Robert Brusca

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Manufacturing PMIs rose on broad front in May. Among those listed in the table, only three countries Japan, Taiwan and South Korea showed further manufacturing deterioration. China has been so weak so persistently that its very modest 50.7 diffusion reading is a top ten percentile reading for China and a 50th percentile queue standing. And despite increases in PMIs this month, the queue standings remain extremely weak across the board with China as the only exception.

The sequential data still show the preponderance of trends moving lower. This month's rebound has not yet reversed trends, at least not statistically. But this is a harbinger of where things are going. The levels of the PMIs are still extremely low; this is not a decisive bounce. But what is decisive is that this is an artificially induced recession that is now being unwound and the unwinding will continue.



Are there risks? There are risks. But this is the early stage of the turn and this is going to progress. This month is a watershed much more that it is a demonstration of strength. There is still is not strength, but the water is now going to flow in a different direction. It will gain momentum. There is going to be improvement. And at some point, the improving trends might be at risk again, but that risk is not here or now. That is something that still lies ahead. For now, global recovery seems to be in gear.

While this seems to be the start of a global recovery, there is a deep hole to dig out of. Conditions are not going to change overnight. In fact, the biggest uncertainty is no longer about the timing of recovery because we now seem to have established that, but the speed of the recovery. How fast will growth snap back how fast will manufacturing come back? How fast will the services sector recover? And then attention will turn to the next step in the process which is how fully will all of this come-back? The speed and the completeness of the recovery process are the two most contentious issues now. Countries are getting past the notions that reopening is too dangerous or it is too soon and they are doing it. But many challenges remain.

Some analysis has begun to focus on the potential for a 90% recovery. On the face of it, 90% may sound not too bad. But if the unemployment rate is TEN percentage points higher than it was at the lows, that will not be good. A 90% recovery would be a recovery with many sectors back up and running and going full tilt. But to put the overall rebound at 90%, there are other sectors that would be at 70% or maybe less and those services sectors have been talked about. The restaurant and hotel businesses, the airlines and the movie theaters, amusement parks and so on all face significant challenges. When there are sectors that come back a lot less than 90%, there is a real problem since many of these are labor intensive businesses. So the impact on unemployment could turn out to be much worse. And all that is simply ignoring that there have been enterprises that have been run out of business and will not be coming back. Small businesses some peoples' or family's life's work is gone. For many the future will never ever be anything like ‘the same.'

Recovery is now in train. But it will have an uneven speed. It is not clear how world trade comes back because there is still trade conflict and other geopolitical conflicts that could spill over into trade. The Baltic dry index is not yet stirring or showing any sign of turnaround or revival in global trade flows. Once recovery is more fully established, there might be periods in which it seems to progress faster and others when is seems slower. That will be the nature of the recovery process that is what is coming next.


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Manufacturing PMIs rose on broad front in May. Among those listed in the table, only three countries Japan, Taiwan and South Korea showed further manufacturing deterioration. China has been so weak so persistently that its very modest [...]

Globally Manufacturing PMIs Rebound; A Bounce That Signals More Than It Refreshes

Tom Moeller

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&bull; The Composite Index remained below the break-even level of 50 for the third straight month.
&bull; Monthly improvement in the component series was widespread.
&bull; The prices index rose moderately.

The coronavirus exhibited less of a negative impact on
factory sector activity in May, reported the Institute for Supply Management
(ISM). The Composite index of manufacturing sector activity improved to 43.1
last month after declining to 41.5 in April, the lowest level since April 2009.
A reading of 42.5 had been expected in the Action Economics Forecast Survey.
During the last 15 years, there has been a 66% correlation between the composite
index and the quarterly change in real GDP.

The production index increased to 33.2 from its record low of
27.5 in April. Despite the rise, only 20.7% (NSA) of respondents reported higher
production while a lessened 51.5% reported a decline. The new orders index rose
to 31.8, but recaptured just a piece of the April collapse to 27.1. It remained
nearly the lowest level since December 2008. Twenty-one percent (NSA) of survey
respondents reported higher new orders while 53% reported lower orders.

Adding to the improvement was a rise in the employment
measure to 32.1 after collapsing to 27.5 in April. Just eight percent (NSA) of
respondents reported higher payrolls while 41% reported declines. Before the
April decline, there was a 68% correlation between the employment index and the
m/m change in factory sector payrolls.

The supplier delivery measure decreased to 68.0 from 76.0,
indicating a somewhat lessened number of bottlenecks in the supply chain. The
inventories measure rose slightly to 50.4, but remained below the recent peak of
53.9 in August 2018.

The prices paid index rebounded to 40.8 (NSA) after weakening
in the prior two months. A still-depressed 14% of respondents reported higher
prices while 32% reported declines.

Other series in the ISM report indicated weakness. The export
order measure only improved to 39.5 after weakening to 35.3, the lowest level
since late-2008, down from a high of 62.8 in February 2018. The import series
remained near its expansion low while the order backlog measure also held steady
after plummeting in April.

The ISM figures are based on responses from over 400
manufacturing purchasing executives from 20 industries, which correspond to
their contribution to GDP in 50 states. The ISM figures are diffusion indexes
where a reading above 50 indicates expansion. The figures from the Institute for
Supply Management can be found in Haver's USECON database; further detail
is found in the SURVEYS database. The expectations number is available in
Haver's AS1REPNA database.

Market Assessment of COVID-19 from the Federal Reserve
Bank of San Francisco is available <a href="https://www.frbsf.org/economic-research/files/el2020-14.pdf">here</a>.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >ISM Mfg (SA)</th>
 <th>May</th>
 <th>Apr</th>
 <th>Mar</th>
 <th>May'19</th>
 <th>2019</th>
 <th>2018</th>
 <th>2017</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Composite Index</td>
 <td>43.1</td>
 <td>41.5</td>
 <td>49.1</td>
 <td>52.3</td>
 <td>51.2</td>
 <td>58.9</td>
 <td>57.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;New Orders</td>
 <td>31.8</td>
 <td>27.1</td>
 <td>42.2</td>
 <td>52.5</td>
 <td>51.1</td>
 <td>61.6</td>
 <td>62.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Production</td>
 <td>33.2</td>
 <td>27.5</td>
 <td>47.7</td>
 <td>52.0</td>
 <td>51.2</td>
 <td>60.9</td>
 <td>60.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Employment</td>
 <td>32.1</td>
 <td>27.5</td>
 <td>43.8</td>
 <td>53.1</td>
 <td>50.9</td>
 <td>56.9</td>
 <td>56.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Supplier Deliveries</td>
 <td>68.0</td>
 <td>76.0</td>
 <td>65.0</td>
 <td>52.5</td>
 <td>52.9</td>
 <td>62.0</td>
 <td>56.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Inventories</td>
 <td>50.4</td>
 <td>49.7</td>
 <td>46.9</td>
 <td>51.4</td>
 <td>49.8</td>
 <td>52.9</td>
 <td>50.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Prices Paid Index (NSA)</td>
 <td>40.8</td>
 <td>35.3</td>
 <td>37.4</td>
 <td>53.2</td>
 <td>49.1</td>
 <td>71.7</td>
 <td>65.0</td>
 </tr>
 </tbody>
 </table>
 
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• The Composite Index remained below the break-even level of 50 for the third straight month. • Monthly improvement in the component series was widespread. • The prices index rose moderately. The coronavirus exhibited less of a [...]

ISM Manufacturing Index Improves in May

Gerald D. Cohen

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&bull; Construction spending dropped 2.9% in April with net upward revisions to previous months.
&bull; April's decline is small compared to other economic statics; looks closer to recent recessions.


The value of construction put-in-place fell a smaller than expected 2.9% in April (unchanged year-on-year). The Action Economics Forecast Survey expected a 5.3% drop. During the Great Recession of 2008-09 construction spending declined more than 3.0% three times.

While activity in March was revised down to unchanged (was +0.9%), February was revised substantially higher (+0.2% versus -2.5%). In the first quarter GDP report released last week private construction spending (nonresidential + residential) added 0.55 percentage point to GDP growth. This data suggests at least the construction sector will be revised higher.

Private construction decreased 3.0% (+3.8% y/y) in April while public fell 2.5% (+0.8% y/y). Private residential construction dropped 4.5% (6.2% y/y) led by a 9.1% collapse in multifamily (-14.7% y/y). Single family was down 6.6% (+4.5% y/y) while improvements were unchanged (+16.2% y/y).

Nonresidential private construction declined 1.3% in April (+1.1% y/y) with three of largest sectors -- power, commercial, and office down; manufacturing edged up 0.2%. Nonresidential public construction, which makes up 98% of public construction, fell 2.5% (+0.5% y/y) with road building and school spending falling 5.2% and 2.3% respectively. If not offset by federal government support, the drop in state and local government revenues resulting from the COVID related collapse in economic activity will continue to lead to substantial weakness in public construction.

The construction spending figures, some of which date back to 1946 can be found in Haver's USECON database.
Mortgage interest rates and loan applications from the Mortgage Bankers Association are in the SURVEYW database
and the expectations reading is in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
 <tr>
<th class="firstcol" scope="col" >Construction Put in Place (SA, %)</th>
<th>Apr</th>
<th>Mar</th>
<th>Feb</th>
<th>Apr Y/Y</th>
<th>2019</th>
<th>2018</th>
<th>2017</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol" >Total</td>
<td >-2.9</td>
<td >0.0</td>
<td >0.2</td>
<td >3.0</td>
<td >0.0</td>
<td >3.3</td>
<td >4.5</td>
</tr>
<tr>
<td class="firstcol" >&nbsp; Private</td>
<td >-3.0</td>
<td >-0.7</td>
<td >0.4</td>
<td >3.8</td>
<td >-2.2</td>
<td >3.2</td>
<td >6.0</td>
</tr>
<tr class="odd">
<td class="firstcol" >&nbsp;&nbsp;&nbsp; Residential</td>
<td >-4.5</td>
<td >-0.2</td>
<td >-0.3</td>
<td >6.2</td>
<td >-4.5</td>
<td >2.8</td>
<td >12.4</td>
</tr>
<tr>
<td class="firstcol" >&nbsp;&nbsp;&nbsp; Nonresidential</td>
<td >-1.3</td>
<td >-1.3</td>
<td >1.3</td>
<td >1.1</td>
<td >0.5</td>
<td >3.7</td>
<td >-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol" >&nbsp; Public</td>
<td >-2.5</td>
<td >2.2</td>
<td >-0.3</td>
<td >0.8</td>
<td >6.9</td>
<td >3.6</td>
<td >-0.1</td>
</tr>
 </tbody>
 </table>
 
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• Construction spending dropped 2.9% in April with net upward revisions to previous months. • April's decline is small compared to other economic statics; looks closer to recent recessions. The value of construction put-in-place fell [...]

U.S. Construction Remains a Relative Bright Spot

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

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) rose 0.6% (-3.6% y/y) during the four weeks ended May 9, 2025. The improvement followed sharp declines in April.

Miscellaneous group prices increased 2.4% (5.9% y/y) over the last four weeks. Natural rubber price soared 13.9% (11.7% y/y). The price of tallow (used in the soap industry) rose 10.6% (41.3% y/y) in four weeks but the cost of framing lumber declined 5.6%, but rose 7.3% y/y.

Prices in the Metals group edged 0.2% higher (-7.3% y/y) over the most recent four weeks. Variation in pricing was wide. Copper scrap prices rose 7.4% (-3.3% y/y) while lead costs rose 4.0% in four weeks (-11.1% y/y). The cost of aluminum increased 2.3% in four weeks, off 4.4% y/y. Working lower, the cost of steel scrap declined 8.1% (-11.6% y/) in four weeks while tin prices followed with a 4.9% decline (-2.9% y/y). Zinc prices eased 0.7% in four weeks and declined 10.3% y/y.

Crude Oil & Benzene group prices edged 0.1% higher (-19.4% y/y) in four weeks. The cost of West Texas Intermediate crude oil weakened 4.0% to $58.50 per barrel and was 25.6% lower y/y. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 8.5% (-41.8% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index rose 0.9% (-2.1% y/y) during the last four weeks.

Textile group prices edged 0.9% lower (-0.5% y/y) during the last four weeks. Burlap costs declined 14.3% (+7.4% y/y) but the cost of cotton rose 4.5% (-7.7% y/y) over four weeks.

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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- Metals prices are mixed.
- Crude oil prices fall sharply.
- Textile prices ease.

FIBER: Industrial Commodity Price Movement Diverges in Latest Four Weeks

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Wholesale trade inventories increased 0.4% (2.2% y/y) during March after rising 0.5% in February, revised from 0.3% after a 0.8% January rise. The increase compared to expectations for a 0.5% rise in the Informa Global Markets Survey and compared to a 0.6% gain in the advance report issued two weeks ago.

Durable goods inventories rose 0.6% in March (1.5% y/y) after rising 0.5% in February. Machinery inventories, the largest sector, increased 0.6% (1.7% y/y) while inventories of motor vehicles & parts, the second largest grouping, rose 1.2% (0.8% y/y). Furniture inventories strengthened 2.7% (6.8% y/y) while electrical equipment inventories declined 1.0% (-3.1% y/y). Inventories of nondurable goods edged 0.1% higher (3.4% y/y). Drug inventories, which make up one-quarter of nondurable inventories, advanced 1.0% (4.6% y/y). Grocery inventories, the second largest category, rose 0.4% (8.3% y/y). Apparel inventories fell 0.8% (-6.5% y/y) and chemical inventories rose 2.1% both m/m and y/y. Petroleum inventories increased 0.7% (0.3% y/y).

Sales at the wholesale level rose 0.6% (6.1% y/y) in March after rising 2.0% in February and falling 0.9% in January. A 0.9% March rise had been expected in the Action Economics Forecast Survey.

Durable goods sales rose 1.0% (8.5% y/y) in March after strengthening 3.2% in February. Sales of electrical equipment & electronic goods, the largest sector, rose 2.5% (20.9% y/y), after a 2.3% rise. Professional and commercial equipment sales, which includes computers, rose 1.2% (11.9% y/y), while vehicle sales declined 1.0% (1.1% y/y). Sales of machinery improved 0.7% (4.2% y/y). Nondurable product sales rose 0.3% (3.9% y/y) in March after gaining 0.9% in February. Drug store sales, the largest category, increased 2.8% (13.4% y/y), while grocery store sales eased 0.2% (+4.3% y/y). Sales of apparel weakened 0.8% (+3.5% y/y) while paper sales declined 1.7% (0.5% y/y). Petroleum product sales fell 4.6% both m/m and y/y.

The inventory-to-sales (I/S) ratio at the wholesale level remained at 1.30 in March and has been moving lower for the last two years.

The wholesale I/S ratio for durable goods eased to 1.69 in March and also has been trending lower. The machinery ratio fell to 2.92 while motor vehicles rose to 1.78. The I/S ratio for nondurable goods slipped to 0.93 and remained down from 1.02 early in 2023. The drug industry ratio eased to 0.94. Apparel's I/S ratio held at 2.06, but remained below its 2.28 level one year earlier, and has been declining since early 2023. The petroleum industry I/S ratio rose to 0.33.

The wholesale trade figures are available in Haver's **USECON** database. The expectations figure for inventories is contained in the **MMSAMER** database. Expectations for sales are from the **AS1REPNA** database.

**Assessing Maximum Employment** from Federal Reserve Governor Adriana D. Kugler is available [here](https://www.federalreserve.gov/newsevents/speech/kugler20250509a.htm).

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- Inventories trend higher y/y.
- Sales increase broadly.
- Inventory-to-sales ratio steadies.

U.S. Wholesale Inventories & Sales Increase in March

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Nonfarm labor productivity fell 0.8% (SAAR) during Q1’25 after increasing 1.7% in Q4’24, revised from 1.5%. A 0.6% decline had been expected in the Action Economics Forecast Survey. It was the first productivity decline since Q2’22. The y/y increase during Q1 fell to 1.4% from 2.1% in Q4. It was below a 3.3% high in the first quarter of last year. Productivity fell as real value-added output dropped 0.3% last quarter (+2.2% y/y) after increasing 2.5% in Q4, and hours worked lengthened 0.6% (0.8% y/y) following a 0.8% gain.

Compensation per hour increased 4.8% last quarter following a 3.7% Q4 rise. Despite the strength of these last two increases, y/y growth decelerated to 2.7% from a 6.8% high one year earlier. Nevertheless, the productivity decline raised unit labor costs by 5.7% (1.3% y/y) in Q1 versus expectations for a 5.2% increase. It followed a 2.0% gain during Q4 and was the strongest quarterly increase in a year.

Factory sector productivity surged 4.5% (1.5% y/y) during Q1’25 following three consecutive increases of roughly 0.5%. This strength was accompanied by a 6.2% rise (2.2% y/y) in hourly compensation which came after two consecutive increases of approximately 4.1%. The strength in productivity lowered the rise in unit labor costs to 1.6% from 3.8% in Q4. The y/y gain fell to 0.7% from 2.0% in Q4 and stood below the 6.2% y/y increase in Q1’24.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Productivity declines with lower output.
- Compensation surge exacerbates labor market stress.
- Factory sector productivity surge lessens cost pressure.

U.S. Productivity Declines in Q1’25; Unit Labor Costs Surge

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) rose 0.6% (3.2% y/y) in March to 103.2 after rising 0.9% to 102.6 in February and rising 0.8% in January to 101.7. The level of home affordability has risen 14.8% from its low of 89.9 in October 2023. It remains 42.4% below the high of 179.2 in April 2020.

The rise in affordability in March occurred as the median price of an existing single-family home rose 1.8% (2.9% y/y) to $408,000 which was offset by a decline in mortgage rates to 6.73% from 6.92% in February. The price compared to the record $432,900 in June 2024. The decline in mortgage rates compared to a recent low of 6.26% in September of last year and a 7.70% high during October of 2023. It remained well above a December 2020 low of 2.73%. These changes lowered the principal & interest payment by 0.2% (+1.1% y/y) to $2,113 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a lessened 24.2% of income during March. They remained up from a low of 14.0% of income in April 2020.

The rise in housing costs in March was accompanied by improvement in median family income. It increased 0.4% (4.4% y/y) to a record $104,705 after rising 0.4% in February and 0.7% in January.

Housing affordability improved m/m across the country in March. The index edged 0.1% higher (2.8% y/y) to 134.5 in the Midwest. It remains the most affordable region of the country. In the South, the index 0.9% (5.4% y/y) to 106.6 and the affordability index in the Northeast increased 2.1% (-2.6% y/y) to 95.7. In the West, where homes are the least affordable, the index rose 0.8% (3.3% y/y) to 71.8 in March.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013; since then, it fell below 100 for the first time in June 2022.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Home prices rise but mortgage rates decline.
- Median income improves.
- Affordability increases across the country.

U.S. Housing Affordability Improves Slightly in March

Carol Stone, CBE

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Initial claims for unemployment insurance were 228,000 seasonally adjusted in the week ended May 3, down from 241,000 in the previous week, which was unrevised. For the latest week, the Action Economics Forecast Survey had expected a smaller decline to 233,000.

In the week ended April 26, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – was 1.879 million, down from 1.908 million in the April 19 week.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, returned to its longstanding rate of 1.2% in the April 26 week; this rate has held that amount since continuously since the week of January 6, 2024, except for the prior week’s 1.3%.

As we do highlight in every week’s discussion, economic conditions vary widely across individual states and territories. In the week ended April 19, the highest unemployment rates were in New Jersey and Rhode Island (both at 2.48%), California (2.26%), Washington (2.14%) and New York (1.85%). The lowest were in Florida (0.36%), South Dakota (0.37%), Alabama (0.41%), Virginia (0.45%) and Nebraska (0.47%). Rates in other notable states include Illinois (1.78%), Pennsylvania (1.53%) and Texas (1.14%). 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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- Continued claims for unemployment insurance decreased 29, 000 in the week ended April 26.
- Insured unemployment rate returns to longstanding 1.2%.
- Across the states, the insured unemployment rate ranges from 0.36% to 2.48%.

U.S. Initial Unemployment Insurance Claims Ease 13,000 in the May 3 Week

Economy in Brief: June 2020

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Globally Manufacturing PMIs Rebound; A Bounce That Signals More Than It Refreshes

ISM Manufacturing Index Improves in May

U.S. Construction Remains a Relative Bright Spot