Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806c.jpg" width="353">
For all of the concern about rising prices that recently has been expressed in Washington by the Federal Reserve Board, the most recent price trends are quite favorable. That&#39;s even excluding the recent decline in gasoline prices
As on June, growth in the core (excluding food &amp; energy) PCE chain price index has decelerated on a three month basis to 1.6% (1.9% y/y). Which is nearly half its growth rate a year ago.
Many attribute the good pricing news to the recently weak growth in GDP. Perhaps. But price inflation is first and foremost a monetary phenomenon, and the latest news comes at a time of strong growth in M2 (6.2% y/y) and MZM (8.4% y/y). Both those growth rates are roughly double the growth during last year which was up or double the growth during 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806d.jpg" width="353">
Historically, the cash in one&#39;s pocket has mattered for pricing pressure as much as how fast the economy is growing. the Fed&#39;s vigilance of this is comforting.
To follow is a review of recent pricing patterns. To the upside has of course been the recent pressure on prices for food &amp; beverages (4.0% y/y), communication (-0.8% y/y) and personal care (3.1% y/y) led by faster growth in legal fees (5.1% y/y).
Easing price pressure is perhaps more pervasive. Growth in prices for durable goods are under downward pressure such as seen for prices of new vehicles (-1.0% y/y), household furniture (-0.8% y/y) and appliances (2.45 y/y).
Nondurables prices are showing easing price pressure as well in the apparel (-1.3% y/y) and shelter (3.7% y/y) areas.
To wrap up the areas where price pressure is easing are the medical care services (5.0% y/y), public transportation (-0.4% y/y), tenants &amp; household insurance (0.6 y/y), and education (5.7% y/y), notably tuition.
The U.S. economy always has been one where some areas experiencing rising pressure are offset by areas of slack. That suggests that one is always at risk to focus on one and not the other. The cries of &quot;depression&quot; in the economy several years ago ignored the strength that was then being seen in housing and personal income, although these latter areas were growing at slower rates. It&#39;s never easy.
When Did Inflation Persistence Change? from the Federal Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2007/0807/01monpol_072607.cfm"> here</a>.

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For all of the concern about rising prices that recently has been expressed in Washington by the Federal Reserve Board, the most recent price trends are quite favorable. That's even excluding the recent decline in gasoline prices As [...]

Inflation Concerns are Forward Looking. Recent Trends Favorable

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806b.jpg" width="353">
Year-over-year and six-month trends in UK IP are steady at a pacifistic 1%. But over the past three months UK IP has now accelerated strongly to a pace of just under 4% (at 3.6%).
UK IP is up strongly in Q2 (see end of the table). The overall gain in MFG is a rate of 2.8% Capital goods are leading the growth in Q2 with a quarterly rise at a pace of 4.9%; Consumer durables are the trailing category with a pace of just +0.3% in Q2. Vehicle sales have been firm, propelling vehicle output up at a 13.4% pace in Q2. Mining activity has been strong at 3.1% in the quarter but its growth patterns seems to show some cooling. Electricity, gas and water output have been weak, at a pace of 0.1% in the quarter, but apart from that the sector&#146;s trends look solid.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK IP and MFG
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> SAAR except M/M</td>
<td colspan="3">M/M</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">UK MFG</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>Q-2-Date</td>
</tr>
<tr class="even">
<td class="firstcol">MFG</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.6%</td>
<td>4.8%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>1.0%</td>
<td>1.0%</td>
<td> 2.8%</td>
</tr>
<tr class="even">
<td class="firstcol">Consumer Durables</td>
<td>3.4%</td>
<td>-0.9%</td>
<td>-1.5%</td>
<td>3.9%</td>
<td>-2.3%</td>
<td>-3.2%</td>
<td>-8.6%</td>
<td>0.5%</td>
<td>-3.1%</td>
<td> 0.3%</td>
</tr>
<tr class="even">
<td class="firstcol">Consumer Nondurables</td>
<td>-0.6%</td>
<td>0.6%</td>
<td>0.4%</td>
<td>1.6%</td>
<td>4.1%</td>
<td>-2.6%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td> 1.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Intermediate</td>
<td>0.2%</td>
<td>0.7%</td>
<td>0.0%</td>
<td>3.9%</td>
<td>2.6%</td>
<td>3.9%</td>
<td>1.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td> 2.1%</td>
</tr>
<tr class="even">
<td class="firstcol">Capital</td>
<td>0.5%</td>
<td>0.5%</td>
<td>0.6%</td>
<td>6.4%</td>
<td>7.6%</td>
<td>3.0%</td>
<td>1.8%</td>
<td>3.0%</td>
<td>2.9%</td>
<td> 4.9%</td>
</tr>
<tr>
<td class="firstcol">Memo: Detail</td>
<td>1-Mo%</td>
<td>1-Mo%</td>
<td>1-Mo%</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>Q-2-Date</td>
</tr>
<tr class="even">
<td class="firstcol">Food Drink &amp; Tobacco</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>2.4%</td>
<td>-2.3%</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>0.6%</td>
<td> 0.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Textile &amp; Leather</td>
<td>1.4%</td>
<td>-0.9%</td>
<td>0.5%</td>
<td>3.8%</td>
<td>3.4%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td> 3.5%</td>
</tr>
<tr class="even">
<td class="firstcol">Motor Vehicles &amp; Trailer</td>
<td>2.1%</td>
<td>0.5%</td>
<td>1.3%</td>
<td>17.1%</td>
<td>17.0%</td>
<td>13.5%</td>
<td>9.5%</td>
<td>4.3%</td>
<td>2.7%</td>
<td>13.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Mining and Quarry</td>
<td>-1.0%</td>
<td>1.3%</td>
<td>0.9%</td>
<td>4.9%</td>
<td>-1.0%</td>
<td>9.1%</td>
<td>2.1%</td>
<td>-0.4%</td>
<td>-2.7%</td>
<td> 3.1%</td>
</tr>
<tr class="even">
<td class="firstcol">Electricity, Gas &amp; Water</td>
<td>1.0%</td>
<td>2.4%</td>
<td>-1.2%</td>
<td>9.0%</td>
<td>0.8%</td>
<td>3.1%</td>
<td>1.0%</td>
<td>0.7%</td>
<td>0.1%</td>
<td> 0.1%</td>
</tr>
</tbody>
</table>
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Year-over-year and six-month trends in UK IP are steady at a pacifistic 1%. But over the past three months UK IP has now accelerated strongly to a pace of just under 4% (at 3.6%). UK IP is up strongly in Q2 (see end of the table). The [...]

UK IP Restores Momentum

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806a.jpg" width="353">
Unlike the strength in UK IP in June or the sharp rise in orders in Germany, Italy&#146;s MFG sector is showing a broad-based slowing.
Italy&#146;s three-month growth rates by sector tell the story of a slowdown across the board. Overall IP remains in a declining mode for both 3-month and 6-month growth rates and these are both much weaker even than its Y/Y decline. The consumer sector in Italy shows an accelerated decline in the output of both consumer durables and nondurable goods.. One minor exception is the three-month bounce back in intermediate goods, up by 2.1% over three months but still showing a six-month rate of decline of 3.4%. Transportation is the counter-trend sector with output up by a strong 9.5% over three months and up by 0.7% over six months; its Yr/yr pace stands at 4.2%.
Italy has been showing more irregularity than other Euro area countries for some time. While German industrial measures like its IFO survey show that Germany is well off peak, other measures like German orders (issued today) still show a lot strength - even acceleration. But Italy, one of the weaker EMU countries in terms of its competitiveness is showing its wear and tear more regularly. I wonder if this is the way the strong euro will undermine the Euro area, by gnawing away at its weakest members first&#133;

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Italy IP Excluding construction
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">SAAR except m/m</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr>
<td class="firstcol">IP-MFG</td>
<td>-0.7%</td>
<td>0.6%</td>
<td>-1.0%</td>
<td>-4.4%</td>
<td>-5.5%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-1.5%</td>
<td>0.3%</td>
<td>-2.0%</td>
<td>-11.8%</td>
<td>-9.7%</td>
<td>-3.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-1.0%</td>
<td>1.2%</td>
<td>-2.1%</td>
<td>-7.3%</td>
<td>-4.9%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.4%</td>
<td>0.8%</td>
<td>-0.7%</td>
<td>2.1%</td>
<td>-3.4%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">Memo: Transportation</td>
<td>0.2%</td>
<td>5.5%</td>
<td>-3.2%</td>
<td>9.5%</td>
<td>0.7%</td>
<td>4.2%</td>
</tr>
</tbody>
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Unlike the strength in UK IP in June or the sharp rise in orders in Germany, Italys MFG sector is showing a broad-based slowing. Italys three-month growth rates by sector tell the story of a slowdown across the board. Overall IP [...]

Italy’s IP Growth Sinks

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806e.jpg" width="353">
German new orders for manufacturing in nominal terms rose 4.65% in June from May. This was the largest month to month rise since December, 2004. The rise was due almost entirely to a rise in foreign orders, which rose 8.90% from May and 24.04% from June 2006. Domestic orders rose only 0.41% in June from May and were 11.75% above June 2006. Indexes for domestic and foreign new orders are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806f.jpg" width="353">
The rise in foreign orders came from a 22.39% increase in orders from other Euro Zone countries. Orders from non Euro Zone countries actually declined by 2.70% in June, due perhaps to the continued rise in the Euro. Indexes of new orders from Euro Zone countries and non Euro Zone countries are shown in the second chart
The composition of German manufacturing new orders is heavily weighted by capital goods, reflecting Germany&#39;s engineering expertise. Capital goods new orders increased 8.61% in June from May, while consumer goods new orders declined 1.48% in the same period. Manufacturing new orders of capital and consumer goods are shown in the third chart.
Manufacturing sales, in contrast to new orders, declined 0.77% in June from May and were 7.02% above June, 2006. Domestic manufacturing sales were down 1.21% in June, while foreign sales managed a small increase of 0.20%. Foreign sales continue to be more dynamic than domestic as can be seen in the fourth chart. The increase in sales to other Euro Zone countries was a mere 0.07% and sales to non Euro Zone countries declined 0.44%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806g.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806h.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GERMAN NEW ORDERS AND SALES (Nominal (2000=100))&nbsp;</th>
<th scope="col">Jun 07</th>
<th scope="col">May&nbsp; 07&nbsp;</th>
<th scope="col">Jun&nbsp; 06&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>144.0</td>
<td>137.6</td>
<td>122.1</td>
<td>4.65</td>
<td>17.94</td>
<td>123.9</td>
<td>111.7</td>
<td>105.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>121.7</td>
<td>121.2</td>
<td>108.9</td>
<td>0.41</td>
<td>11.75</td>
<td>110.9</td>
<td>101.4</td>
<td>98.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>171.8</td>
<td>158.2</td>
<td>138.5</td>
<td>8.60</td>
<td>24.02</td>
<td>140.1</td>
<td>127.4</td>
<td>113.5</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;&nbsp;&nbsp; Euro Zone </td>
<td>182.6</td>
<td>149.2</td>
<td>131.3</td>
<td>22.39</td>
<td>39.07</td>
<td>132.1</td>
<td>120.4</td>
<td>109.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Non Euro Zone</td>
<td>161.9</td>
<td>166.4</td>
<td>145.1</td>
<td>-2.70</td>
<td>11.58</td>
<td>147.4</td>
<td>128.6</td>
<td>117.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital Goods</td>
<td>156.5</td>
<td>144.1</td>
<td>123.9</td>
<td>8.61</td>
<td>26.31</td>
<td>127.5</td>
<td>116.1</td>
<td>107.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>113.5</td>
<td>115.2</td>
<td>102.9</td>
<td>-1.48</td>
<td>10.30</td>
<td>105.7</td>
<td>99.8</td>
<td>95.1</td>
</tr>
<tr>
<td class="firstcol">Sales</td>
<td>128.1</td>
<td>129.1</td>
<td>119.7</td>
<td>-0.77</td>
<td>7.02</td>
<td>119.6</td>
<td>110.6</td>
<td>105.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Domestic</td>
<td>114.4</td>
<td>115.8</td>
<td>108.5</td>
<td>-1.21</td>
<td>5.44</td>
<td>108.8</td>
<td>102.7</td>
<td>99.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign</td>
<td>151.3</td>
<td>151.6</td>
<td>138.5</td>
<td>-0.20</td>
<td>9.24</td>
<td>137.8</td>
<td>123.9</td>
<td>115.8</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;&nbsp;&nbsp; Euro Zone </td>
<td>144.5</td>
<td>144.4</td>
<td>131.8</td>
<td>0.07</td>
<td>9.64</td>
<td>131.1</td>
<td>119.5</td>
<td>113.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Non Euro Zone</td>
<td>157.8</td>
<td>158.5</td>
<td>145.0</td>
<td>-0.44</td>
<td>8.83</td>
<td>144.2</td>
<td>128.1</td>
<td>118.1</td>
</tr>
</tbody>
</table>
Inflation Concerns are Forward Looking. Recent Trends Favorable 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 6, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806c.jpg" width="353">
For all of the concern about rising prices that recently has been expressed in Washington by the Federal Reserve Board, the most recent price trends are quite favorable. That&#39;s even excluding the recent decline in gasoline prices
As on June, growth in the core (excluding food &amp; energy) PCE chain price index has decelerated on a three month basis to 1.6% (1.9% y/y). Which is nearly half its growth rate a year ago.
Many attribute the good pricing news to the recently weak growth in GDP. Perhaps. But price inflation is first and foremost a monetary phenomenon, and the latest news comes at a time of strong growth in M2 (6.2% y/y) and MZM (8.4% y/y). Both those growth rates are roughly double the growth during last year which was up or double the growth during 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806d.jpg" width="353">
Historically, the cash in one&#39;s pocket has mattered for pricing pressure as much as how fast the economy is growing. the Fed&#39;s vigilance of this is comforting.
To follow is a review of recent pricing patterns. To the upside has of course been the recent pressure on prices for food &amp; beverages (4.0% y/y), communication (-0.8% y/y) and personal care (3.1% y/y) led by faster growth in legal fees (5.1% y/y).
Easing price pressure is perhaps more pervasive. Growth in prices for durable goods are under downward pressure such as seen for prices of new vehicles (-1.0% y/y), household furniture (-0.8% y/y) and appliances (2.45 y/y).
Nondurables prices are showing easing price pressure as well in the apparel (-1.3% y/y) and shelter (3.7% y/y) areas.
To wrap up the areas where price pressure is easing are the medical care services (5.0% y/y), public transportation (-0.4% y/y), tenants &amp; household insurance (0.6 y/y), and education (5.7% y/y), notably tuition.
The U.S. economy always has been one where some areas experiencing rising pressure are offset by areas of slack. That suggests that one is always at risk to focus on one and not the other. The cries of &quot;depression&quot; in the economy several years ago ignored the strength that was then being seen in housing and personal income, although these latter areas were growing at slower rates. It&#39;s never easy.
When Did Inflation Persistence Change? from the Federal Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2007/0807/01monpol_072607.cfm"> here</a>.

UK IP Restores Momentum 
by <a href="/comment/Brusca.html">Robert Brusca</a> August 6, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806b.jpg" width="353">
Year-over-year and six-month trends in UK IP are steady at a pacifistic 1%. But over the past three months UK IP has now accelerated strongly to a pace of just under 4% (at 3.6%).
UK IP is up strongly in Q2 (see end of the table). The overall gain in MFG is a rate of 2.8% Capital goods are leading the growth in Q2 with a quarterly rise at a pace of 4.9%; Consumer durables are the trailing category with a pace of just +0.3% in Q2. Vehicle sales have been firm, propelling vehicle output up at a 13.4% pace in Q2. Mining activity has been strong at 3.1% in the quarter but its growth patterns seems to show some cooling. Electricity, gas and water output have been weak, at a pace of 0.1% in the quarter, but apart from that the sector&#146;s trends look solid.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK IP and MFG
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> SAAR except M/M</td>
<td colspan="3">M/M</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">UK MFG</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>Q-to-Date</td>
</tr>
<tr class="even">
<td class="firstcol">MFG</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.6%</td>
<td>4.8%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>1.0%</td>
<td>1.0%</td>
<td> 2.8%</td>
</tr>
<tr class="even">
<td class="firstcol">Consumer Durables</td>
<td>3.4%</td>
<td>-0.9%</td>
<td>-1.5%</td>
<td>3.9%</td>
<td>-2.3%</td>
<td>-3.2%</td>
<td>-8.6%</td>
<td>0.5%</td>
<td>-3.1%</td>
<td> 0.3%</td>
</tr>
<tr class="even">
<td class="firstcol">Consumer Nondurables</td>
<td>-0.6%</td>
<td>0.6%</td>
<td>0.4%</td>
<td>1.6%</td>
<td>4.1%</td>
<td>-2.6%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td> 1.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Intermediate</td>
<td>0.2%</td>
<td>0.7%</td>
<td>0.0%</td>
<td>3.9%</td>
<td>2.6%</td>
<td>3.9%</td>
<td>1.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td> 2.1%</td>
</tr>
<tr class="even">
<td class="firstcol">Capital</td>
<td>0.5%</td>
<td>0.5%</td>
<td>0.6%</td>
<td>6.4%</td>
<td>7.6%</td>
<td>3.0%</td>
<td>1.8%</td>
<td>3.0%</td>
<td>2.9%</td>
<td> 4.9%</td>
</tr>
<tr>
<td class="firstcol">Memo: Detail</td>
<td>1-Mo%</td>
<td>1-Mo%</td>
<td>1-Mo%</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>Q-to-Date</td>
</tr>
<tr class="even">
<td class="firstcol">Food Drink &amp; Tobacco</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>2.4%</td>
<td>-2.3%</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>0.6%</td>
<td> 0.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Textile &amp; Leather</td>
<td>1.4%</td>
<td>-0.9%</td>
<td>0.5%</td>
<td>3.8%</td>
<td>3.4%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td> 3.5%</td>
</tr>
<tr class="even">
<td class="firstcol">Motor Vehicles &amp; Trailer</td>
<td>2.1%</td>
<td>0.5%</td>
<td>1.3%</td>
<td>17.1%</td>
<td>17.0%</td>
<td>13.5%</td>
<td>9.5%</td>
<td>4.3%</td>
<td>2.7%</td>
<td>13.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Mining and Quarry</td>
<td>-1.0%</td>
<td>1.3%</td>
<td>0.9%</td>
<td>4.9%</td>
<td>-1.0%</td>
<td>9.1%</td>
<td>2.1%</td>
<td>-0.4%</td>
<td>-2.7%</td>
<td> 3.1%</td>
</tr>
<tr class="even">
<td class="firstcol">Electricity, Gas &amp; Water</td>
<td>1.0%</td>
<td>2.4%</td>
<td>-1.2%</td>
<td>9.0%</td>
<td>0.8%</td>
<td>3.1%</td>
<td>1.0%</td>
<td>0.7%</td>
<td>0.1%</td>
<td> 0.1%</td>
</tr>
</tbody>
</table>
Italy’s IP Growth Sinks 
by <a href="/comment/Brusca.html">Robert Brusca</a> August 6, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806a.jpg" width="353">
Unlike the strength in UK IP in June or the sharp rise in orders in Germany, Italy&#146;s MFG sector is showing a broad-based slowing.
Italy&#146;s three-month growth rates by sector tell the story of a slowdown across the board. Overall IP remains in a declining mode for both 3-month and 6-month growth rates and these are both much weaker even than its Y/Y decline. The consumer sector in Italy shows an accelerated decline in the output of both consumer durables and nondurable goods.. One minor exception is the three-month bounce back in intermediate goods, up by 2.1% over three months but still showing a six-month rate of decline of 3.4%. Transportation is the counter-trend sector with output up by a strong 9.5% over three months and up by 0.7% over six months; its Yr/yr pace stands at 4.2%.
Italy has been showing more irregularity than other Euro area countries for some time. While German industrial measures like its IFO survey show that Germany is well off peak, other measures like German orders (issued today) still show a lot strength - even acceleration. But Italy, one of the weaker EMU countries in terms of its competitiveness is showing its wear and tear more regularly. I wonder if this is the way the strong euro will undermine the Euro area, by gnawing away at its weakest members first&#133;

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Italy IP Excluding construction
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">SAAR except m/m</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr>
<td class="firstcol">IP-MFG</td>
<td>-0.7%</td>
<td>0.6%</td>
<td>-1.0%</td>
<td>-4.4%</td>
<td>-5.5%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-1.5%</td>
<td>0.3%</td>
<td>-2.0%</td>
<td>-11.8%</td>
<td>-9.7%</td>
<td>-3.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-1.0%</td>
<td>1.2%</td>
<td>-2.1%</td>
<td>-7.3%</td>
<td>-4.9%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.4%</td>
<td>0.8%</td>
<td>-0.7%</td>
<td>2.1%</td>
<td>-3.4%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">Memo: Transportation</td>
<td>0.2%</td>
<td>5.5%</td>
<td>-3.2%</td>
<td>9.5%</td>
<td>0.7%</td>
<td>4.2%</td>
</tr>
</tbody>
</table>
</body>
</html>

German new orders for manufacturing in nominal terms rose 4.65% in June from May. This was the largest month to month rise since December, 2004. The rise was due almost entirely to a rise in foreign orders, which rose 8.90% from May [...]

June manufacturing New Orders in Germany Rise Sharply While Sales Show a Small Decline

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803e.jpg" width="353">
Higher crude oil prices were a contributing factor in the recent stock price gyrations, as West Texas Intermediate (WTI) looked to be approaching $80/barrel. The high spot price came Tuesday, July 31, at $78.22; by yesterday, it had eased to $76.87. For UK Brent, yesterday&#39;s close was $76.29 after several days over the last couple of weeks that were above $78.00, with a high of $79.09 on July 20.
The most recent demand data show world petroleum use of 86.1 million barrels/day (mb/d) in June, up 2.1% from May and the fourth largest monthly amount ever. This estimate is from Oil Market Intelligence and is included in the OMI database that Haver markets in partnership with OMI&#39;s parent, Energy Intelligence. Generally, as seen in the second graph here, while the latest month&#39;s demand is up, the last 18 months or so have kept to a range around a fairly flat trend; growth over the year-ago period was a modest 0.6% in June.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803f.jpg" width="353">
In the US, demand has been steady in recent weeks just over 20.9 mb/d, down from the spring&#39;s highs of about 21.3 mb/d. For July, this was about 1.0% above year-earlier amounts. As we have mentioned before here, US product demand, especially for gasoline, did not ease last winter as is usually the case. Thus, in the last three months, while US use of gasoline has remained higher than a year ago, that growth has slowed markedly from what it was in the mild wintertime. Even so, inventories have stayed tight, and the days&#39; supply measure remains at just 21.4, noticeably below anytime prior to last winter (except during severe hurricanes).
Despite higher crude prices and the tight supply of gasoline, the latest retail gasoline prices have been down a bit. In the July 30 week, the national average for regular was $2.876/gallon, off 8.2 cents from the prior week and below the year-ago $3.004. This combination impacts petroleum refiners. With gasoline prices a bit lower when crude is higher, there is considerable pressure on the refining margin, or the &quot;crack spread&quot;. In the July 27 week, it was $11.71/barrel, down from $20.50 just two weeks earlier and and an average of $22.85 across April, May and June. While this latest is much lower than just a few weeks ago, it is not &quot;low&quot; historically. Prior to 2004, this weekly figure had been above $10 only about half-a-dozen times. At the same time, on a percentage basis, the current number is more representative: it is 13.5% of the &quot;estimated product value&quot;, a ratio well within the range of the last five or six years and indeed below the customary amount in prior times.
Sometimes, when oil prices rise, the stock market can respond favorably, as oil companies may see higher profits. But the current restraint on gasoline prices and the squeeze on refining margins suggests that this may not necessarily be the present outcome.
The weekly oil-market data are contained in Haver&#39;s OILWKLY database, maintained in conjunction with the Oil and Gas Journal. Daily prices are in the DAILY database.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803g.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803h.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Select Oil Market Indicators</th>
<th scope="col">Aug 2 (Day)</th>
<th scope="col">July 27, 2007</th>
<th scope="col">July 20, 2007</th>
<th scope="col">July 28, 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gasoline, US Regular Grade (cents/gal)</td>
<td>--</td>
<td>287.6</td>
<td>295.8</td>
<td>300.4</td>
<td>257.2</td>
<td>227.0</td>
<td>185.2</td>
</tr>
<tr>
<td class="firstcol">Crude: WTI ($/barrel)</td>
<td>76.87</td>
<td>75.24</td>
<td>74.95</td>
<td>73.97</td>
<td>66.13</td>
<td>56.50</td>
<td>41.33</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude: UK Brent ($/barrel)</td>
<td>76.29</td>
<td>77.22</td>
<td>78.35</td>
<td>73.39</td>
<td>65.19</td>
<td>54.58</td>
<td>38.10</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stocks:&nbsp; Days&#39; Supply</td>
<td>--</td>
<td>21.4</td>
<td>21.4</td>
<td>22.2</td>
<td>22.7</td>
<td>22.8</td>
<td>23.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Higher crude oil prices were a contributing factor in the recent stock price gyrations, as West Texas Intermediate (WTI) looked to be approaching $80/barrel. The high spot price came Tuesday, July 31, at $78.22; by yesterday, it had [...]

Gasoline Prices Ease Further; Refining Margins Reduced

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803j.jpg" width="353">
Service sector in clear slow down as the index drops from its peak.
The slowdown in the services sector indicated by the NTC service sector index is, in its character, much like that in the MFG sector with only some small shifts in the date of past cycle peaks. Like the MFG sector report, the service sector shows that a slowdown is in train. Also like the MFG report the services sector slowdown is at a slower pace than it has been in the past. Indeed on the chart the hopeful sign is that after its retrenchment services may once again be back in the growth channel and growing.
Right now the Euro area economy is 13 months past it service sector peak for this cycle. At this point the index is lower by 3.8%. In the previous three cycles at the 13 month mark the services index would have been down by 9.5% from that peak. That is to say that the slowdown would have been more severe by about one third. Although some of the past cycles peaked at a high point than this one has, due to the slower erosion of the service index, the current index not only has fallen by less, but it stands at a higher point than for any of the past cycles 13-months past their peak.
The UK continues to break the mold and to part company with EMU members as the drop in the UK service sector brings it to its lowest level since Sept of 2006. Most EMU countries are seeing the service sector rebound over the past two months; for the UK it&#146;s been erosion. For the main EU countries their services indexes were last lower in May or June of this year, very recently. So the rebound is very tentative.
Still, based on the range of values since early 2000 it is Germany with the relatively strongest service sector. Its 58.47 reading for the service sector is still in the top 15 percentile of its values over the period. As an individual country, the UK would be the second highest in its range for the grouping in terms of its service sector rank within its range, but for the whole of EMU the services index stands in the top 22 per cent of its range, above the UK on this score. In terms of raw services readings the UK reading of 57.0 is not strong, but comparisons across countries are better done with reference to each countries&#146; own range since variability characteristics are not standardized across countries.
Hold that pose - our picture of Europe. The picture we get of Europe is that the MFG indexes are sliding and so are the services measures. But the pace of slippage is less than what it has been in the past. At the same time employment conditions (unemployment) are improving. The labor market always lags activity so this is not telling yet. The interesting question for Europe is whether this slide will stop the improvement in unemployment or whether it is a minor meltdown that will permit unemployment progress to continue. If unemployment progress continues, there is some chance to pull the retail sector into the recovery it has not yet joined and to thereby extend the expansion.
Right now the performance of Europe is remarkable given the strength of the euro (and the pound) as those currencies have still been edging higher this year from already high levels. With exporters more &#145;up against it&#146; for competitiveness reasons, an improvement in domestic demand based on the consumer supported by a still improving job market is just what Europe needs. However, it is not clear if that is attainable especially with the ECB and BOE worried over inflation trends and with each block poised to hike rates. Lurking in the background, should recovery slip, is the pressure, right now emanating from France, to press more on China over trade issues. Protectionism is always more compelling when domestic growth weakens.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
NTC Services Indexes
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Percentile*</td>
</tr>
<tr>
<td class="firstcol">Euro-13</td>
<td>58.34</td>
<td>58.33</td>
<td>57.98</td>
<td>57.63</td>
<td>57.42</td>
<td>78.5%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>58.47</td>
<td>58.88</td>
<td>58.27</td>
<td>57.90</td>
<td>56.91</td>
<td>85.8%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>58.93</td>
<td>58.98</td>
<td>58.61</td>
<td>58.77</td>
<td>59.40</td>
<td>60.7%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>58.46</td>
<td>57.92</td>
<td>57.64</td>
<td>56.18</td>
<td>55.81</td>
<td>71.8%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>56.33</td>
<td>55.31</td>
<td>55.95</td>
<td>55.91</td>
<td>56.94</td>
<td>68.4%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>56.19</td>
<td>56.93</td>
<td>56.00</td>
<td>58.37</td>
<td>59.49</td>
<td>47.9%</td>
</tr>
<tr>
<td class="firstcol">EU only</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>57.02</td>
<td>57.74</td>
<td>57.31</td>
<td>57.36</td>
<td>58.06</td>
<td>75.2%</td>
</tr>
<tr>
<td colspan="5">*Percentile is over range since May 2000</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
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Service sector in clear slow down as the index drops from its peak. The slowdown in the services sector indicated by the NTC service sector index is, in its character, much like that in the MFG sector with only some small shifts in [...]

Euro Area Services Sector Points to Slow Down but Slower Slow Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803i.jpg" width="353">
With Q2 data complete, at least preliminarily, Euro area retail sales are continuing to show lethargy. For the quarter as a whole, retail sales volumes are up by only 0.6% at an annual rate over Q1. This follows a 0.2% result in Q1. Food purchases are off by 0.1% at an annual rate in Q2. Nonfood is doing somewhat better with a Q/Q annual rate gain of 1.4%. Still, this is no growth leader.
Germany is poised for a normal &#145;German recovery&#146; to take hold &#150; or so officials continue to say. This means that after a trade-led rebound with a strong capital goods sector, the consumer joins the party late. So far there is little evidence that Germany has turned that corner. The VAT hike at year end has surely been a part of the reason. But we are now at mid-year and German sales in Q2 are compared to a VAT distorted and weak Q1. And while Germany&#146;s retail volumes are up at a strong-seeming 6.5% annual rate in Q2/Q1 that compares to a -15.8% drop in Q1, it isn&#146;t really much of a rebound. Year-over-year German sales volumes are off by 0.7%. For all of the Euro area the Y/Y sales gain is 1.0%; nearly twice that for nonfoods at a 1.8% annual rate.
Within Europe the UK (not an EMU member but an EU member and one with a still strong exchange rate) continues to show strong retail sales results. The UK housing market is still strong. The Bank of England, like the ECB, is still warning about inflation pressures and probably is headed for another rate hike. But the UK consumer has been much more active that the typical Euro area consumer. In EMU, unemployment rates are still high, but they have been falling steadily. The proximity to low cost Eastern Europe may be one factor holding back consumer optimism. But one thing is clear, as surely as Europe has had a solid recovery underway, the consumer has been left behind. If Euro area job market improvement continues, this should change, but so far there is little evidence of it and leading economic barometers are showing that a tendency to slow is in the pipeline.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 Euro area&nbsp; Retail Sales Volume
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>12-Mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Euro area 13 Total</td>
<td>0.4%</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>-1.3%</td>
<td>-0.6%</td>
<td>0.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Food</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>-3.3%</td>
<td>-0.5%</td>
<td>-0.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Nonfood</td>
<td>0.8%</td>
<td>-0.7%</td>
<td>0.1%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>2.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Textiles</td>
<td>#N/A</td>
<td>-3.1%</td>
<td>1.4%</td>
<td>-6.5%</td>
<td>-1.3%</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">HH Goods</td>
<td>#N/A</td>
<td>-0.4%</td>
<td>-1.0%</td>
<td>-1.8%</td>
<td>-2.5%</td>
<td>1.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Books news, etc</td>
<td>#N/A</td>
<td>-0.7%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>-0.6%</td>
<td>0.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Pharma</td>
<td>#N/A</td>
<td>0.5%</td>
<td>0.1%</td>
<td>3.7%</td>
<td>3.4%</td>
<td>3.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Other NonSpec</td>
<td>#N/A</td>
<td>-0.7%</td>
<td>-0.8%</td>
<td>-3.3%</td>
<td>-2.1%</td>
<td>-1.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Mail Order</td>
<td>#N/A</td>
<td>1.4%</td>
<td>0.7%</td>
<td>1.7%</td>
<td>3.1%</td>
<td>0.0%</td>
</tr>
<tr class="grey2">
<td colspan="7">NonFood Country detail;Volume</td>
</tr>
<tr class="grey1">
<td class="firstcol">Germany</td>
<td>1.6%</td>
<td>-3.4%</td>
<td>2.2%</td>
<td>1.2%</td>
<td>-10.0%</td>
<td>-1.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.0%</td>
<td>0.1%</td>
<td>3.6%</td>
<td>4.3%</td>
<td>4.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy (Total; Value)</td>
<td>#N/A</td>
<td>-0.2%</td>
<td>-0.5%</td>
<td>-2.1%</td>
<td>-2.2%</td>
<td>-1.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK (EU)</td>
<td>0.9%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>4.7%</td>
<td>5.2%</td>
<td>6.4%</td>
</tr>
<tr class="grey3">
<td colspan="7">Shaded areas calculated on a one-month lag due to lagging data.</td>
</tr>
<tr class="grey3">
<td colspan="7">The EA 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
<tr class="grey3">
<td class="firstcol">7COLSPAN</td>
</tr>
</tbody>
</table>
</body>
</html>

With Q2 data complete, at least preliminarily, Euro area retail sales are continuing to show lethargy. For the quarter as a whole, retail sales volumes are up by only 0.6% at an annual rate over Q1. This follows a 0.2% result in Q1. [...]

Euro Area Retail Sales Stay in Slowdown Mode

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803d.jpg" width="353">
The non-manufacturing sector Business Activity Index for July fell back to 55.8 from an unrevised 60.7 during the prior month according to the Institute for Supply Management.
Since the series&#39; inception in 1997 there has been a 46% correlation between the level of the Business Activity Index and the Q/Q change in real GDP for services plus construction.
The employment sub index also fell to 51.7 from the high of 55.0 in June. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
The new orders index also fell m/m to 52.8 from 56.9 in June, down for the second month in a row but the latest still indicates growth in new orders.
Pricing power also slipped for the second month, but by a hard 4.2 points to 61.3, the lowest level since February. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>55.8</td>
<td>60.7</td>
<td>55.7</td>
<td>58.0</td>
<td>60.2</td>
<td>62.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>61.3</td>
<td>65.5</td>
<td>72.1</td>
<td>65.2</td>
<td>68.0</td>
<td>68.8</td>
</tr>
</tbody>
</table>


</html>

The non-manufacturing sector Business Activity Index for July fell back to 55.8 from an unrevised 60.7 during the prior month according to the Institute for Supply Management. Since the series' inception in 1997 there has been a 46% [...]

ISM Nonmanufacturing July Index Below Forecasts

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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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. Job 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

Andrew Cates

**The Blue Chip interest rate consensus**
The latest Blue Chip Financial Forecasts survey suggests that monetary policy across most major advanced economies is expected to loosen modestly over the next six months. Central banks in the US, Canada, UK, Australia, and the euro area are all forecast to cut rates to varying degrees, with Australia expected to deliver the largest reduction. In contrast, Japan continues to stand out as the only major economy where forecasters see scope for a slight increase in rates, highlighting its unique position in the global policy cycle. Overall, the chart reflects a broad but uneven tilt towards monetary easing as policymakers respond to softer inflation and growth signals.

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**The US dollar and data surprises** 
This next chart shows that the recent bout of US dollar weakness has coincided with a period in which US economic data surprises have turned more negative relative to the euro area. The surprise index differential between the US and euro area —measuring US growth surprises minus euro surprises—has declined, pointing to a run of weaker-than-expected US data and stronger euro area outturns. Historically, this has tended to pull the euro higher relative to the dollar. However, the scale of the dollar’s recent slide appears larger than the data surprises alone would imply, suggesting that other forces are potentially weighing on the currency as well.

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**US stagflation risk**
Latest ISM manufacturing survey data highlight a worrying decoupling between input costs and underlying demand that points to potential stagflation pressures in the US economy. Historically, the ISM New Orders Index and the Prices Paid Index have tended to move broadly in sync, reflecting cycles where stronger demand drives both production and cost pressures higher. However, the chart shows that while prices paid have recently rebounded sharply, new orders have remained subdued and stuck near contractionary territory. This breakdown suggests that firms are facing rising input costs without a corresponding pickup in demand—an imbalance that could be amplified by US tariff measures, which tend to push up costs for imported materials and components while weighing on new orders through weaker trade flows.

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**US Supply Chain Risks** 
Added to this, the number of vessels queuing at the Los Angeles and Long Beach harbours has climbed to elevated levels in recent weeks, highlighting supply chain bottlenecks on the US West Coast. While various factors may be driving this congestion—including seasonal trade patterns and shifts in global shipping routes—recent tariff measures could be contributing as well. New or increased tariffs sometimes distort normal trade flows by prompting importers to front-load shipments ahead of cost increases or reroute sourcing strategies in ways that strain particular ports.

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**Global warming** 
Pivoting to more structural issues, the next chart highlights the persistent upward trend in global surface temperature anomalies over the past century, with both land and ocean temperatures now averaging well over one degree Celsius. This long-term warming signal continues to manifest in extreme weather events and record-breaking heat waves, including the unusually high temperatures that have swept parts of Europe in recent days, pushing June readings to historic highs in several regions.

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**Climate change and productivity** 
This final chart illustrates the projected impact of heat stress on labour productivity in Europe under current climate policy scenarios, highlighting how rising temperatures could steadily erode worker efficiency over the coming decades. As shown, the median estimates from the Climate Analytics group suggest that productivity losses could deepen from around 0.3 percentage points today to nearly 0.9 percentage points by mid-century if climate conditions remain unchanged. These figures reflect the physical limits of the human body’s capacity to perform work in increasingly hot and humid environments, a challenge that will become more acute if climate change continues on its current path. With recent record-high June temperatures across parts of Europe underscoring the reality of more frequent heat extremes, these projections serve as a clear reminder of the economic stakes involved in addressing climate risks and investing in adaptation measures to protect labour productivity and economic resilience.

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Financial markets have remained generally buoyant in recent days, with global equity indices advancing on the back of relatively upbeat global growth data, benign European inflation readings and the prospect of further policy easing from major central banks. At the same time, the US dollar has continued to weaken, reflecting a run of disappointing US economic data and rising investor concerns about the fiscal outlook, even as European growth surprises have turned more positive. This divergence, combined with the prospect of lower US policy rates relative to some (though not all) peers, has added to the dollar’s drift lower (charts 1 and 2). Supply chain strains—highlighted by elevated vessel queues at US West Coast ports—also feed into the narrative that US tariff measures may be contributing to sticky input costs and stagflation risks (charts 3 and 4). Meanwhile, record temperatures in parts of Europe this week have reinforced the climate challenge facing policymakers, with the final two charts illustrating how rising global temperatures and heat stress could increasingly weigh on productivity and growth potential if left unchecked. With trading volumes light ahead of the July 4th holiday and markets awaiting tomorrow’s US non-farm payrolls report, the interplay between softer US data, resilient equities, a weaker dollar, and climate-related risks remains firmly in focus.

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Charts of the Week: Headwinds and Heatwaves

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The ADP National Employment Report reported that nonfarm private sector payrolls declined 33,000 (+1.1% y/y) during June after rising 29,000 in May, revised from 37,000 and increasing an unrevised 60,000 in April. It was the first monthly decline since March 2023. A 110,000 June rise had been expected in the in the Action Economics Forecast Survey.

Small business hiring (less than 50 employees) declined 47,000 (+0.4% y/y), after falling 13,000 in May. These were the first back-to-back monthly declines since the end of 2023. Employment at medium-sized firms (50-499,000 employees) declined 15,000 (1.1% y/y), after rising 46,000 in May, revised from 49,000. Large business hiring (500+ employees) increased 30,000 (2.7% y/y) after easing 4,000 in May.

Goods-producing employment rose 32,000 (1.4% y/y) in June after falling a minimally revised 3,000 in May. Manufacturing jobs increased 15,000, unchanged y/y, following a 6,000 decline in May. The number of construction sector jobs rose 9,000 (2.8% y/y) after increasing 6,000 in May. Natural resources & mining jobs rose 8,000 (4.3% y/y) in June after falling 3,000 in May.

The decline in payrolls overall reflected weakness in the service sector where the number of service-producing jobs declined 66,000 last month (+1.1% y/y) after increasing 32,000 in May, revised from 36,000. Professional & business services employment fell 56,000 (+0.2% y/y), after declining 13,000 in May. These weak readings came after a 1,000 April gain and a 46,000 March increase. Education & health services employment declined 52,000 (+0.8% y/y), the third consecutive month of decline. Employment in the financial industry weakened 14,000 (+1.8% y/y) last month, after rising 17,000 in May.

Offsetting these declines, leisure & hospitality employment increased 32,000 in June (3.2% y/y), following a 43,000 May gain. Monthly increases have averaged 36,000 this year. Trade, transportation & utilities employment increased 14,000 (0.3% y/y) after falling 8,000 in May. Information sector employment rose 5,000 (0.2% y/y) after a 4,000 May increase and a 10,000 April decline. Employment in “other” services sectors rose 5,000 in June (2.9% y/y), the same as in May.

Growth in median annual pay for "job stayers" slipped to 4.4% y/y in June, down from a high of 7.8% in September 2022. Manufacturing sector pay grew 4.6% y/y, steady with May. Construction sector pay also rose a steady 4.6% y/y. Natural resource & mining sector pay grew 4.5% y/y last month. Financial sector earnings rose an improved 5.2% y/y, while education & health services pay rose a lessened 4.6% y/y. Leisure & hospitality pay increased 4.7% y/y in June. Professional & business service sector pay increased a lessened 4.2% y/y as did trade, transportation & utilities pay, up 4.2% y/y. Information pay rose a lessened 4.1% y/y. Median annual pay for “job changers” rose 6.8% y/y in June, down from a high of 16.1% y/y in April 2022.

By region, employment in the Midwest declined 24,000 (+1.3% y/y) to 28,761 million after a 17,000 rise in May. Employment in the West, declined 20,000 to 31,363 million (+0.5% y/y) last month, and reversed a 31,000 rise during May. Employment in the Northeast fell 3,000 to 24,116 million (+1.4% y/y) in June, following a 23,000 decline in May. Partially offsetting these declines, in the South employment increased 13,000 to 50,092 million (1.0% y/y) in June, after rising 2,000 in May.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Employment declines in several service industries; factory & building industry jobs rise.
- Wage growth moderates further.
- Small- & medium-sized shed jobs.

Economy in Brief: August 2007

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