Tom Moeller

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<a href="/comment/100611i_big.png" name="modal"><img class="large" align="left" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611i.png"> </a> Business inventories indeed have started to
increase, but the rate of accumulation has been modest. April
inventories posted a 0.4% increase and it was the sixth gain in seven
months. The rise was enough to slow the y/y rate of decumulation to
2.8% from -14.3% last summer, but the value of inventories remained
down 12.5% from the 2008 peak. Moreover, the increases have not kept up
with the improvement in sales and the I/S ratio remained at its
historic low of 1.23.
 Retail inventories have started to rise and the
0.2% April uptick was the fifth modest increase following sharp
declines during 2008 &amp; 2009. Nevertheless, the level of
inventories remained 13.6% below the 2008 peak. Accumulation this year
owes to modest gains in the auto sector. Less autos, accumulation began
only in March and it's been slight. Year-to-year inventories still are
down 1.3% versus the peak decumulation rate of 7.7% last fall. The
slowdown has been led by furniture &amp; general merchandise stores
while the decline in apparel store inventories has finally abated to
-6.7% y/y.

Inventory accumulation in the factory sector compares with sharp
decumulation through most of 2009. It has been accompanied by higher
wholesale inventories, but here the improvement has been raised by
higher oil prices. Less oil, wholesale inventories have been virtually
flat for all of this year (-5.7% y/y).
 The
business sales and inventory data are available in Haver's USECON
database.
<a href="/comment/100611j_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611j.png"></a>
<a href="/comment/100611k_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611k.png"></a>

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Inventories(%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">April y/y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.4</td>
<td>0.7</td>
<td>0.6</td>
<td>-2.8</td>
<td>-9.8</td>
<td>0.8</td>
<td>4.0</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>0.2</td>
<td>0.9</td>
<td>0.2</td>
<td>-3.8</td>
<td>-10.4</td>
<td>-3.3</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">
Retail excl. Auto</td>
<td>0.4</td>
<td>1.1</td>
<td>-0.1</td>
<td>-1.3</td>
<td>-4.9</td>
<td>-1.9</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol"> Wholesale</td>
<td>0.4</td>
<td>0.7</td>
<td>0.6</td>
<td>-3.2</td>
<td>-10.5</td>
<td>3.7</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>0.5</td>
<td>0.5</td>
<td>1.0</td>
<td>-1.6</td>
<td>-8.7</td>
<td>2.2</td>
<td>3.7</td>
</tr>
</tbody>
</table>

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Business inventories indeed have started to increase, but the rate of accumulation has been modest. April inventories posted a 0.4% increase and it was the sixth gain in seven months. The rise was enough to slow the y/y rate of [...]

U.S. Business Inventories Again Rise Moderately

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<a href="/comment/100611f_big.png" name="modal"><img class="large" align="left" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611f.png"></a>The University of Michigan
indicated that its mid-June measure of consumer sentiment added to
earlier gains and rose to 75.5, its highest level since January 2008.
Since its low late in 2008 the measure has risen by more than
one-third. During the last ten years there has been an 89% correlation
between the level of sentiment and the y/y change in real consumer
spending.
The index of expected economic conditions led
last month's advance with a 2.8% increase to 70.7. The index was up
43.7% from the 2008 low. The readings for the expected change in
personal finances (-3.3% y/y) and expected five-year business
conditions (1.2% y/y) both improved. Expectations for business
conditions during the next year slipped (+14.5% y/y).
Sentiment about current economic conditions also
improved to the highest level since early-2008 and it was up 44.2% from
the 2008 low. The assessment of current personal finances continued its
steady improvement and buying conditions for large household goods,
including furniture, refrigerators, stoves &amp; televisions, rose
back to its highest level since early-2008&nbsp; (12.4%
y/y).
Expected price inflation during the next year
fell sharply m/m to 3.1% but remained up from the December 2008 reading
of 1.7%.&nbsp;Respondents' view of government policy, which may
eventually influence economic expectations, rose m/m to its highest
level since January but remained&nbsp; down sharply from its high
last May. Sixteen percent of respondents thought that a good job was
being done by government versus 36% who thought a poor job was being
done.

The Reuters/University of Michigan survey data are not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end. These results are based on about 320
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.


The "Inflation" in Inflation Targeting from
the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2010/el2010-17.html">here</a>.
<a href="/comment/100611g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611g.png"></a>
<a href="/comment/100611h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611h.png"> </a>

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM" ;="">University of Michigan</a> </th>

<th scope="col">Mid-June</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Juney/y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr>
<td class="firstcol">Consumer Sentiment </td>
<td>75.5</td>
<td>73.6</td>
<td>72.2</td>
<td>6.6%</td>
<td>66.3</td>
<td>63.8</td>
<td>85.6</td>
</tr>
<tr>
<td class="firstcol">Current Conditions </td>
<td>82.9</td>
<td>81.0</td>
<td>81.0</td>
<td>13.3</td>
<td>69.6</td>
<td>73.7</td>
<td>101.2</td>
</tr>
<tr>
<td class="firstcol">Expectations</td>
<td>70.7</td>
<td>68.8</td>
<td>66.5</td>
<td>2.2</td>
<td>64.1</td>
<td>57.3</td>
<td>75.6</td>
</tr>
</tbody>
</table>

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The University of Michigan indicated that its mid-June measure of consumer sentiment added to earlier gains and rose to 75.5, its highest level since January 2008. Since its low late in 2008 the measure has risen by more than one- [...]

U.S. Consumer Sentiment Gains Upward Momentum

Robert Brusca

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<a href="/comment/100611e_big.png" name="modal"><img class="large" align="left" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611e.png"></a>
The German harmonized inflation rate rose by 01% in May, Germany's
domestic headline inflation measure fell by 0.1% with the core up at a
sharp +0.5% offsetting last month's 0.4% drop. 
 Headline inflation in Germany is steadily
increasing with the annualized rate climbing over shortening time spans
at 1.2% over 12-mos, 1.3%over 6-mos and 2.6% over 12-mos. Core
inflation is still tempered at a 1.5% three-month pace in May. But it
is not showing clear acceleration as the 1.5% standing is higher than
both the Yr/Yr and the six-month pace but the six month pace shows
deceleration from 12-months. On balance there are some core pressures
but they are not as steady building as for headline inflation.
 How widespread is inflation's acceleration? Using
the main 11 categories in the table inflation is accelerating over
three-months compared to six months in 63% of the categories. It'
acceleration over six months compared to 12-months is only in only 36%
of the categories. It is accelerating Yr/Yr compared to the pace of one
year ago in 54% of the categories. On balance there is evidence of
inflation and it is most acute over three-months where the measurement
is the least reliable and most volatile. Apart from the 3-month
diagnostic, inflation's acceleration does not seem that sharp or
widespread. 
 One key for the ECB is going to be how to deal
with oil that has been booming and busting and wreaking havoc with
price trends and with inflation more generally. A second key will be to
see how it deals with all the financial distress in the region. There
is not only financial distress but national austerity plans in train.
With all of these negative growth shocks we would expect the ECB to be
a bit more inflation-tolerant than it might be in other times. But that
is still a question for the policymakers. After all, stimulus is being
breathed into the euro-economy by the ever weakening currency. And with
that comes some added inflation threat to counter the downside growth
risks. What will the ECB do? That is what we will be watching to see. I
expect temperance but I am ever wary. 



<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=8 scope="col">German HICP and CPI details</th>
</tr></thead>

<td>&nbsp;</td>
<td colspan=3>Mo/Mo %</td>
<td colspan=3>Saar %</td>
Yr/Yr

<tr class="even">
<td>&nbsp;</td>
<td>May-10</td>
<td>Apr-10</td>
<td>Mar-10</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr
Ago</td>
</tr>
<tr>
<td class="firstcol">HICP Total</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>1.9%</td>
<td>1.1%</td>
<td>1.2%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>-0.5%</td>
<td>0.4%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.2%</td>
</tr>
<tr class="even">
<td colspan=8 class="firstcol">CPI
</td>
</tr>
<tr>
<td class="firstcol">All</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.6%</td>
<td style="color:red;">2.6%</td>
<td>1.3%</td>
<td>1.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">
CPIxF&amp;E</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>0.3%</td>
<td style="color:red;">1.5%</td>
<td>0.4%</td>
<td>0.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>-0.4%</td>
<td>0.6%</td>
<td>1.1%</td>
<td style="color:red;">5.2%</td>
<td>3.9%</td>
<td style="color:red;">1.1%</td>
<td>-1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Alcohol</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>1.1%</td>
<td>1.2%</td>
<td style="color:red;">3.1%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Clothing
&amp; Shoes</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.5%</td>
<td>3.8%</td>
<td>1.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rent
&amp;Util</td>
<td>0.0%</td>
<td>0.5%</td>
<td>0.4%</td>
<td style="color:red;">3.3%</td>
<td>2.0%</td>
<td style="color:red;">1.0%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">Health
Care</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td style="color:red;">0.0%</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>1.1%</td>
<td>0.7%</td>
<td>0.7%</td>
<td style="color:red;">4.1%</td>
<td>-3.9%</td>
</tr>
<tr>
<td class="firstcol">Communication</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>-1.8%</td>
<td>-2.7%</td>
<td style="color:red;">-1.8%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rec
&amp;Culture</td>
<td>1.8%</td>
<td>-2.7%</td>
<td>1.0%</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">Education</td>
<td>-0.8%</td>
<td>-1.6%</td>
<td>-0.6%</td>
<td>-11.2%</td>
<td>-5.3%</td>
<td style="color:red;">-1.3%</td>
<td>-5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Restaurant
&amp; Hotel</td>
<td>0.4%</td>
<td>-1.0%</td>
<td>1.3%</td>
<td style="color:red;">2.6%</td>
<td style="color:red;">1.3%</td>
<td>1.1%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td>0.2%</td>
<td>0.5%</td>
<td>0.0%</td>
<td style="color:red;">2.6%</td>
<td>-0.7%</td>
<td>0.8%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Diffusion</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td style="color:red;">63.6%</td>
<td>36.4%</td>
<td>54.5%</td>
<td>--&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">Type:</td>
<td colspan=3>Diffusion:
Current Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>--</td>
</tr>



</html>

The German harmonized inflation rate rose by 01% in May, Germany's domestic headline inflation measure fell by 0.1% with the core up at a sharp +0.5% offsetting last month's 0.4% drop. Headline inflation in Germany is steadily [...]

German Inflation Perks Up; Core Rate In Mild Rebound From Lows

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<a href="/comment/100611d_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611d.png" align="left"></a>
A slowing in growth: The overall OECD area leading indicator rose by
0.2% this month as the growth rate over three-months fell short of the
six month pace and the six month pace fell short of the 12-month pace. 
 Slowing is on schedule in some sense - The Yr/Yr
growth rates are still at very elevated rates. But the pace is
beginning to slow. Since we are looking at the highest growth rates for
these three leading countries on this measure since the early 1970s it
is not surprising that the pace is beginning to ratchet lower. Rarely
have the three key OECD regions/countries grown at a pace in excess of
what they are showing now. 
 Euro-Area is being stung by its debt problem
fallout: The euro-area indicator, however, isn&#8217;t just slowing. Its
indicator is actually dropping by 4.7% month-to-month. It is perhaps
the first real sign that Europe&#8217;s growth is being ensnared by the
geopolitical and debt problems of the region. Over three months the
OECD measure for the euro-area is up by just 1% at an annual rate. This
compares to a 4% pace for the entire OECD region and a 7% pace for the
US.
 The decelerations: Over six months the OECD
growth rates have fallen to about 60% of their 12 month pace. For Japan
and the US things are holding up better as Japan&#8217;s current growth over
six-months is 82% of its twelve-month pace and for the US it is 75% of
its twelve-month pace. But for the euro-area growth it is only 36% of
its
twelve-month pace over the last six-months. The OECD prefers to look at
six month growth rates and if we compare the current six month pace
(Apr 2010-Oct 2009) to the previous six-month pace (May2009 to Oct2009)
the OECD deceleration is even more stark with growth in the recent six
month period that is only 21% of growth in the previous six month
period.
 Prospects: On balance the revival of the OECD
region, judging from the leading indicator growth, has been excellent.
But the real proof is in the sort of recovery that develops, not the
strength of the indicator that precedes it. The sharp recent fall-off
of the euro-area index is a warning of another sort. The sorts of
variables that plug into leading indicators can be accurate harbingers
and they can also be the sorts of things that overreact to events.
Right now the euroarea is trying to sort out the nature of the
geopolitical and economic mess that it is in. There has been far more
contagion that has affected expectations and other sensitive variables
outside the zone that there will be transmission of weakness from the
Zone to theses same regions. I also believe that the financial element
of the crisis is overblown &#8211;a bit like reinjuring an old wound before
it is fully healed. It will take time to see how much actual economic
data are affected by these ongoing developments in the Zone and in
Europe. I think the OECD indices overstate the prospects for weakness
in Europe.

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>

<thead><tr>
<th scope="col" colspan="7">OECD Trend-restored
leading
Indicators</th>
</tr>
</thead><tbody>
<tr class="grey3">
<td style="font-weight: bold;">&nbsp;</td>
<td style="font-weight: bold;" colspan="2">Growth:M/M</td>
<td style="font-weight: bold;" colspan="4">Growth
progression-SAAR</td>
</tr>
<tr class="even">
<td style="font-weight: bold;">&nbsp;</td>
<td style="font-weight: bold;">Apr-10</td>
<td style="font-weight: bold;">Mar-10</td>
<td style="font-weight: bold;">3Mos</td>
<td style="font-weight: bold;">6Mos</td>
<td style="font-weight: bold;">12mos</td>
<td style="font-weight: bold;">Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td style="color: red;">0.2%</td>
<td style="color: red;">0.3%</td>
<td style="color: red;">4.0%</td>
<td style="color: red;">5.9%</td>
<td>9.7%</td>
<td style="color: red;">-10.2%</td>
</tr>
<tr>
<td class="firstcol">OECD7</td>
<td style="color: red;">-5.2%</td>
<td style="color: red;">0.3%</td>
<td style="color: red;">4.1%</td>
<td style="color: red;">6.2%</td>
<td>10.1%</td>
<td style="color: red;">-11.7%</td>
</tr>
<tr>
<td class="firstcol">OECD.Euro-Area</td>
<td style="color: red;">-4.7%</td>
<td style="color: red;">0.1%</td>
<td style="color: red;">1.0%</td>
<td style="color: red;">3.0%</td>
<td>8.2%</td>
<td style="color: red;">-9.9%</td>
</tr>
<tr>
<td class="firstcol">OECD.Japan</td>
<td style="color: red;">0.2%</td>
<td style="color: red;">0.4%</td>
<td style="color: red;">4.5%</td>
<td style="color: red;">7.5%</td>
<td>9.1%</td>
<td style="color: red;">-13.9%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td style="color: red;">0.5%</td>
<td style="color: red;">0.6%</td>
<td style="color: red;">7.0%</td>
<td style="color: red;">8.7%</td>
<td>11.6%</td>
<td style="color: red;">-12.4%</td>
</tr>
<tr class="even">
<td style="font-weight: bold;">&nbsp;</td>
<td style="font-weight: bold;" colspan="2">Six
months</td>
<td style="font-weight: bold;" colspan="4">Six
month readings at 6-Mo Intervals:</td>
</tr>
<tr class="grey3">
<td style="font-weight: bold;">&nbsp;</td>
<td style="font-weight: bold;" colspan="2">Change
in 6m avg</td>
<td style="font-weight: bold;">Recent six</td>
<td style="font-weight: bold;">6Mo Ago</td>
<td style="font-weight: bold;">12Mo Ago</td>
<td style="font-weight: bold;">18MO Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td style="color: red;">4.6%</td>
<td style="color: red;">5.2%</td>
<td style="color: red;">5.9%</td>
<td>13.6%</td>
<td>-6.5%</td>
<td style="color: red;">-13.7%</td>
</tr>
<tr>
<td class="firstcol">OECD7</td>
<td style="color: red;">4.8%</td>
<td style="color: red;">5.5%</td>
<td style="color: red;">6.2%</td>
<td>14.2%</td>
<td>-8.7%</td>
<td style="color: red;">-14.6%</td>
</tr>
<tr>
<td class="firstcol">OECD.Eur</td>
<td style="color: red;">3.7%</td>
<td>4.5%</td>
<td style="color: red;">3.0%</td>
<td>13.6%</td>
<td>-4.1%</td>
<td style="color: red;">-15.2%</td>
</tr>
<tr>
<td class="firstcol">OECD.Japan</td>
<td style="color: red;">5.0%</td>
<td style="color: red;">5.3%</td>
<td style="color: red;">7.5%</td>
<td>10.7%</td>
<td style="color: red;">-14.6%</td>
<td style="color: red;">-13.1%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td style="color: red;">5.6%</td>
<td style="color: red;">6.0%</td>
<td style="color: red;">8.7%</td>
<td>14.6%</td>
<td>-10.2%</td>
<td style="color: red;">-14.5%</</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">Slowdowns
indicated by BOLD RED</td>
</tr>
</tbody>
</table>

</body></html>

A slowing in growth: The overall OECD area leading indicator rose by 0.2% this month as the growth rate over three-months fell short of the six month pace and the six month pace fell short of the 12-month pace. Slowing is on schedule [...]

OECD Leading Indicators Move Up But Slow Down

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<a href="/comment/100611a_big.png" name="modal"><img class="large" align="left" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611a.png"></a> U.S. consumers took a break
during May from their shopping spree after the recession's end. Retail
sales declined 1.2% last month following an upwardly revised 0.6% April
rise. The drop disappointed Consensus expectations for a 0.2% increase.
Nevertheless, sales have risen 5.7% since the recession's end last June.
 Despite last month's already reported increase in
unit sales, retail purchases of motor vehicles fell 1.7% during May.
The y/y gain of 12.6%, however, is close to the gain in unit purchases.
Finally, sales at gasoline service stations fell 3.3% (+20.2% y/y). It
was further evidence that higher prices are discouraging gas usage
since prices fell just 0.4% m/m.
 Nonauto sales declined 1.1% after the 0.6% April
increase which was revised up slightly. The decline also disappointed
Consensus expectations for a 0.1% uptick. The shortfall was paced by a
9.3% drop (+3.1% y/y) in sales at building materials and hardware
stores.
 Also disappointing was "core" discretionary
spending. Apparel store sales declined 1.3% (+4.1% y/y) after a 0.7%
April decline. General merchandise store sales also fell by 1.1%
following a 0.2% slip during April. Working the other way, sales of
furniture, home furnishings &amp; electronics rose 0.8% (5.2% y/y)
and recovered most of the April decline. Furniture sales alone rose
1.0% (5.3% y/y) while a 0.6% increase (5.0% y/y) in sales of
electronics &amp; appliances recovered all of the April drop. Sales
by internet &amp; catalogue vendors ticked up 0.2% (15.2% y/y) but
April sales were revised sharply higher and rose 2.5%.&nbsp;Food
service sales ticked 
 The retail sales data are available in Haver's USECON
database.
 The latest Beige Book
covering regional economic conditions from the Federal Reserve Board
can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2010/20100609/fullreport20100609.pdf">here</a>
.
<a href="/comment/100611b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611b.png"></a>
<a href="/comment/100611c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611c.png"></a>

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col"></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May y/y</th>
<th scope="col">2009
</th><th scope="col">2008
</th><th scope="col">2007</th>
</tr></thead><tbody>
<tr class="even">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM" ;="">Total Retail Sales &amp; Food Services</a> (%)
</td>
<td>-1.2</td>
<td>0.6</td>
<td>2.1</td>
<td>6.8</td>
<td>-6.3</td>
<td>-1.0</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">Excluding Autos</td>
<td>-1.1</td>
<td>0.6</td>
<td>1.2</td>
<td>6.1</td>
<td>-5.1</td>
<td>2.3</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">Non-Auto Less
Gasoline</td>
<td>-0.8</td>
<td>0.6</td>
<td>1.2</td>
<td>4.4</td>
<td>-1.9</td>
<td>1.2</td>
<td>3.5</td>
</tr>
</tbody>
</table>

</html>

U.S. consumers took a break during May from their shopping spree after the recession's end. Retail sales declined 1.2% last month following an upwardly revised 0.6% April rise. The drop disappointed Consensus expectations for a 0.2% [...]

U.S. Retail Spending Disappoints Across-the-Board

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<a href="/comment/100610a_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610a.png"></a><a href="/comment/100610b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610b.png"></a>

The latest and revised
U.S. foreign trade figures paint the same picture as earlier. An April
deficit of $40.3B, stable since February, followed deterioration from
its shallowest last May. The latest figure roughly matched Consensus
expectations for a deficit of $41.0B.
The deficit's deterioration since last year
reflects the U.S. economic recovery. Non-oil imports slipped 0.7% in
April but it was the first monthly decline in nearly one year. The
21.1% y/y gain during the last twelve months reflects a two-thirds
increase in imports of automotive vehicles &amp; parts. Real
nonauto consumer goods imports rose 4.0% y/y while capital goods
imports jumped by nearly one-quarter with the strength in business
investment. Finally, services imports have risen 6.8% y/y. U.S. travels
abroad fell 0.7% y/y while passenger fares surged 15.0% y/y. "Other"
transportation services imports jumped 7.7% y/y. Imports of petroleum
products slipped marginally in April but were up by two-thirds from
last year with the surge in prices. 
Nominal exports slipped 0.7% during April
following their slightly-revised 3.8% jump during March. Year-to-year,
however, exports have risen a strong 19.9% with the dollar's lower
value. The monthly dip reflected a 5.3% drop in nonauto consumer goods
exports (+10.3% y/y) and a 7.6% drop in food &amp; beverages (+4.2%
y/y). These were offset by a 1.9% increase (50.3% y/y) in industrial
supplies exports and a 1.4% gain (+57.2% y/y) in autos. In addition,
exports of services rose 0.2% (8.0% y/y) as passenger fares were
strong. 
By country, the trade deficit with mainland China
deepened to $19.3B, its deepest since December. Trade with China surged
as exports jumped by one-quarter y/y and imports rose by a lesser
18.2%. The trade deficit with Japan eased to $4.8B but imports rose by
roughly one-third y/y with the U.S. economic recovery and exports rose
17.2% y/y. With the European Union the trade deficit eased to $5.7B as
exports rose 7.0% y/y and imports rose about the same.
The international trade data can be found in
Haver's USECON database. Detailed figures are
available in the USINT database.
<a href="/comment/100610c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610c.png"></a><a href="/comment/100610d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610d.png"></a>

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr>
<td class="firstcol">U.S.
Trade Deficit</td>
<td>$40.3B</td>
<td>$40.0B</td>
<td>$40.1B</td>
<td>$28.4B(4/09)</td>
<td>$378.6B</td>
<td>$695.9B</td>
<td>$701.4B</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports
- Goods &amp; Services (m/m)</td>
<td>-0.7%</td>
<td>3.8%</td>
<td>-0.1%</td>
<td>19.9%</td>
<td>-14.6%</td>
<td>11.5%</td>
<td>13.2%</td>
</tr>
<tr>
<td class="firstcol">Imports
- Goods &amp; Services</td>
<td>-0.4</td>
<td>2.9</td>
<td>2.8</td>
<td>23.9</td>
<td>-23.3</td>
<td>8.0</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">
Petroleum</td>
<td>-0.0</td>
<td>6.0</td>
<td>7.4</td>
<td>67.5</td>
<td>-44.0</td>
<td>37.0</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">
Nonpetroleum Goods</td>
<td>-0.7</td>
<td>3.2</td>
<td>1.9</td>
<td>21.1</td>
<td>-20.9</td>
<td>1.5</td>
<td>4.8</td>
</tr>
</tbody>
</table>

</html>

The latest and revised U.S. foreign trade figures paint the same picture as earlier. An April deficit of $40.3B, stable since February, followed deterioration from its shallowest last May. The latest figure roughly matched Consensus [...]

U.S. Trade Deficit Stable M/M But Sharply Deeper Since Last Year

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<a href="/comment/100610a_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610a.png"></a><a href="/comment/100610b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610b.png"></a>

The latest and revised
U.S. foreign trade figures paint the same picture as earlier. An April
deficit of $40.3B, stable since February, followed deterioration from
its shallowest last May. The latest figure roughly matched Consensus
expectations for a deficit of $41.0B.
The deficit's deterioration since last year
reflects the U.S. economic recovery. Non-oil imports slipped 0.7% in
April but it was the first monthly decline in nearly one year. The
21.1% y/y gain during the last twelve months reflects a two-thirds
increase in imports of automotive vehicles &amp; parts. Real
nonauto consumer goods imports rose 4.0% y/y while capital goods
imports jumped by nearly one-quarter with the strength in business
investment. Finally, services imports have risen 6.8% y/y. U.S. travels
abroad fell 0.7% y/y while passenger fares surged 15.0% y/y. "Other"
transportation services imports jumped 7.7% y/y. Imports of petroleum
products slipped marginally in April but were up by two-thirds from
last year with the surge in prices. 
Nominal exports slipped 0.7% during April
following their slightly-revised 3.8% jump during March. Year-to-year,
however, exports have risen a strong 19.9% with the dollar's lower
value. The monthly dip reflected a 5.3% drop in nonauto consumer goods
exports (+10.3% y/y) and a 7.6% drop in food &amp; beverages (+4.2%
y/y). These were offset by a 1.9% increase (50.3% y/y) in industrial
supplies exports and a 1.4% gain (+57.2% y/y) in autos. In addition,
exports of services rose 0.2% (8.0% y/y) as passenger fares were
strong. 
By country, the trade deficit with mainland China
deepened to $19.3B, its deepest since December. Trade with China surged
as exports jumped by one-quarter y/y and imports rose by a lesser
18.2%. The trade deficit with Japan eased to $4.8B but imports rose by
roughly one-third y/y with the U.S. economic recovery and exports rose
17.2% y/y. With the European Union the trade deficit eased to $5.7B as
exports rose 7.0% y/y and imports rose about the same.
The international trade data can be found in
Haver's USECON database. Detailed figures are
available in the USINT database.
<a href="/comment/100610c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610c.png"></a><a href="/comment/100610d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610d.png"></a>

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr>
<td class="firstcol">U.S.
Trade Deficit</td>
<td>$40.3B</td>
<td>$40.0B</td>
<td>$40.1B</td>
<td>$28.4B(4/09)</td>
<td>$378.6B</td>
<td>$695.9B</td>
<td>$701.4B</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports
- Goods &amp; Services (m/m)</td>
<td>-0.7%</td>
<td>3.8%</td>
<td>-0.1%</td>
<td>19.9%</td>
<td>-14.6%</td>
<td>11.5%</td>
<td>13.2%</td>
</tr>
<tr>
<td class="firstcol">Imports
- Goods &amp; Services</td>
<td>-0.4</td>
<td>2.9</td>
<td>2.8</td>
<td>23.9</td>
<td>-23.3</td>
<td>8.0</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">
Petroleum</td>
<td>-0.0</td>
<td>6.0</td>
<td>7.4</td>
<td>67.5</td>
<td>-44.0</td>
<td>37.0</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">
Nonpetroleum Goods</td>
<td>-0.7</td>
<td>3.2</td>
<td>1.9</td>
<td>21.1</td>
<td>-20.9</td>
<td>1.5</td>
<td>4.8</td>
</tr>
</tbody>
</table>
U.S. Initial Jobless
Insurance Claims Hover While Continuing Claims Plummet 
<a href="/comment/Moeller.html">Tom Moeller</a> June
10, 2010


<a href="/comment/100610e_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610e.png" align="left"></a>Job market improvement has
been scant this year after material gains during 2009. The Bureau of
Labor Statistics reported that initial claims for jobless insurance
slipped another 3,000 to 456,000 following a 4,000 decline the week
earlier which was less than initially reported. While the latest figure
was slightly lower than Consensus expectations for 448,000, claims have
been hovering near this cycle's low since January. Nevertheless, last
week's figure was down from the recession peak of 651,000 reached in
March of 2009. The four-week moving average of initial claims ticked up
to 463,000.
Continuing claims for unemployment insurance
during the latest week broke from their recent sideways movement and
dropped a sharp 255,000 to the lowest level since December of 2008.
Claims were down by one-third from the June '09 peak. The overall
decline is a function of the improved job market but also reflects the
exhaustion of 26 weeks of unemployment benefits. Continuing claims
provide an indication of workers' ability to find employment. The
four-week average of continuing claims at 4.618M remained near the
cycle low. This series dates back to 1966.&nbsp;
The above-mentioned decline in ongoing
claims does not reflect those who receive extended benefits. Extended
benefits for unemployment insurance rose sharply in the latest week to
394,380 and it was the highest level since November.&nbsp;These
figures do not include the 4.995 mil. benefit recipients under state
administered "EUC" emergency&nbsp;programs, but paid for by the
Federal government.
The insured unemployment rate dipped to 3.5% from
an upwardly-revised 3.7%. The rate reached a high of 4.9% during May of
2009. During the last ten years, there has been a 96% correlation
between the level of the insured unemployment rate and the overall rate
of unemployment published by the Bureau of Labor Statistics.&nbsp;
The highest insured unemployment rates in the
week ending May 22 were in Puerto Rico (6.2 percent), Alaska (5.5),
Oregon (5.3), California (4.8), Nevada (4.7), Pennsylvania (4.6), North
Carolina (4.3), Wisconsin (4.2), Connecticut (4.1), New Jersey (4.0),
and Rhode Island (4.0). The lowest insured unemployment rates were in
Virginia (1.8), Texas (2.1), Tennessee (2.5), Wyoming (2.5), Georgia
(2.9), Maryland (2.9), Ohio (2.9), Maine (2.9) Florida (3.0) and New
York (3.2). These data are not seasonally adjusted but the overall
insured unemployment rate is.
The unemployment insurance
claims data is available in Haver's WEEKLY database
and the state data is in the REGIONW database.
Fostering
Workforce Development is yesterday's speech by Fed Chairman
Ben S. Bernanke and it is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20100609a.htm">here</a>.

<a href="/comment/100610f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610f.png"></a><a href="/comment/100610g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610g.png"></a>
<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" ;="">Unemployment
Insurance (000s)</a></th>
<th scope="col">06/04/10</th>
<th scope="col">05/28/10</th>
<th scope="col">05/21/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>456</td>
<td>459</td>
<td>463</td>
<td>-233.6%</td>
<td>572</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,462</td>
<td>4,717</td>
<td>-31.8</td>
<td>5,809</td>
<td>3,340</td>
<td>2,549</td>
</tr>
<tr>
<td class="firstcol">Insured Unemployment Rate(%)</td>
<td>--</td>
<td>3.5</td>
<td>3.7</td>
<td>4.9 (6/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
Credit Market's Net Borrowing
Stabilizes in Q1, Following Year-Long Contraction 
<a href="/comment/Stone.html">Carol Stone</a> June
10, 2010



<a href="/comment/100610h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610h.png"></a><a href="/comment/100610i_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610i.png"></a>

Activity in U.S. credit markets
experienced a
relative recovery in Q1, as total liabilities contracted a mere $10.3
billion, SAAR.&nbsp; This was a sharp improvement from the $841.3
billion rate of shrinkage in Q4 2009 and the year's average reduction
of $610.6 billion.&nbsp; These debt aggregates come from the
Federal Reserve's flow-of-funds statistics reported today, June 10, for
Q1 2010.
By sector, the biggest change was in
nonfinancial corporations, which raised debt at a $289 billion annual
rate, turning around from the net paydown of $57 billion in
Q4.&nbsp; Companies had the largest amount of net commercial paper
issuance since Q3 of 2008 and the largest volume of net new corporate
bonds in a year. The federal government, as might be expected,
increased its debt issuance from $956 billion in Q4 to $1,446 billion
in Q1, both seasonally adjusted annual rates.&nbsp; 
Households, on the other hand, continued
paying down debt.&nbsp; Their home mortgage debt fell at a $390
billion rate and consumer credit at a $39 billion rate.&nbsp; With
some partial offsets in other borrowing, their total credit usage
dropped at a $330 billion pace.&nbsp; This contributed, as today's
press reports have noted, to a further gain in their net worth to $54.6
trillion on March 31 from $53.5 trillion at year-end.&nbsp; 
he financial sector extends its
contraction.&nbsp; The debt of commercial banks, finance companies
and specialized lenders fell at a $1,336 billion rate in Q1, a fifth
consecutive quarterly drop, albeit the smallest.&nbsp; The largest
was $2,293 billion in Q2 2009.&nbsp; Commercial banks and issuers
of asset-backed securities (ABS) had the largest paydowns of their own
debt among various financial institutions, and both of those, along
with money market funds, also continued to reduce their provision of
credit to their own customers.
The rest of the world borrowed modestly in U.S.
markets in Q1, $112 billion on balance.&nbsp; As investors, these
foreign participants in U.S. financing provided $663 billion in total
funds, more than accounted for by acquisition of Treasury
securities:&nbsp; official holdings increased at a $451 billion
annual rate and private foreign investors took on $339 billion
worth.&nbsp; There were obviously liquidations of several other
asset positions, especially including commercial paper and private
holdings of agency and GSE-backed securities.
The flow-of-funds data are in Haver's FFUNDS
database, and the series on Mortgage Equity Withdrawal are in USECON.
<a href="/comment/100610j_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610j.png"></a>
<a href="/comment/100610k_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610k.png"></a>

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstclass">Flow of Funds (Y/Y % Chg.)</th>
<th scope="col">% of Total Outstanding</th>
<th scope="col">Q1 '10
</th><th scope="col">4Q '09
</th><th scope="col">3Q '09
</th><th scope="col" colspan=3>End of Year
</th></tr></thead>
<tr class="grey2">
<td colspan=5>&nbsp;</td>
<td>2008</td>
<td>2007</td>
<td>2006</td>
</tr>
<tr>
<td class="firstcol">Total Credit Market Debt
Outstanding</td>
<td>100.0%</td>
<td>-1.5</td>
<td>-0.5</td>
<td>0.7</td>
<td>5.1</td>
<td>10.3</td>
<td>9.9</td>
</tr>
<tr class="odd">
<td class="firstcol">
Federal Government</td>
<td>15.9%</td>
<td>21.3</td>
<td>22.7</td>
<td>30.1</td>
<td>24.2</td>
<td>4.9</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">
Households</td>
<td>25.9%</td>
<td>-1.8</td>
<td>-1.7</td>
<td>-1.7</td>
<td>0.3</td>
<td>6.7</td>
<td>10.1</td>
</tr>
<tr class="odd">
<td class="firstcol">
Nonfinancial Corporate Business</td>
<td>13.8%</td>
<td>1.0</td>
<td>0.2</td>
<td>0.5</td>
<td>5.6</td>
<td>12.8</td>
<td>8.5</td>
</tr>
<tr>
<td class="firstcol">
Nonfarm, Noncorporate Business</td>
<td>6.7%</td>
<td>-8.3</td>
<td>-7.6</td>
<td>-5.1</td>
<td>5.3</td>
<td>14.2</td>
<td>14.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Sectors</td>
<td>28.7%</td>
<td>-12.0</td>
<td>-8.8</td>
<td>-5.8</td>
<td>5.6</td>
<td>13.4</td>
<td>10.0</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan=8>Trillions
of $</td>
</tr>
<tr>
<td class="firstcol">Net
Worth: Households &amp; Nonprofit Organizations</td>
<td>--</td>
<td>$54.565</td>
<td>$53.502</td>
<td>$52.974</td>
<td>$51,293</td>
<td>$64.358</td>
<td>$64.415</td>
</tr>
<tr class="odd">
<td class="firstcol">
Tangible Assets: Households</td>
<td>--</td>
<td>$22.994</td>
<td>$23.061</td>
<td>$23.081</td>
<td>$23.890</td>
<td>$28.037</td>
<td>$29.735</td>
</tr>
<tr>
<td class="firstcol">
Financial Assets: Households</td>
<td>--</td>
<td>$45.542</td>
<td>$44.510</td>
<td>$44.000</td>
<td>$41.668</td>
<td>$50.687</td>
<td>$48.124</td>
</tr>
<tr class="odd">
<td class="firstcol">
Total Liabilities: Households</td>
<td>--</td>
<td>$13.970</td>
<td>$14.068</td>
<td>$14.106</td>
<td>$14.265</td>
<td>$14.366</td>
<td>$13.444</td>
</tr>

</table>
U.S. Fiscal 'YTD Budget Deficit Narrows As
Receipt Decline Slows 
<a href="/comment/Moeller.html">Tom Moeller</a> June
10, 2010



<a href="/comment/100610e_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610l.png" align="left"></a>The Federal government ran
a budget deficit last month of $135.9B. The shortfall pulled the YTD
deficit to $935.6B but that was slightly diminished from the first
eight months of&nbsp; FY'09. The deficit's decline year-to-date is
in line with the latest projection from the Nat'l Association For
Business Economists of a diminished $1.310 trillion for 2010.
A slowing shortfall in net revenues during the
first eight months of FY'10 helped ease the deficit. Individual
income tax receipts fell 7.8% y/y as the unemployment rate remained
elevated. The rate of decline, however, continued lower than the peak
29.0% at the end of last year. Corporate tax receipts rose 17.5% 'YTD
versus the first eight months of last fiscal year with improved
corporate profits, and the gain is accelerating. Year-to-date,
employment taxes fell 4.4% (just lightly lower than the peak rate of
decline) but unemployment insurance tax receipts improved by 13.4%
versus the first eight months of last fiscal year. Estate &amp;
gift taxes fell by nearly one-quarter this fiscal year.
Overall, net outlays fell 3.5% so far this fiscal
year versus FY'09 as a commerce &amp; housing credit expired.
"Income security" spending (11% of outlays) continued to jump by
nearly&nbsp; one-quarter while defense spending (19% of total
outlays) rose 6.1%. Social Security payments (21% of outlays) rose 3.3%
and net interest payments (5% of outlays) rose 9.6%. Medicare
expenditures (12% of outlays) rose 5.1% and other health care services
spending (10% of outlays) rose 11.2%. 
The Government's financial data are available in
Haver's USECON database, with extensive detail
available in the specialized GOVFIN.
Fix Double Leverage Problem
from the American Enterprise Institute can be found here <a href="http://www.aei.org/article/102168">here</a>.
<a href="/comment/100610e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610m.png"></a>
<a href="/comment/100610e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610n.png"></a>

<table cellspacing="0" width="100">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> </th>
<th scope="col">May</th>
<th scope="col">FY 'YTD</th>
<th scope="col">FY 'YTD</th>
<th scope="col">FY 2009</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
</tr></thead>
<tr>
<td class="firstcol">Budget Balance</td>
<td>$-135.9B</td>
<td>$-935.6B</td>
<td>--</td>
<td>$-1,417.1B</td>
<td>$-454.8B</td>
<td>$-161.5B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$146.8B</td>
<td>$1,346.0B</td>
<td>-2.0%</td>
<td>-16.6%</td>
<td>-1.7%</td>
<td>6.7%</td>
</tr>
<tr>
<td class="firstcol">Net Outlays</td>
<td>$282.7B</td>
<td>$2,281.6B</td>
<td>-3.5%</td>
<td>18.2%</td>
<td>9.1%</td>
<td>2.8%</td>
</tr>

</table>
</html>

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Tian Yong Woon

In this week’s Letter, we cover the latest developments and implications of the Middle East conflict for Asia, while also making space for other important themes, including artificial intelligence (AI). The Middle East conflict remains in a no deal state coming out of the weekend, though some early Monday optimism emerged in Asian markets following Iran’s reported offer to reopen the Strait of Hormuz (chart 1). Nonetheless, as the Strait closure drags on, so too do the fiscal costs of domestic fossil fuel subsidies across Asia, which have been shown to move closely with crude oil prices (chart 2). While such measures offer direct relief by cushioning household energy costs, they remain difficult to sustain over the long haul.

Over the week, we also saw a further fraying in regional monetary policy trends, with the Philippines hiking its policy rate for the first time in about two years amid inflation concerns, while Indonesia stood pat on rates (chart 3). Investor attention is likely to remain fixed on monetary policy this week, with the Bank of Japan due to decide on policy. Expectations for an April hike have faded amid the persistent Middle East conflict, though yen weakness continues to present a source of concern (chart 4). The week also brings China’s latest PMI readings (chart 5), adding to the recent run of hard data accompanying the Q1 GDP release.

Beyond the Middle East conflict, the evolution of AI continues to demand close attention. Before geopolitical tensions took centre stage, AI was the dominant market narrative — and that enthusiasm has hardly faded. If anything, recent developments suggest the story is broadening: use cases are expanding, scalability is improving, and access is widening beyond large corporates to the mass market — increasingly spilling into the realm of physical AI. It may well be this persistent wave of optimism that is helping to underpin equity valuations, even as the geopolitical backdrop darkens (chart 6).

**The Middle East conflict**
About two months in, we remain stuck in the limbo of the US-Iran conflict, which has left the Strait of Hormuz largely closed and much of the world starved of the critical oil flows needed to power the global economy. The back and forth between the US and Iran has persisted in recent weeks, with both sides again failing to reach a peace deal over the weekend, though Monday’s news of Iran offering to reopen the Strait has revived some hope in markets. In truth, commodity and market valuations do not hinge so much on a peace deal itself, but rather on the resumption of oil flows through the Strait, something that could materialise even in the absence of a formal deal, though any agreement that includes and credibly delivers such a reopening would likely be warmly received by markets. Until then, market gyrations are likely to persist, with prices fluctuating in response to each new snippet of news. And until then, the world will continue both to be starved of, while gradually adapting to, the drip feed of oil flows emerging from the Strait.

260427T1.jpg

**The fiscal costs of the Middle East conflict**
As the Middle East conflict drags on, so too does the strain on fiscal resources across parts of Asia, as the costs of energy-related subsidy programmes continue to mount. While such programmes have an immediate, direct, and tangible impact in shielding households from surging energy costs, they are far from sustainable, particularly if oil prices remain well above targeted levels or stay elevated for an extended period. As chart 2 illustrates, the costs of these explicit subsidy programmes tend to rise closely with crude oil prices, as seen in India and Indonesia. Other measures adopted elsewhere, such as drawing down oil reserves, may be less fiscally costly, but are similarly difficult to sustain indefinitely. In both respects, the clock is ticking, and the world continues to hold its breath as the conflict drags on.

260427T2.jpg

**The latest central bank responses to the conflict**
Over the past week, Asia saw two central bank decisions. The Philippines’ (BSP) opted to deliver its first rate hike in about two years, while Indonesia’s (BI) chose to stand pat on policy rates and instead committed to stepped up FX intervention (chart 3). This latest round of decisions points to a further fraying of what had been a broad regional monetary policy consensus, namely that central banks would delay additional easing while maintaining a high bar for outright tightening. Domestic considerations, however, remain paramount. In the Philippines’ case, the central bank has moved to rein in inflation, which is already showing notable signs of price pass through stemming from disruptions linked to the Strait of Hormuz. That said, BSP is not the first in the region to buck the reluctance to tighten. Singapore’s central bank had already tightened policy in mid-April, albeit through its own distinct framework, given its use of the exchange rate rather than policy rates as the primary channel for monetary policy.

260427T3.jpg

**The week ahead**
Looking to the week ahead, a major central bank decision looms in Japan. Market expectations for the Bank of Japan to deliver a rate hike at its April meeting have ebbed amid the persistence of the Middle East conflict, to which Japan remains particularly vulnerable given its reliance on oil imports flowing through the Strait of Hormuz. At the same time, inflation in Japan has yet to become a major concern, with recent readings having picked up but not yet entering troubling territory. One potential source of concern, however, lies with the Japanese yen, which has remained on a weakening trend since early last year (chart 4). That depreciation has been one of the key arguments underpinning calls for further rate hikes.

260427T4.jpg

The week also brings China’s latest PMIs into focus. March saw a divergence between China’s official PMI readings, which improved, and the unofficial readings from RatingDog, which instead pulled back. Nonetheless, both official and unofficial gauges remained in expansionary territory (chart 5), with investors now watching closely to see whether that resilience can be sustained amid ongoing stresses from the Middle East, or whether offsetting drivers can continue to keep Chinese business sentiment and prospects buoyant.

260427T5.jpg

**Beyond the strait**
Moving beyond the Middle East conflict, a whole host of developments continue to unfold globally, many of which have in fact helped offset some of the pessimism wrought by the Strait’s chokehold. One such development is artificial intelligence (AI), which had dominated headlines before the outbreak of the conflict and continues to advance at breakneck pace. AI capabilities are still rapidly evolving, while practical applications, such as physical AI embodied in humanoid robots, are beginning to show broader and stronger use cases. Production of such robots is also becoming increasingly scalable and within reach not just for industrial complexes and healthcare, but for the mass market as well. It is perhaps growing optimism around these prospects that has helped keep equity valuations buoyant, even in the face of the festering conflict in the Middle East. Moreover, while concerns over AI-driven job displacement persist, new opportunities are emerging as well, particularly for AI adopters, with a growing share of job postings in Western economies increasingly referencing AI-related skills, as shown in chart 6.

260427T6.jpg

Asia

Economic Letter from Asia: Not Just About the Strait

260424E.jpg

The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

260424.jpg

Germany

German Ifo Plunges Everywhere

Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

260423Z1.jpg

**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

260423Z2.jpg

**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

260423Z3.jpg

**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

260423Z4.jpg

**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

260423Z5.jpg

**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

260423Z6.jpg

Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/44A12ktUaoJGHZG7pEVcul?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Risks Build, Markets Shrug

Sandy Batten

260423F8.jpg

260423G8.jpg

The National Activity Index published by the Federal Reserve Bank of Chicago (CFNAI) slipped to -0.20 in March from an upwardly revised +0.03 in February (previously (-0.11). This is the lowest monthly reading since last November. Smoothing out the monthly volatility, the index's three-month moving average (CFNAI-MA3) declined to -0.03 in March from an upwardly revised +0.03 in February (previously -0.01).

This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that readings on the 3-month average of -0.70 or below are consistent with the economy being in a recession. Therefore, even though the March reading on the 3-month average was negative, it indicates that the US economy is still growing, just slightly slower than trend, and is well away from recessionary conditions. The 3-month average would be much deeper in negative territory if the economy was at risk of contracting.

The National Activity Index is a composite of 85 economic indicators, grouped into four major categories: production and income; employment, unemployment, and hours worked; personal consumption and housing; sales, orders, and inventories. Three of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. Production-related indicators contributed –0.20 to the CFNAI in March, down from +0.13 in February. The sales, orders, and inventories category's contribution to the CFNAI was –0.01 in March, down from +0.05 in February. Employment-related indicators contributed +0.02 to the CFNAI in March, up from –0.15 in February. The personal consumption and housing category's contribution to the CFNAI was –0.01 in March, down from a neutral value in February.

The CFNAI Diffusion Index, which measures the breadth of the change in the component series and is also a three-month moving average, increased to –0.04 in March from –0.08 in February. This is the highest reading since February 2025. A reading of zero indicates that all of the indicators are growing at their long-term average. If all of the underlying indicators in a given month are below their long-run averages, the diffusion index will equal -1. If all of the indicators are above their long-run averages, it will equal +1. Thirty-four of the 85 individual indicators made positive contributions to the CFNAI in March, while 51 made negative contributions. Forty-three indicators improved from February to March, while 40 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions.

These figures are available in Haver's **SURVEYS** database.

- The monthly reading fell to -0.20 in March from an upwardly revised +0.03 in February.
- The three-month average slipped from +0.03 to -0.03.
- Despite the slip in March, the index points to near-trend economic growth and is well above recession territory.

Chicago Fed National Activity Index Slipped in March

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose by 6,000 to 214,000 in the week ending April 18, from 208,000 in the week ending April 11, revised from 207,000. The four-week average rose 750 to 210,750 in the week ending April 18, from 210,000 the April 11 week, revised from 209,750. The Action Economics/Haver Analytics Survey looked for 210,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 12,000 to 1.821 million in the week ending April 11, from 1.809 million in the week ending April 4. The four-week moving average rose to 1.812 million in the latest week from 1.811 million in the March 28 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 4, the highest unemployment rates were in New Jersey (2.51%), Massachusetts (2.37%), Rhode Island (2.31%), Washington (2.25%), Minnesota (2.11%), and California (2.02%). The lowest rates were in Florida (0.30%), Louisiana (0.31%), Arkansas (0.35%), Alabama (0.36%), North Carolina (0.39%), Tennessee (0.46%), South Dakota (0.47%), Kansas and Virginia (both 0.49%). Rates in other notable states include New York (1.92%), Illinois (1.82%), Pennsylvania (1.52%), and Texas (1.04%). 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.

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- New claims rose by 6,000 to 214,000.
- Continuing claims rose by 12,000 to 1.821 million.
- The insured unemployment rate remained at 1.2%.


Economy in Brief

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