods in the GDP accounts.
The production sub-series also fell to a record low of 25.5,
off 26 points during the last six months. Sixty percent of survey
participants reported lower production while seven percent indicated
that production rose. In addition, the employment index fell 4.3 points
to 29.9, the lowest reading since 1981. Fifty percent reported that
they reduced employment. During the last twenty years there has been a
67% correlation between the level of the ISM employment index and the
three-month growth in factory sector employment.
Deficits, Debt and Looming Disaster from
the Federal Reserve Bank of St. Louis can be found <a href="http://www.stlouisfed.org/publications/re/2009/a/pages/debts.html">
here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">December '07</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>32.4</td>
<td>36.2</td>
<td>48.4</td>
<td>45.6</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>22.7</td>
<td>27.9</td>
<td>46.9</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>29.9</td>
<td>34.2</td>
<td>48.7</td>
<td>43.3</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>18.0</td>
<td>25.5</td>
<td>68.0</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
 U.S. Monetary Policy: Pushing On A
String? 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 5, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105c.jpg" align="left" border="0" height="265" width="353">
Federal Reserve Board Chairman Ben S. Bernanke recently
addressed <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20081201a.htm">the
effects of the housing market's contraction on the financial markets</a>.
In reaction to the market's meltdown, and the depressing effects on
consumer &amp; business spending, the U.S. Federal Reserve has
eased monetary policy quite aggressively. Though targeted at 0.5% to
1.0%, the effective Federal funds rate now trades near 0.2% or lower,
the lowest in fifty years. Also, the Fed created a new lending facility
called the <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081125a.htm">Term
Asset-Backed Securities Loan Facility (TALF).</a>
In reaction, the adjusted monetary base has surged. It has
nearly doubled to $1.5 trillion as the Federal Reserve has provided
banks with billions of added liquidity to shore up balance sheets and
provide lending. Moreover, the Fed has accommodated an increase in the
demand for cash balances. That has prompted the money stock (M2) to
rise at an accelerated 13.6% annual rate during the last three months,
up from little growth this passed summer.
As of yet, the current round of easing has paid few economic
dividends. Consumer spending has collapsed as have corporate profits
and business spending. A crisis of confidence, consumer and business,
is in evidence. Is the Fed pushing on the proverbial string? Monetary
ease does not usually generate an economic impact for three-to-six
months after rates are lowered. But these are not normal times. Credit
creation played a large part in the U.S. economy's growth during the
last several years and the unwinding of that leverage should similarly
take some time. Just how much leverage was created during the last few
years and might now need to be unwound? Since the last recession
occurred in 2001, and it was a mild one, the growth in assets (debt)
held by commercial U.S. banks averaged 9.2% per year. That was the
quickest growth since the mid-1980s, a time of faster growth in
productive capacity, both of labor and of capital. Finance companies
extended credit at an average rate of 11.5% annually. Therefore credit
extension could be modest for the foreseeable future.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105d.jpg" align="right" border="0" height="265" width="353">
So why was there the overshoot of debt creation for which
there now is a period of payback? Interest rates were held low from
2002 to 2004 as worries about price inflation subsided. In 2003, FOMC
meeting minutes indicate a focus on economic growth that had been below
its potential lifted by strong productivity gains, declining inflation
expectations and a general absence of pricing power. Indeed inflation
was more than under control. Occasionally, in the early-2000's, there
was use of the word deflation and a modest concern on the part of the
Fed that as inflation fell, monetary policy was tightening. Low
interest rates were deemed appropriate. After 2004, debt growth surged
as new credit vehicles were created, employment rose and home prices
surged.
Will the Fed's current flood of liquidity be successful in
stimulating economic growth? The answer is eventually, but most
forecasters suggest not until the middle of next year. Chairman
Bernanke recently <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20081204a.htm">observed</a>
that even if financial markets start to improve, consumer spending
would remain depressed by the fall in household wealth and a lack of
credit availability. Most agree that it will not be a V-shaped
recovery. Credit extension could be under wraps for some time.
Typically, the Fed might worry that aggressive easing
(flooding the economy with money) would eventually spur inflation
higher. In fact the credit markets already are worrying. The spread
between the yield on 10-year Treasury notes and the Fed funds rate has
widened to 207 basis points. Though that's down in recent weeks from
its steepest spread of over 300 basis points, it compares to a zero or
negative spread during 2006 and 2007. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105e.jpg" align="left" border="0" height="265" width="353">
With regard to the more steeply sloped interest rate yield
curve, is the market's concern about a rise in inflation justified? The
definitive answer is "probably not." A pickup in inflation would
normally be expected to appear after economic growth exceeded its
"potential" for some time. Current potential growth in GDP, which is
labor force growth plus productivity growth, likely is 2.5%. Thus, in
this case given the current multi-year period of moderate growth that
seems yet to come, inflation should not pick up for years. The recent
collapse in oil prices, if sustained, certainly will diffuse
inflationary pressure. However, there is a wild card scenario ... one
of "stagflation." It could colloquially be described as too much money
chasing too few goods. We'll have to keep our eyes open for that is a
threat.
From one respected source for comprehensive economic
forecasts, go to the Haver database MA4CAST which
has forecasts from <a href="http://www.macroadvisers.com/">
Macroeconomic Advisers</a> in St. Louis, MO. They foresee
inflation declining through the end of next year then picking up
slightly. As for economic growth, modest after the current recession
ends next quarter then a healthy rebound later in 2010.
The data used for the charts above can be found in Haver's USECON
and USWEEKLY databases. Go to <a href="http://www.haver.com/">http://www.haver.com/</a>
to learn more.
Globalization and
the Changing Nature of the U.S. Economy&#8217;s Influence in the World from
the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/eclett/2008/el0811.html">here</a>.

 U.S. Construction Spending Off
Further Due to Housing Decline 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 5, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105f.jpg" align="left" border="0" height="265" width="353">
During November, the value of construction put in place fell
another 0.6% though the decline during October was lessened to 0.4%. So
far this year total construction spending is down 1.4%. The 20.7%
decline in the value of residential building has been mitigated by an
11.6% gain in the nonresidential category and an 8.8% rise in public
construction. Consensus expectations had been for a 1.2% November
decline.
Residential building activity led the latest monthly decline.
The 4.2% drop was the third in a row and activity remained off by one
quarter from last year. Single-family construction activity fell 6.6%
and it's off by nearly one half year-to-year. Building activity on
multi-family units also was weak and it posted a 1.8% decline (-2.6
y/y), off 20% from the early-2007 peak. Spending on improvements fell a
sharp 2.1% m/m (+8.1% y/y).
During the last twenty years there has been an 84% correlation
between the q/q change in the value of residential building and its
contribution to growth in real GDP.
The value of nonresidential building activity has remained
firm relative to the residential sector. During November it posted a
0.7% gain and that pulled activity up 10.3% y/y, though that momentum
is down by half from last year. Spending on office construction rose
about as it did during October, by 0.9%, but the y/y gain of 5.0% is
much reduced from the near 20% growth of the prior two years. Building
in the multi-retail sector was unchanged m/m and it was down 15.0% y/y
after a 17.0% gain last year and a 28.3% pop during 2006. Spending on
health care facilities reversed much of an October decline with a 0.8%
increase and y/y growth near 8.6% has been steady.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105g.jpg" align="right" border="0" height="265" width="353">
Public construction rose another 1.4% and the 1.7% October
gain was revised sharply upward from the preliminary report. Spending
on public safety surged by 10.2% and it's up by one-third year-to-year.
The value of spending on transportation facilities fell 1.9% but the
y/y increase of 5.4% remained firm. Spending on highways &amp;
streets rose 1.3% (8.3% y/y). The value of construction on highways
&amp; streets is roughly one-third of the value of total public
construction spending.
The more detailed categories of construction represent the
Census Bureau&#8217;s reclassification of construction activity into end-use
groups. Finer detail is available for many of the categories; for
instance, commercial construction is shown for automotive sales and
parking facilities, drugstores, building supply stores, and both
commercial warehouses and mini-storage facilities. Note that start
dates vary for some seasonally adjusted line items in 2000 and 2002,
and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E907.HTM">Construction</a>
(%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.6</td>
<td>-0.4</td>
<td>-3.3</td>
<td>-2.7</td>
<td>6.3</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.5</td>
<td>-1.2</td>
<td>-7.4</td>
<td>-6.9</td>
<td>5.5</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-4.2</td>
<td>-2.1</td>
<td>-23.4</td>
<td>-19.8</td>
<td>1.0</td>
<td>14.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.7</td>
<td>-0.4</td>
<td>10.3</td>
<td>19.6</td>
<td>16.2</td>
<td>7.8</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>1.4</td>
<td>1.7</td>
<td>7.9</td>
<td>12.3</td>
<td>9.3</td>
<td>6.2</td>
</tr>
</tbody>
</table>
 More Evidence of Declining
Inflation 
by <a href="/comment/Curley.html">Louise
Curley</a> January 5, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105h.jpg" align="left" border="0" height="265" width="353">
Among the data released today were the Consumer Price Indexes
in December for a number of countries--Spain and Italy in Europe and
Indonesia, Thailand and Taiwan in Asia. The year to year percentage
changes in the indexes show that inflation has come down dramatically
in all but Indonesia since mid year. And even in Indonesia, which has
experienced relatively high inflation, partly as a result of the
natural disasters that have plagued the nation since the devastating
tsunami of 2004, inflation has fallen in each month since September.
The first chart show inflation in Spain and Italy and the second,
inflation in Thailand, Taiwan and Indonesia.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090105i.jpg" align="right" border="0" height="265" width="353">
Much of the decline in inflation is due to the decline in the
price of oil. Brent crude was $144 a barrel on July 11 and $35 on
December 30. But increasingly it has been the performance of the
economy that is exerting downward pressure on prices. Residential
construction is way down, consumer demand is falling as is business
investment. Fear of deflation is beginning to replace fear of
inflation. Inflation in Thailand, for example, was less than 0.5% in
the month of December, down from 9.2% in July. Less dramatic but still
significant is the decline in inflation in Spain from 5.3% in July to
1.5% in December.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INFLATION
Y/Y % CHANGE IN CPI</th>
<th scope="col">Dec 08</th>
<th scope="col">Nov 08&nbsp;</th>
<th scope="col">Oct&nbsp; 08&nbsp;</th>
<th scope="col">Sep 08&nbsp;</th>
<th scope="col">Aug 08&nbsp;</th>
<th scope="col">July 08</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>2.26</td>
<td>2.74</td>
<td>3.60</td>
<td>3.92</td>
<td>4.23</td>
<td>4.03</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>1.50</td>
<td>2.40</td>
<td>3.60</td>
<td>4.60</td>
<td>4.90</td>
<td>5.30</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Thailand</td>
<td>0.42</td>
<td>2.19</td>
<td>3.89</td>
<td>6.05</td>
<td>6.43</td>
<td>9.21</td>
</tr>
<tr class="odd">
<td class="firstcol">Taiwan</td>
<td>1.21</td>
<td>1.88</td>
<td>2.39</td>
<td>3.10</td>
<td>4.68</td>
<td>5.81</td>
</tr>
<tr class="odd">
<td class="firstcol">Indonesia</td>
<td>11.06</td>
<td>11.42</td>
<td>11.77</td>
<td>12.15</td>
<td>11.85</td>
<td>11.90</td>
</tr>
</tbody>
</table>
</body></html>

ISM Index Fell To The Lowest Since1980

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

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

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

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

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


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

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

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

FIBER: Industrial Commodity Prices Surge in Latest Four Weeks

Robert Brusca

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

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

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

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

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

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

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

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

Germany

German IP Is Making Progress Across Most Sectors

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

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

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

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

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

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

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

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

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

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

U.S. Trade Deficit Widened in May

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance were 233,000 in the week of June 28, down 4,000 from 237,000 in the week ending June 21, revised from 236,000. The Action Economics Forecast Survey expected 240,000. These data are seasonally adjusted by the Department of Labor. The 4-week moving average was 241,500, a decrease of 3,750 from the previous week’s average of 245,250, revised from 245,000.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended June 21 was 1.964 million, unchanged from the prior week’s level, which was revised down from 1.974 million. The 4-week moving average was 1.954 million, up from 1.938 million in the previous week, revised from 1.941 million. This is the highest level for this average since November 20, 2021, when it was 2.004 million.

The insured unemployment rate for the week ending June 21, that is, the number of unemployment beneficiaries as a % of covered employment, was unchanged at 1.3% for the fourth consecutive week.

Economic conditions vary widely across states and territories. In the week ended June 14, the highest unemployment rates were in New Jersey (2.23%), Minnesota (2.22%), Puerto Rico (2.20%), California (2.16%), Washington (1.98%), and Rhode Island (1.95%). The lowest rates were in South Dakota (0.27%), Florida (0.41%), North Carolina (0.47%), and Alabama (0.48%). Rates in other notable states include Pennsylvania (1.71%), Illinois (1.67%), New York (1.55%), and Texas (1.26%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims for unemployment insurance declined by 4,000 in the week ended June 28.
- Total number of beneficiaries was unchanged in the week of June 21 week.
- The insured unemployment rate was unchanged at 1.3%.

U.S. Initial Jobless Claims Decreased in Latest Week

Economy in Brief: January 2009

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ISM Index Fell To The Lowest Since 1980

ISM Index Fell To The Lowest Since1980