Robert Brusca

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Orders growth has recovered substantially in Germany and in
France. Despite the recovery in orders, with the rebounding rates of
orders growth, the level of orders is still some 20% to 30% below their
respective cycle highs for France and Italy.
Germany posted some very strong orders. France and Italy, too,
have posted some degree of orders strength in March. While France&#8217;s
jump of 6.5% in one month seems very impressive (better than a 100%
annual rate) orders in France still are rebounding from a 10.9% drop in
January. As a result French orders are still falling on balance over
three-months even with this strong monthly rebound. So are orders in
Italy.
Europe is certainly due for some kick to growth as the euro
has fallen over the past year and plunged sharply over the past few
months. But the persisting weakness in European stocks speaks to a loss
of confidence. In part the Greek stimulus plan is not fully funded and
is awaiting some final votes from Germany to disburse funds. In part it
is the still uncooperative tone in Greece where further strikes are
planned to protest austerity. In part it is due to concern that,
despite all the reluctance to obey the rule of austerity, the fiscal
consolidation will prove to be too great to allow European growth to
press ahead.
It is these two conflicting ideas that are driving markets
into a frenzy, even though they are at odds with each other. Which is
it? Are countries going to avoid austerity and not do the right thing?
Or, are countries going to be so virtuous with fiscal controls that
consolidation will prove to be a load too-heavy and cause growth to be
set back? Or is there a middle ground with a more positive result? We
have seen recent improvements in the US and European economic reports.
Reports with expectations components have shown some of the weakest
recent readings. Barometers of current activity have been strong,
especially in the UK just outside the Euro-Area
I think we are in a region of political economic uncertainty.
Markets are not happy with the stewardship of our political or economic
direction in recent years. The private sector has failed us too. It is
no wonder that markets feel like taking no prisoners. But it&#8217;s also
true that at the end of the day the markets know that stock indices
have come a long way from their recession bottoms, that interest rates
had crept up and are now lower as a result of this sell-off, that
central banks are not eager to tighten but are planning to discharge
their responsibilities, that &#8211; at the end of the day- inflation has
remained under wraps. The blow-off in commodity prices that had run
well ahead of reality is a welcome event (unless you were long, of
course). As we go over the final technical hurdles to get money to
Greece (and to thereby protect exposed German and French banks with
Greek paper on their balance sheets) we can expect things to settle
down and for markets to pay attention of fundamentals again. It&#8217;s not
just pabulum from a policymaker looking to calm markets. It&#8217;s true. The
fundamentals are good. Even with the high debt-to-GDP levels the
problems are tractable.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td style="font-weight: bold;" class="firstcol">Saar
exept m/m</td>
<td style="font-weight: bold;">Mar-10</td>
<td style="font-weight: bold;">Feb-10</td>
<td style="font-weight: bold;">Jan-10</td>
<td style="font-weight: bold;">3-mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>-2.8%</td>
<td>-8.7%</td>
<td>12.7%</td>
<td>9.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foreign</td>
<td>1.8%</td>
<td>-0.5%</td>
<td>-2.3%</td>
<td>-4.1%</td>
<td>22.0%</td>
<td>21.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Domestic</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>-3.1%</td>
<td>-11.1%</td>
<td>7.7%</td>
<td>3.0%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>1.5%</td>
<td>-2.6%</td>
<td>2.6%</td>
<td>6.2%</td>
<td>8.3%</td>
<td>6.3%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">French Orders</td>
</tr>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>Mar-10</td>
<td>Feb-10</td>
<td>Jan-10</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6.5%</td>
<td>-1.0%</td>
<td>-10.9%</td>
<td>-22.4%</td>
<td>2.2%</td>
<td>10.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>2.9%</td>
<td>1.0%</td>
<td>-8.7%</td>
<td>-19.1%</td>
<td>26.7%</td>
<td>28.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">IP xConstruct</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
</body></html>

Orders growth has recovered substantially in Germany and in France. Despite the recovery in orders, with the rebounding rates of orders growth, the level of orders is still some 20% to 30% below their respective cycle highs for France [...]

UK Trade Deficit Worsens As Exports Lag Imports

Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
For last week, the Bureau of Labor Statistics reported that
initial claims for jobless insurance rose 25,000 to 471,000 following
declines during the prior five weeks. The latest disappointed Consensus
expectations for 440,000 claims. Even the earlier week's level was
revised up modestly. Still, claims remained near this cycle's lowest.
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
increased slightly to 453,500.
The latest claims figure covers the survey week for May
nonfarm payrolls. Claims fell 7,500 (-1.6%) from the April survey
period. During the last ten years there has been an 80% correlation
(inverse) between the level of initial claims and the m/m change in
nonfarm payrolls.
A 40,000 decline in continuing claims for unemployment
insurance during the latest week reversed the prior week's increase.
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 4.643M remained near the
cycle low. This series dates back to 1966.
Extended benefits for unemployment insurance rose w/w to
240,260. However, they were down by three-quarters from a peak of
597,688 reached in November.
The insured unemployment rate remained at 3.6% where it has
been since mid-February. 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.
The highest insured unemployment rates in the week ending May
1 were in Alaska (6.4%), Puerto Rico (6.0), Oregon (5.6), Nevada (5.0),
California (4.9), Pennsylvania (4.6), Wisconsin (4.6), Montana (4.5),
Idaho (4.4), North Carolina (4.4), and Washington (4.4). The lowest
insured unemployment rates were in Virginia (1.7), Texas (2.2), Georgia
(2.8), Maryland (2.9), Wyoming (3.0), Florida (3.1), Ohio (3.1), New
York (3.3) and Maine (3.4). 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.
The impact of low-skilled immigration on the youth
labor market from the Board of Governors can be found here <a href="http://www.federalreserve.gov/pubs/feds/2010/201003/201003abs.html">here.</a>

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520c.jpg" style="width: 312px; height: 265px;">
<table border="0" 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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">05/15/10</th>
<th scope="col">05/08/10</th>
<th scope="col">05/01/10</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 class="odd">
<td class="firstcol">Initial Claims</td>
<td>471</td>
<td>446</td>
<td>446</td>
<td>-24.6%</td>
<td>572</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,625</td>
<td>4,665</td>
<td>-28.3</td>
<td>5,809</td>
<td>3,340</td>
<td>2,549</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.6</td>
<td>3.6</td>
<td>4.9 (5/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

For last week, the Bureau of Labor Statistics reported that initial claims for jobless insurance rose 25,000 to 471,000 following declines during the prior five weeks. The latest disappointed Consensus expectations for 440,000 claims. [...]

U.S. Initial Jobless Insurance Claims Rise Unexpectedly

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
For last week, the Bureau of Labor Statistics reported that
initial claims for jobless insurance rose 25,000 to 471,000 following
declines during the prior five weeks. The latest disappointed Consensus
expectations for 440,000 claims. Even the earlier week's level was
revised up modestly. Still, claims remained near this cycle's lowest.
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
increased slightly to 453,500.
The latest claims figure covers the survey week for May
nonfarm payrolls. Claims fell 7,500 (-1.6%) from the April survey
period. During the last ten years there has been an 80% correlation
(inverse) between the level of initial claims and the m/m change in
nonfarm payrolls.
A 40,000 decline in continuing claims for unemployment
insurance during the latest week reversed the prior week's increase.
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 4.643M remained near the
cycle low. This series dates back to 1966.
Extended benefits for unemployment insurance rose w/w to
240,260. However, they were down by three-quarters from a peak of
597,688 reached in November.
The insured unemployment rate remained at 3.6% where it has
been since mid-February. 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.
The highest insured unemployment rates in the week ending May
1 were in Alaska (6.4%), Puerto Rico (6.0), Oregon (5.6), Nevada (5.0),
California (4.9), Pennsylvania (4.6), Wisconsin (4.6), Montana (4.5),
Idaho (4.4), North Carolina (4.4), and Washington (4.4). The lowest
insured unemployment rates were in Virginia (1.7), Texas (2.2), Georgia
(2.8), Maryland (2.9), Wyoming (3.0), Florida (3.1), Ohio (3.1), New
York (3.3) and Maine (3.4). 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.
The impact of low-skilled immigration on the youth
labor market from the Board of Governors can be found here <a href="http://www.federalreserve.gov/pubs/feds/2010/201003/201003abs.html">here.</a>

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520c.jpg" style="width: 312px; height: 265px;">
<table border="0" 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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a></th>
<th scope="col">05/15/10</th>
<th scope="col">05/08/10</th>
<th scope="col">05/01/10</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 class="odd">
<td class="firstcol">Initial Claims</td>
<td>471</td>
<td>446</td>
<td>446</td>
<td>-24.6%</td>
<td>572</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,625</td>
<td>4,665</td>
<td>-28.3</td>
<td>5,809</td>
<td>3,340</td>
<td>2,549</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.6</td>
<td>3.6</td>
<td>4.9 (5/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
UK Trade Deficit Worsens As
Exports Lag Imports 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 20, 2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Orders growth has recovered substantially in Germany and in
France. Despite the recovery in orders, with the rebounding rates of
orders growth, the level of orders is still some 20% to 30% below their
respective cycle highs for France and Italy.
Germany posted some very strong orders. France and Italy, too,
have posted some degree of orders strength in March. While France&#8217;s
jump of 6.5% in one month seems very impressive (better than a 100%
annual rate) orders in France still are rebounding from a 10.9% drop in
January. As a result French orders are still falling on balance over
three-months even with this strong monthly rebound. So are orders in
Italy.
Europe is certainly due for some kick to growth as the euro
has fallen over the past year and plunged sharply over the past few
months. But the persisting weakness in European stocks speaks to a loss
of confidence. In part the Greek stimulus plan is not fully funded and
is awaiting some final votes from Germany to disburse funds. In part it
is the still uncooperative tone in Greece where further strikes are
planned to protest austerity. In part it is due to concern that,
despite all the reluctance to obey the rule of austerity, the fiscal
consolidation will prove to be too great to allow European growth to
press ahead.
It is these two conflicting ideas that are driving markets
into a frenzy, even though they are at odds with each other. Which is
it? Are countries going to avoid austerity and not do the right thing?
Or, are countries going to be so virtuous with fiscal controls that
consolidation will prove to be a load too-heavy and cause growth to be
set back? Or is there a middle ground with a more positive result? We
have seen recent improvements in the US and European economic reports.
Reports with expectations components have shown some of the weakest
recent readings. Barometers of current activity have been strong,
especially in the UK just outside the Euro-Area
I think we are in a region of political economic uncertainty.
Markets are not happy with the stewardship of our political or economic
direction in recent years. The private sector has failed us too. It is
no wonder that markets feel like taking no prisoners. But it&#8217;s also
true that at the end of the day the markets know that stock indices
have come a long way from their recession bottoms, that interest rates
had crept up and are now lower as a result of this sell-off, that
central banks are not eager to tighten but are planning to discharge
their responsibilities, that &#8211; at the end of the day- inflation has
remained under wraps. The blow-off in commodity prices that had run
well ahead of reality is a welcome event (unless you were long, of
course). As we go over the final technical hurdles to get money to
Greece (and to thereby protect exposed German and French banks with
Greek paper on their balance sheets) we can expect things to settle
down and for markets to pay attention of fundamentals again. It&#8217;s not
just pabulum from a policymaker looking to calm markets. It&#8217;s true. The
fundamentals are good. Even with the high debt-to-GDP levels the
problems are tractable.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td style="font-weight: bold;" class="firstcol">Saar
exept m/m</td>
<td style="font-weight: bold;">Mar-10</td>
<td style="font-weight: bold;">Feb-10</td>
<td style="font-weight: bold;">Jan-10</td>
<td style="font-weight: bold;">3-mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>-2.8%</td>
<td>-8.7%</td>
<td>12.7%</td>
<td>9.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foreign</td>
<td>1.8%</td>
<td>-0.5%</td>
<td>-2.3%</td>
<td>-4.1%</td>
<td>22.0%</td>
<td>21.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Domestic</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>-3.1%</td>
<td>-11.1%</td>
<td>7.7%</td>
<td>3.0%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>1.5%</td>
<td>-2.6%</td>
<td>2.6%</td>
<td>6.2%</td>
<td>8.3%</td>
<td>6.3%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">French Orders</td>
</tr>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>Mar-10</td>
<td>Feb-10</td>
<td>Jan-10</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6.5%</td>
<td>-1.0%</td>
<td>-10.9%</td>
<td>-22.4%</td>
<td>2.2%</td>
<td>10.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>2.9%</td>
<td>1.0%</td>
<td>-8.7%</td>
<td>-19.1%</td>
<td>26.7%</td>
<td>28.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">IP xConstruct</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
U.S. Leading Economic Indicators
Slip 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 20,2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Following twelve consecutive monthly increases, the Conference
Board's Index of Leading Economic Indicators declined during April. The
index slipped 0.1% after a downwardly revised 1.3% March gain. The
three-month rate of increase also slipped to 6.5% (AR), its weakest in
roughly one year. The leading index is based on actual reports for
eight economic data series. The Conference Board initially estimates
two series, consumer and capital goods orders.
The breadth of increase amongst the component leading series
fell to its lowest since March of last year. Prominent in last month's
index decline were lower building permits, quicker vendor performance,
lower money supply growth and higher initial claims for unemployment
insurance. Just four of the ten components rose. These included higher
capital goods orders, a steeper interest rate yield curve, higher stock
prices and a longer workweek.
The index of coincident indicators rose 0.3%, the strongest
monthly gain since November. The three-month change of 2.0% was near
its high of late last year. Increases in all four of the component
series including industrial production, real personal income, business
sales and payroll employment contributed to last month's increase.
The lagging index rose slightly for the third month since
January 2009. Higher C&amp;I loans accounted for most of the
increase. The ratio of coincident-to-lagging indicators (another
leading indicator) rose slightly to the highest level since July, 2008.
The Conference Board figures are available in Haver's BCI
database. Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world. The latest
U.S. Leading Indicators release can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/acrawl.pdf">here</a>.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520f.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520g.jpg" style="width: 312px; height: 265px;">
<table border="0" 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/BCI/BCI.HTM" style="color: black;">Business Cycle Indicators</a>
(%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Dec. 6-Month % (AR)</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">Leading</td>
<td>-0.1</td>
<td>1.3</td>
<td>0.4</td>
<td>10.6</td>
<td>0.5</td>
<td>-2.7</td>
<td>-0.2</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3</td>
<td>0.1</td>
<td>0.1</td>
<td>1.4</td>
<td>-5.1</td>
<td>-1.2</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1</td>
<td>0.1</td>
<td>0.2</td>
<td>-2.9</td>
<td>-1.6</td>
<td>3.2</td>
<td>3.0</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Increases
As Shipments Rise 
by <a href="/comment/Moeller.html">Tom
Moeller</a>May 20, 2010 


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520h.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
The economic recovery continued this month according to the
Philadelphia Federal Reserve Bank. It indicated that its May index of
regional factory sector activity rose for the fourth consecutive month
to the second highest level since early-2005. At 21.4 the index roughly
matched Consensus expectations and has been positive since the summer.
The latest figure compared to those near -40.0 at the recent
recession's weakest.
During the last ten years there has been a 75% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 73% correlation with q/q growth in real GDP. The latest
survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0510.pdf">here.</a>
Improved shipments powered the June index gain. It was
accompanied by higher new orders. Factory payrolls, however, eased but
still showed net-hiring for the sixth straight month. During the last
ten years, there has been a 90% correlation between the index level and
the three-month change in manufacturing sector payrolls.
The prices paid index slipped from the recent high. During the
last ten years there has been a 66% correlation between the prices paid
index and the three-month growth in the intermediate goods PPI. There
has been an 77% correlation with the change in core intermediate goods
prices.
The separate index of expected business conditions in six
months also fell, to the lowest level since April of last year.
Expected prices paid also fell to the lowest level since last August.
Expected capital expenditures also fell m/m and were well below the
February high.
The figures from the Philadelphia Federal Reserve can be found
in Haver's SURVEYS database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520i.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520j.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May '09</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">General Activity Index</td>
<td>21.4</td>
<td>20.2</td>
<td>18.9</td>
<td>-21.7</td>
<td>-7.6</td>
<td>-21.4</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>6.1</td>
<td>13.9</td>
<td>9.3</td>
<td>-23.2</td>
<td>-9.7</td>
<td>-14.7</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Shipments</td>
<td>15.8</td>
<td>5.6</td>
<td>13.6</td>
<td>-18.7</td>
<td>-8.0</td>
<td>-9.2</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Delivery Times</td>
<td>-1.2</td>
<td>5.4</td>
<td>7.9</td>
<td>-19.1</td>
<td>-15.3</td>
<td>-10.6</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Number of Employees</td>
<td>3.2</td>
<td>7.3</td>
<td>8.4</td>
<td>-29.8</td>
<td>-23.8</td>
<td>-8.8</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>-7.9</td>
<td>2.0</td>
<td>-11.0</td>
<td>-27.8</td>
<td>-24.0</td>
<td>-16.7</td>
<td>-3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index</td>
<td>35.5</td>
<td>42.7</td>
<td>38.6</td>
<td>-23.8</td>
<td>-3.9</td>
<td>36.3</td>
<td>26.3</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Initial Jobless InsuranceClaims Rise Unexpectedly

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<img align="left" alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;">
Moderate economic improvement since the middle of last year has done nothing to improve retail pricing power. The Consumer Price Index for April fell 0.1% (+2.2% y/y) and reversed a modest 0.1% uptick in March. The latest figure fell short of Consensus expectations for a 0.1% gain. Moreover, continuing weak was the 0.5% (AR) CPI increase so far this year.
A 1.4% drop in energy prices was behind much of last month&#39;s total decline, the third consecutive monthly slip. A 4.4% drop (-2.9% y/y) in natural gas prices led the decline followed by a 2.4% drop in gasoline prices (+38.3% y/y). Higher fuel oil prices (28.0% y/y) offset much of these declines along with an uptick in electricity costs (0.6% y/y).
Core consumer prices also were weak. They were unchanged for the second consecutive month. A 0.1% increase had been expected and prices have gained just 0.1% since October. Core goods prices led the weakness with a 0.3% decline, the third consecutive monthly shortfall. Lower apparel prices fell by a sharp 0.7% (-0.9% y/y) while prices of home furnishings &amp; operation declined by 0.5% (-2.8% y/y). New &amp; used motor vehicles prices rounded off the weakness and slipped 0.2% (+4.9% y/y). Tobacco prices nudged up 0.1% (6.1% y/y).
Core services prices strengthened marginally and rose 0.2% (0.9% y/y). That improvement was led by a quickened 1.7% increase (8.4% y/y) in the cost of public transportation. The 0.3% increase in recreation prices also was a bit improved (-0.4% y/y). Elsewhere, weakness in the housing market left shelter prices unchanged and down 0.6% y/y. Owners equivalent rent of primary residences, a measure not equivalent to other house price measures, slipped again m/m (-0.2% y/y). The slight y/y decline in this measure was the weakest reading since the series&#39; start in 1983. Elsewhere in services, education costs rose 0.5% (5.0% y/y) and medical care services prices again rose 0.3% (3.7% y/y).
Food &amp; beverage prices again firmed a bit by 0.2% and the y/y gain of 0.5% was improved from late-last year&#39;s low of -0.5%. Dairy prices firmed by 0.1% y/y versus the 10.4% decline last summer. Also showing less deflation were prices for meats, poultry, fish &amp; eggs (-0.2% y/y) but cereal &amp; bakery product prices continued weak (-0.9% y/y). Fruit &amp; vegetable prices slipped m/m but the 1.8% y/y increase is improved from a 6.5% decline as of last summer. Finally, the cost of eating out rose just 1.1% y/y, a record low increase, while alcoholic beverage prices also rose just 1.2% y/y, the least since 1995.
The chained CPI, which adjusts for shifts in consumption patterns, eased last month and rose 2.3% year-to-year. Chained prices less food &amp; energy gained just 0.6% y/y.
The consumer price data is available in Haver&#39;s USECON database while detailed figures can be found in the CPIDATA database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519c.jpg" style="width: 312px; height: 265px;">
<table border="0" 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/@E8/@E801/@E80101/@E80101.HTM" style="color: white;">Consumer Price Index</a> (%)</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&nbsp;</td>
<td>-0.1</td>
<td>0.1</td>
<td>0.0</td>
<td>2.2</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.0</td>
<td>0.1</td>
<td>1.0</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.3</td>
<td>-0.1</td>
<td>-0.1</td>
<td>1.2</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>0.9</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>-1.4</td>
<td>-0.0</td>
<td>-0.5</td>
<td>18.0</td>
<td>-18.1</td>
<td>13.7</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.2</td>
<td>0.2</td>
<td>0.0</td>
<td>0.5</td>
<td>1.9</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr class="grey1">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.2</td>
<td>0.4</td>
<td>-0.0</td>
<td>2.3</td>
<td>-0.1</td>
<td>3.7</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>0.6</td>
<td>1.5</td>
<td>2.0</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Moderate economic improvement since the middle of last year has done nothing to improve retail pricing power. The Consumer Price Index for April fell 0.1% (+2.2% y/y) and reversed a modest 0.1% uptick in March. The latest figure fell [...]

U.S. CPI: Broad-Based Weakness Is Behind Slight M/M Decline

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Industrial output in Japan soared in March but could not stave
off an erosion in the Yr/Yr rate of growth. Output was up by 1.2% m/m
across the major sectors. But that followed a result in February that
was less than stellar, headlined by a 0.6% drop in IP.
The sequential growth rates in the table show growth at a
Yr/Yr pace of 29.9%, a six month annualized pace of 25.6% and a
three-month annualized pace of 20.9%. While the growth rates
progressively step lower they are still way too elevated to be
sustainable. While there is still a lot of slack in Japan&#8217;s economy
some deceleration in the growth rates is just what the economy needs to
keep its expansion on the &#8216;long track&#8217; which is better than the &#8216;fast
track.&#8217;
Yesterday Japan reported its service sector index took a large
step back from the previous month&#8217;s value. That sort of step back is
more worrisome. Japan, the US, and Europe need to drive their
respective service sectors to better results. That sector is where the
jobs are and that sector has been growing painfully slowly across
countries.
Manufacturing continues to do well in the global economy.
Japan is farther from making a full recovery that Europe or the US but
it is pushing hard on the recovery path. This month&#8217;s IP report is a
good one.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">Japan
Industrial Production Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="3">m/m %</td>
<td style="font-weight: bold;" colspan="3">Saar %</td>
<td style="font-weight: bold;">Yr/Yr</td>
<td style="font-weight: bold;" colspan="1" rowspan="2">Qtr-2 Date %AR&nbsp;</td>
<td style="font-weight: bold;" colspan="1" rowspan="2"> % 0f 
Cycle &nbsp;Peak&nbsp;</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">seas adjusted</td>
<td style="font-weight: bold;">Mar 10</td>
<td style="font-weight: bold;">Feb 10</td>
<td style="font-weight: bold;">Jan 10</td>
<td style="font-weight: bold;">3-mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
<td style="font-weight: bold;">Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Mining &amp;
MFG</td>
<td>1.2%</td>
<td style="color: red;">-0.6%</td>
<td>4.3%</td>
<td>20.9%</td>
<td>25.6%</td>
<td>29.9%</td>
<td style="color: red;">-32.8%</td>
<td>30.9%</td>
<td>86.1%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>1.2%</td>
<td style="color: red;">-1.1%</td>
<td>4.6%</td>
<td>20.3%</td>
<td>24.9%</td>
<td>28.9%</td>
<td style="color: red;">-32.0%</td>
<td>30.5%</td>
<td>86.5%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>1.2%</td>
<td style="color: red;">-0.6%</td>
<td>4.3%</td>
<td>20.9%</td>
<td>25.6%</td>
<td>30.0%</td>
<td style="color: red;">-33.0%</td>
<td>30.9%</td>
<td>86.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Textiles</td>
<td>1.2%</td>
<td style="color: red;">-2.6%</td>
<td>3.8%</td>
<td>9.4%</td>
<td>4.9%</td>
<td>2.1%</td>
<td style="color: red;">-23.1%</td>
<td>8.1%</td>
<td>72.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; T-port</td>
<td>1.2%</td>
<td>0.8%</td>
<td>12.2%</td>
<td>71.5%</td>
<td>59.5%</td>
<td>87.0%</td>
<td style="color: red;">-53.9%</td>
<td>88.5%</td>
<td>83.1%</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td colspan="10" class="firstcol">Product Group</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Consumer Gds</td>
<td>3.0%</td>
<td style="color: red;">-3.4%</td>
<td>0.9%</td>
<td>1.6%</td>
<td>8.9%</td>
<td>20.1%</td>
<td style="color: red;">-24.6%</td>
<td>4.9%</td>
<td>87.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Intermediate Gds</td>
<td style="color: red;">-0.6%</td>
<td style="color: red;">-0.2%</td>
<td>6.5%</td>
<td>24.8%</td>
<td>32.0%</td>
<td>43.6%</td>
<td style="color: red;">-37.6%</td>
<td>45.9%</td>
<td>89.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Investment Gds</td>
<td>2.0%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>51.2%</td>
<td>34.6%</td>
<td>15.9%</td>
<td style="color: red;">-31.4%</td>
<td>47.6%</td>
<td>76.3%</td>
</tr>
<tr>
<td class="firstcol">Miining</td>
<td>0.1%</td>
<td>3.3%</td>
<td>1.1%</td>
<td>19.2%</td>
<td style="color: red;">-8.6%</td>
<td>1.4%</td>
<td style="color: red;">-9.1%</td>
<td>14.1%</td>
<td>87.9%</td>
</tr>
<tr>
<td class="firstcol">Electric&amp;Gas</td>
<td>-0.9%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>14.3%</td>
<td>20.2%</td>
<td>7.8%</td>
<td style="color: red;">-7.5%</td>
<td>19.3%</td>
<td>94.5%</td>
</tr>
</tbody>
</table>
</body></html>

Industrial output in Japan soared in March but could not stave off an erosion in the Yr/Yr rate of growth. Output was up by 1.2% m/m across the major sectors. But that followed a result in February that was less than stellar, [...]

Japan’s IP Growth Rates Level Out And Decay

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Moderate economic improvement since the middle of last year
has done nothing to improve retail pricing power. The Consumer Price
Index for April fell 0.1% (+2.2% y/y) and reversed a modest 0.1% uptick
in March. The latest figure fell short of Consensus expectations for a
0.1% gain. Moreover, continuing weak was the 0.5% (AR) CPI increase so
far this year.
A 1.4% drop in energy prices was behind
much of last month's total decline, the third consecutive monthly slip.
A 4.4% drop (-2.9% y/y) in natural gas prices led the decline followed
by a 2.4% drop in gasoline prices (+38.3% y/y). Higher fuel oil prices
(28.0% y/y) offset much of these declines along with an uptick in
electricity costs (0.6% y/y).
Core consumer prices also were weak. They
were unchanged for the second consecutive month. A 0.1% increase had
been expected and prices have gained just 0.1% since October. Core
goods prices led the weakness with a 0.3% decline, the third
consecutive monthly shortfall. Lower apparel prices fell by a sharp
0.7% (-0.9% y/y) while prices of home furnishings &amp; operation
declined by 0.5% (-2.8% y/y). New &amp; used motor vehicles prices
rounded off the weakness and slipped 0.2% (+4.9% y/y). Tobacco prices
nudged up 0.1% (6.1% y/y).
Core services prices strengthened
marginally and rose 0.2% (0.9% y/y). That improvement was led by a
quickened 1.7% increase (8.4% y/y) in the cost of public
transportation. The 0.3% increase in recreation prices also was a bit
improved (-0.4% y/y). Elsewhere, weakness in the housing market left
shelter prices unchanged and down 0.6% y/y. Owners equivalent rent of
primary residences, a measure not equivalent to other house price
measures, slipped again m/m (-0.2% y/y). The slight y/y decline in this
measure was the weakest reading since the series' start in 1983.
Elsewhere in services, education costs rose 0.5% (5.0% y/y) and medical
care services prices again rose 0.3% (3.7% y/y).
Food &amp; beverage prices again firmed
a bit by 0.2% and the y/y gain of 0.5% was improved from late-last
year's low of -0.5%. Dairy prices firmed by 0.1% y/y versus the 10.4%
decline last summer. Also showing less deflation were prices for meats,
poultry, fish &amp; eggs (-0.2% y/y) but cereal &amp; bakery
product prices continued weak (-0.9% y/y). Fruit &amp; vegetable
prices slipped m/m but the 1.8% y/y increase is improved from a 6.5%
decline as of last summer. Finally, the cost of eating out rose just
1.1% y/y, a record low increase, while alcoholic beverage prices also
rose just 1.2% y/y, the least since 1995.
The chained CPI, which adjusts for shifts in consumption
patterns, eased last month and rose 2.3% year-to-year. Chained prices
less food &amp; energy gained just 0.6% y/y.
The consumer price data is available in Haver's USECON
database while detailed figures can be found in the CPIDATA
database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519c.jpg" style="width: 312px; height: 265px;">
<table border="0" 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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> 
(%)</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&nbsp;</td>
<td>-0.1</td>
<td>0.1</td>
<td>0.0</td>
<td>2.2</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.0</td>
<td>0.1</td>
<td>1.0</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>-0.3</td>
<td>-0.1</td>
<td>-0.1</td>
<td>1.2</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>0.9</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>-1.4</td>
<td>-0.0</td>
<td>-0.5</td>
<td>18.0</td>
<td>-18.1</td>
<td>13.7</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.2</td>
<td>0.2</td>
<td>0.0</td>
<td>0.5</td>
<td>1.9</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.2</td>
<td>0.4</td>
<td>-0.0</td>
<td>2.3</td>
<td>-0.1</td>
<td>3.7</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>0.6</td>
<td>1.5</td>
<td>2.0</td>
<td>1.9</td>
</tr>
</tbody>
</table>
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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Moderate economic improvement since the middle of last year
has done nothing to improve retail pricing power. The Consumer Price
Index for April fell 0.1% (+2.2% y/y) and reversed a modest 0.1% uptick
in March. The latest figure fell short of Consensus expectations for a
0.1% gain. Moreover, continuing weak was the 0.5% (AR) CPI increase so
far this year.
A 1.4% drop in energy prices was behind
much of last month's total decline, the third consecutive monthly slip.
A 4.4% drop (-2.9% y/y) in natural gas prices led the decline followed
by a 2.4% drop in gasoline prices (+38.3% y/y). Higher fuel oil prices
(28.0% y/y) offset much of these declines along with an uptick in
electricity costs (0.6% y/y).
Core consumer prices also were weak. They
were unchanged for the second consecutive month. A 0.1% increase had
been expected and prices have gained just 0.1% since October. Core
goods prices led the weakness with a 0.3% decline, the third
consecutive monthly shortfall. Lower apparel prices fell by a sharp
0.7% (-0.9% y/y) while prices of home furnishings &amp; operation
declined by 0.5% (-2.8% y/y). New &amp; used motor vehicles prices
rounded off the weakness and slipped 0.2% (+4.9% y/y). Tobacco prices
nudged up 0.1% (6.1% y/y).
Core services prices strengthened
marginally and rose 0.2% (0.9% y/y). That improvement was led by a
quickened 1.7% increase (8.4% y/y) in the cost of public
transportation. The 0.3% increase in recreation prices also was a bit
improved (-0.4% y/y). Elsewhere, weakness in the housing market left
shelter prices unchanged and down 0.6% y/y. Owners equivalent rent of
primary residences, a measure not equivalent to other house price
measures, slipped again m/m (-0.2% y/y). The slight y/y decline in this
measure was the weakest reading since the series' start in 1983.
Elsewhere in services, education costs rose 0.5% (5.0% y/y) and medical
care services prices again rose 0.3% (3.7% y/y).
Food &amp; beverage prices again firmed
a bit by 0.2% and the y/y gain of 0.5% was improved from late-last
year's low of -0.5%. Dairy prices firmed by 0.1% y/y versus the 10.4%
decline last summer. Also showing less deflation were prices for meats,
poultry, fish &amp; eggs (-0.2% y/y) but cereal &amp; bakery
product prices continued weak (-0.9% y/y). Fruit &amp; vegetable
prices slipped m/m but the 1.8% y/y increase is improved from a 6.5%
decline as of last summer. Finally, the cost of eating out rose just
1.1% y/y, a record low increase, while alcoholic beverage prices also
rose just 1.2% y/y, the least since 1995.
The chained CPI, which adjusts for shifts in consumption
patterns, eased last month and rose 2.3% year-to-year. Chained prices
less food &amp; energy gained just 0.6% y/y.
The consumer price data is available in Haver's USECON
database while detailed figures can be found in the CPIDATA
database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519c.jpg" style="width: 312px; height: 265px;">
<table border="0" 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/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> 
(%)</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&nbsp;</td>
<td>-0.1</td>
<td>0.1</td>
<td>0.0</td>
<td>2.2</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.0</td>
<td>0.1</td>
<td>1.0</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>-0.3</td>
<td>-0.1</td>
<td>-0.1</td>
<td>1.2</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>0.9</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>-1.4</td>
<td>-0.0</td>
<td>-0.5</td>
<td>18.0</td>
<td>-18.1</td>
<td>13.7</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.2</td>
<td>0.2</td>
<td>0.0</td>
<td>0.5</td>
<td>1.9</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.2</td>
<td>0.4</td>
<td>-0.0</td>
<td>2.3</td>
<td>-0.1</td>
<td>3.7</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>0.6</td>
<td>1.5</td>
<td>2.0</td>
<td>1.9</td>
</tr>
</tbody>
</table>
Japan&#8217;s IP Growth Rates Level Out
And Decay 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 19, 2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Industrial output in Japan soared in March but could not stave
off an erosion in the Yr/Yr rate of growth. Output was up by 1.2% m/m
across the major sectors. But that followed a result in February that
was less than stellar, headlined by a 0.6% drop in IP.
The sequential growth rates in the table show growth at a
Yr/Yr pace of 29.9%, a six month annualized pace of 25.6% and a
three-month annualized pace of 20.9%. While the growth rates
progressively step lower they are still way too elevated to be
sustainable. While there is still a lot of slack in Japan&#8217;s economy
some deceleration in the growth rates is just what the economy needs to
keep its expansion on the &#8216;long track&#8217; which is better than the &#8216;fast
track.&#8217;
Yesterday Japan reported its service sector index took a large
step back from the previous month&#8217;s value. That sort of step back is
more worrisome. Japan, the US, and Europe need to drive their
respective service sectors to better results. That sector is where the
jobs are and that sector has been growing painfully slowly across
countries.
Manufacturing continues to do well in the global economy.
Japan is farther from making a full recovery that Europe or the US but
it is pushing hard on the recovery path. This month&#8217;s IP report is a
good one.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">Japan
Industrial Production Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="3">m/m
%</td>
<td style="font-weight: bold;" colspan="3">Saar
%</td>
<td style="font-weight: bold;">Yr/Yr</td>
<td style="font-weight: bold;" colspan="1" rowspan="2">Qtr-2 
Date %AR&nbsp;</td>
<td style="font-weight: bold;" colspan="1" rowspan="2"> % 0f 
Cycle 
&nbsp;Peak&nbsp;</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">seas
adjusted</td>
<td style="font-weight: bold;">Mar 
10</td>
<td style="font-weight: bold;">Feb 
10</td>
<td style="font-weight: bold;">Jan 
10</td>
<td style="font-weight: bold;">3-mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
<td style="font-weight: bold;">Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Mining &amp;
MFG</td>
<td>1.2%</td>
<td style="color: red;">-0.6%</td>
<td>4.3%</td>
<td>20.9%</td>
<td>25.6%</td>
<td>29.9%</td>
<td style="color: red;">-32.8%</td>
<td>30.9%</td>
<td>86.1%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>1.2%</td>
<td style="color: red;">-1.1%</td>
<td>4.6%</td>
<td>20.3%</td>
<td>24.9%</td>
<td>28.9%</td>
<td style="color: red;">-32.0%</td>
<td>30.5%</td>
<td>86.5%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>1.2%</td>
<td style="color: red;">-0.6%</td>
<td>4.3%</td>
<td>20.9%</td>
<td>25.6%</td>
<td>30.0%</td>
<td style="color: red;">-33.0%</td>
<td>30.9%</td>
<td>86.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Textiles</td>
<td>1.2%</td>
<td style="color: red;">-2.6%</td>
<td>3.8%</td>
<td>9.4%</td>
<td>4.9%</td>
<td>2.1%</td>
<td style="color: red;">-23.1%</td>
<td>8.1%</td>
<td>72.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; T-port</td>
<td>1.2%</td>
<td>0.8%</td>
<td>12.2%</td>
<td>71.5%</td>
<td>59.5%</td>
<td>87.0%</td>
<td style="color: red;">-53.9%</td>
<td>88.5%</td>
<td>83.1%</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td colspan="10" class="firstcol">Product
Group</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Consumer Gds</td>
<td>3.0%</td>
<td style="color: red;">-3.4%</td>
<td>0.9%</td>
<td>1.6%</td>
<td>8.9%</td>
<td>20.1%</td>
<td style="color: red;">-24.6%</td>
<td>4.9%</td>
<td>87.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Intermediate Gds</td>
<td style="color: red;">-0.6%</td>
<td style="color: red;">-0.2%</td>
<td>6.5%</td>
<td>24.8%</td>
<td>32.0%</td>
<td>43.6%</td>
<td style="color: red;">-37.6%</td>
<td>45.9%</td>
<td>89.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Investment Gds</td>
<td>2.0%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>51.2%</td>
<td>34.6%</td>
<td>15.9%</td>
<td style="color: red;">-31.4%</td>
<td>47.6%</td>
<td>76.3%</td>
</tr>
<tr>
<td class="firstcol">Miining</td>
<td>0.1%</td>
<td>3.3%</td>
<td>1.1%</td>
<td>19.2%</td>
<td style="color: red;">-8.6%</td>
<td>1.4%</td>
<td style="color: red;">-9.1%</td>
<td>14.1%</td>
<td>87.9%</td>
</tr>
<tr>
<td class="firstcol">Electric&amp;Gas</td>
<td>-0.9%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>14.3%</td>
<td>20.2%</td>
<td>7.8%</td>
<td style="color: red;">-7.5%</td>
<td>19.3%</td>
<td>94.5%</td>
</tr>
</tbody>
</table>
U.S. Mortgages Past Due Set
Another Record 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 19,2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Financial strains in the housing market just won't let up. The
Mortgage Bankers Association reported that as of last quarter, a record
10.1% of all mortgages were late. That's up from 9.5% at the end of
last year and nearly double the rate before the last recession began.
Including those loans in inventory the percentage is an even higher
14.0%.
The record number of delinquencies is quite notable for those
late by 90 days and over. The rise to 5.0% is up from 1.5% in 2007. For
those late by 90 days or less, the figure actually is down from the
peak in early 2009, though it's up since before the recession.
No category of mortgages has seen delinquencies rise more than
amongst subprime borrowers. Here, more than one-quarter of the loans
were past due last quarter versus 7.3% for prime loans. The largest
increase has occurred for those late by more than 90 days to 15.0% of
loans from 3% in 2004.
Despite the rise in delinquencies, lenders have found it more
promising to renegotiate loan terms than to foreclose. As a result, the
foreclosure rate has fallen to 1.2% from its high during the middle of
last year of 1.5%.
The Mortgage Bankers data is available in
Haver's MBAMTG database.
The minutes to the latest FOMC meeting can
be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20100428.pdf">here</a>. 
 

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519f.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519g.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Mortgage
Loan Delinquency
Rate (%)</a></th>
<th scope="col">1Q '10</th>
<th scope="col">4Q '09</th>
<th scope="col">3Q '09</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">All Mortgages Past Due</td>
<td>10.1</td>
<td>9.5</td>
<td>9.6</td>
<td>9.5</td>
<td>7.9</td>
<td>5.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
30-59 Days</td>
<td>3.5</td>
<td>3.3</td>
<td>3.6</td>
<td>3.3</td>
<td>3.5</td>
<td>3.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
60-89 Days</td>
<td>1.6</td>
<td>1.5</td>
<td>1.7</td>
<td>1.5</td>
<td>1.6</td>
<td>1.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
90 Days &amp; Over</td>
<td>5.0</td>
<td>4.6</td>
<td>4.4</td>
<td>4.6</td>
<td>2.8</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Conventional Prime</td>
<td>7.3</td>
<td>6.7</td>
<td>6.8</td>
<td>6.7</td>
<td>5.1</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Conventional Subprime</td>
<td>27.2</td>
<td>25.3</td>
<td>26.4</td>
<td>25.3</td>
<td>21.9</td>
<td>17.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Mortgages in Foreclosure</td>
<td>1.2</td>
<td>1.1</td>
<td>1.4</td>
<td>5.4</td>
<td>4.3</td>
<td>2.8</td>
</tr>
</tbody>
</table>

</body></html>

U.S. CPI: Broad-Based Weakness IsBehind Slight M/M Decline

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

Surging orders for computers and electronics propelling durable goods orders

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

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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Winnie Tapasanun

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The U.S. ISM Services PMI edged down to 54.0 in June, the third m/m decline in four months, following a 0.9-point increase to 54.5 in May, according to data from the Institute for Supply Management, indicating expansion in the services sector for the 24th straight month, albeit at a slightly slower pace. The June index, while above 50.8 in June 2025 and a low of 49.4 in June 2024, remained below its recent high of 56.1 in February and a record-high 67.5 in November 2021. The 12-month average was 53.1, pointing to continued growth in the U.S. services sector. The Action Economics Forecast Survey had also expected 54.0 for June.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index slipped to 53.9 in June after a 0.9-point increase to 54.4 in May, signaling expansion for the 13th consecutive month but at a slightly slower rate. The latest reading was above 50.6 in June 2025 and a low of 49.3 in June 2024, while remaining below a record-high 66.7 in November 2021. These series date back to July 1997.

In the latest services survey, the business activity index fell to 55.4 in June following a 1.8-point rise to 57.7 in May, indicating continued expansion in business activity for 24 months in a row, though at the slowest pace since March. The index was above a low of 50.0 in June 2024 but below a peak of 70.9 in November 2021. In June, 24.3% of respondents (NSA) reported higher activity while 14.5% reported an activity decline. The new orders index decreased to 55.1 in June after a 3.8-point gain to 57.3 in May, reflecting expansion in new orders for the 13th successive month but at a slower pace. The index was above a low of 47.2 in May 2025 but below a high of 61.0 in February 2023 and a record-high 69.2 in October 2021. In June, 25.9% of respondents (NSA) reported higher new orders while 17.1% reported declines. Meanwhile, the supplier deliveries index (NSA) fell to 54.4 in June from 55.2 in May, indicating slower supplier delivery performance for the 19th straight month after one month in faster territory in November 2024.

On the labor front, the employment index recovered to 51.2 in June from 47.9 in May, showing employment activity in the services sector expanded for the first time since February. The latest reading was above a low of 43.5 in December 2023 but below a high of 54.1 in June 2023 and a peak of 58.9 in April 2021. An increased 16.0% of respondents (NSA) indicated higher employment in June while 10.9% reported declines.

On the inflation front, the prices index fell to a still-elevated 67.7 in June from 71.3 in May, indicating prices paid by services organizations for materials and services had risen (i.e., above 50) since June 2017 but at the slowest rising pace in four months. The index was above a low of 53.9 in March 2024 but significantly below a peak of 83.7 in March 2022. In June, 40.7% of respondents (NSA) reported higher prices while only 3.8% reported price declines.

Additionally, the new export orders index edged up to 50.4 in June from a neutral 50.0 in May, showing new export orders expanded for the fourth time in five months, while the imports index fell to 49.4 from 51.1, marking the first contraction since January. The inventories index dropped to 51.2 in June from 62.5 in May (the highest level since May 2010), indicating inventories expanded for the fifth successive month. The inventory sentiment index fell to 52.6 in June from 55.2 in May, showing continued expansion since May 2023. The backlog of orders index rebounded to 54.9 in June from 51.3 in May, registering the fifth consecutive month of expansion following 11 straight months of contraction. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- ISM Services PMI down to 54.0 in June, remaining above the 12-month avg. of 53.1.
- Business Activity (55.4) expands for the 24th consecutive mth.; New Orders (55.1) for the 13th straight mth.; Employment (51.2, first expansion since Feb.); Supplier Deliveries (54.4 vs. 55.2).
- Prices Index (67.7) at a four-month low, still indicating prices rising since June ’17.

U.S. ISM Services PMI Eases in June, Still Indicating Expansion for the 24th Straight Month

Tian Yong Woon

In this week's Letter, we trace how an energy shock and a resilient AI upcycle shaped Asia through the first half of 2026 and weigh the risks that may define the second. The year opened hopeful on AI, though some feared stretched valuations, before the US-Iran conflict and a closed Strait of Hormuz shook the mood (chart 1). A later MoU eased energy prices and inflation fears, yet valuations largely held on AI optimism, despite bouts of reassessment. The oil surge hit import-reliant emerging Asia hardest, leaving India, Thailand and the Philippines doubly exposed through their Middle East sourcing (chart 2). Pass-through inflation, subsidies that some governments later pared back, and currency pressure followed, though resuming Strait traffic should ease these strains. Rising inflation then boxed in policymakers, straining already-stretched fiscal positions and limiting more pro-growth monetary policy stances in some economies (chart 3). Our latest Blue Chip survey found a slim majority reassessed the risk balance after oil fell, though the shifts stayed mild versus the June survey (chart 4). Most still rank upside inflation risk above downside employment risk, even as a slightly larger share now see the balance as more even. AI remains the region's key offset, with Taiwan and South Korea riding a sharp rise in memory and chip exports (chart 5). Malaysia and Thailand instead draw data centre FDI, so Asia gains from the buildout phase rather than the West's hoped-for productivity gains. We close on an uncertain second half, where a possible Super El Niño could revive food-driven inflation even as energy pressures fade (chart 6). Beyond that, an AI reassessment, fresh geopolitical flashpoints, trade tensions and the US midterms could each reshape the outlook.

**The year thus far**
We began the year on a relatively hopeful note, buoyed by AI optimism and market valuations that reflected it, although some investors worried that valuations had become overstretched. The geopolitical mood shifted quickly in early January, however, when US military forces captured former Venezuelan leader Maduro, though the event did little to move markets (chart 1). A far greater shock came when the US-Iran conflict erupted in late February, closing the Strait of Hormuz and dealing a negative blow to global energy supplies. More recently, the US and Iran have reached a Memorandum of Understanding (MoU) aimed at ceasing hostilities and resuming trade flows through the Strait. This has allowed energy prices to ease, softening policymakers' concerns about energy-driven inflation. Even so, equity valuations have largely remained underpinned by AI optimism, albeit with interim bouts of reassessment and price retracement. This drew on repeated reports of strong growth along the AI supply chain, and on signs that supply could not keep pace with demand. This continued even as AI models with leapfrogging capabilities reached the public. At several points, the US government stepped in to rein in public access to some models, given security concerns about such immense capabilities falling into the wrong hands.

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**Oil impact on Asia**
Within emerging Asia, among the hardest hit by the oil surge are India, Thailand and the Philippines. These are relatively heavy net importers of crude oil, and they source most of that crude from the Middle East. That combination left them doubly exposed when the Strait of Hormuz closed (chart 2). The surge in oil prices also carries multiple, wider impacts. First, the higher cost of imported crude passes through to consumer inflation, leaving households with a heavier energy bill. Several governments have stepped in with energy subsidies to ease the consumer burden. That support has not proved indefinitely sustainable, as some governments eventually pared it back given the immense costs. In effect, subsidies shift some of the burden from consumers to the state, straining public finances. There is also a currency effect, since higher crude prices require more domestic currency to buy the same volume, weighing on the exchange rate. That said, other drivers of currency depreciation may also have been at play over the period. Trade flows through the Strait have recently picked up, with traffic gradually resuming. If the current truce and its conditions hold, these effects may ease before long. On the growth front, higher oil prices would not appear in volume-based measures. Their second-order effects on output would still come through, such as demand dampened by higher energy costs.

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**Inflation and monetary policy**
Higher crude oil prices drove inflation sharply higher across Asia and much of the world. That greatly complicated policymakers' task on both the fiscal and monetary fronts. On the fiscal side, several Asian governments were already facing pressures before the oil shock. These ranged from grand, fiscally costly policy pushes in Indonesia to calls for greater fiscal sustainability in Japan. Higher oil prices added a need for more support, further complicating their position. On the monetary side, previously pro-growth moves, such as rate cuts in India, looked riskier, as they threatened to stoke already-surging inflation (chart 3). That made further easing, or even holding current pro-growth settings, hard to sustain. The danger is sharper still if inflation expectations become unanchored, raising the risk of runaway inflation. The recent US-Iran de-escalation, and the crude price slump that followed, certainly help to ease the situation. One would expect so material a shift in the geopolitical backdrop to prompt a reassessment among policymakers and investors alike. Yet that was not entirely the case, based on our latest Blue Chip Financial Forecast survey, whose results we discuss in the next section.

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**The latest Blue Chip survey results**
The recent US-Iran MoU has largely held, despite occasional flare-ups. Against that backdrop, and the sharp fall in oil prices that followed, we asked panellists to assess the balance of risks between employment and inflation. A slim majority (59%) said their assessment had shifted, while a non-trivial minority said it had not. Looking specifically at how US risk expectations moved, we find the shifts have been quite mild. That is relative to the June survey, which was conducted before the MoU. Even so, most panellists (65%) still see upside risks to inflation as the key risk, rather than downside risks to employment. Meanwhile, a slightly larger share than in June (23%) now see the risks as more balanced.

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**The AI upcycle and Asia**
We turn next to a key offset to the growth dampeners facing much of Asia. It stems from parts of the region being well positioned to capture the current AI upcycle. Advanced economies such as Taiwan and South Korea have benefited from strong demand for AI and related memory chips. This has driven a sharp rise in exports of such goods (chart 5). Those exports have propelled growth in these economies this year, at a pace faster than in previous years. Other economies, such as Malaysia and Thailand, are going through a data centre boom. They benefit through an additional channel beyond AI-related goods exports: robust FDI inflows. Foreign firms are driving these inflows as they expand their data centre footprint in the region. Other economies, including those in the West, hope to reap large productivity gains from the current jump in AI capabilities. By contrast, much of Asia's benefit comes from the ongoing buildout of the parts and infrastructure that the upcycle requires.

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**Watching H2 2026**
Bringing it all together, the first half of the year has been shaped by two main drivers: the US-Iran conflict and the ongoing AI upcycle. What the overarching themes for Asia will be in the second half remains anyone's guess. For one, the threat of an imminent "Super El Niño" event (chart 6) could trigger a crop supply shock. That may reintroduce inflationary pressure, albeit through the food channel. On another front, market optimism around AI-related companies' revenues and spending still persists. Yet disruptions or new discoveries could emerge down the line, including some that sharply reduce the compute needed for a given output. Such developments may in time prompt investors to reassess their views. In addition, pockets of geopolitical pressure are still brimming in parts of the world, including the Middle East. These threaten to upend supply flows of oil, and of other crucial goods too. The trade front, though faded from focus in recent months, could become another flashpoint. It bears on growth and on bilateral relationships, especially those with the US. Finally, other events, such as the US midterm elections later this year, may also skew the global backdrop.

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Asia

Economic Letter from Asia: Woah, We’re Halfway There

Andrew Cates

**Tightening Bias Intact, but Unevenly Distributed**
The July Blue Chip Financial Forecasts survey's expectations for policy rate changes over the next twelve months reveal a striking divergence across the major advanced economies, as chart 1 below makes clear. Across the board, the rate outlook is higher than it was in late February, before the US-Iran conflict escalated: the energy price shock and its inflationary consequences have left an imprint on the panel's thinking, even as oil prices have since retreated. Japan tops the list with an expected increase of around 40 basis points, reflecting the building pressure on the Bank of Japan to respond to yen weakness and still-elevated domestic inflation. Canada and the euro area also sit firmly in positive territory, with expected increases of around 30 and 20 basis points respectively. The US and the UK, by contrast, are in negative territory — the US barely so, the UK more distinctly, with the panel pencilling in modest rate reductions over the coming year. This pattern is not simply a reflection of where each economy sits in the inflation cycle. It also encodes a judgement about the current stance of monetary policy: in Japan, the euro area and Canada, policy is likely seen as insufficiently tight relative to the inflation challenge, and the conflict has reinforced that view. In the US and UK, by contrast, policy is judged to be closer to or already beyond neutral, meaning the next move is more likely to be an easing than a further tightening — even if, in the US case, that easing has been pushed well into 2027.

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**When Will the Next Move Come?**
Chart 2 below adds a timing dimension to the rate outlook, showing where the BCFF panel currently places the next policy move for the Fed, ECB, Bank of England and Bank of Japan. For the BoJ, the distribution is concentrated around the near term, with a significant share of respondents expecting action in September or October — consistent with the building pressure illustrated in chart 1 and with the BoJ’s next scheduled decision on 31 July. For the ECB, September or later than November emerge as the most likely timing for the next step. The Bank of England panel is more spread, with a meaningful share expecting action to come later. For the Fed, the dominant view places the next move firmly in the ‘later’ category, consistent with the BCFF consensus that the Fed funds rate will hold through the rest of 2026, with a first cut not expected until Q2 2027. Under chair Kevin Warsh, the June FOMC meeting delivered a hawkish dot plot that shifted some participants toward a hike before year-end, but the panel as a whole has not moved that far.

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**Headline Up, Core Contained: The Inflation Picture Across Advanced Economies**
One of the more reassuring features of the current inflation episode has been the limited pass-through from energy prices to underlying price dynamics. Across the advanced economies, headline CPI inflation has risen materially since the conflict escalated in March, driven overwhelmingly by consumer energy costs. Core inflation — stripping out food and energy — has edged higher, but only modestly, suggesting that second-round effects remain contained for now. In the United States, the pressures are arguably more alarming, with core PCE rising sharply between February and May to its highest level since October 2023. In the euro area, the focus this week has been firmly on Eurostat's June flash CPI estimate, published yesterday. Headline inflation fell back to 2.8% from a peak of 3.2% in May, as energy costs — the main driver of the surge since the conflict began — eased meaningfully. Crucially, core inflation also ticked down, and services inflation retreated as well. The June data therefore tell a broadly reassuring story: the energy shock is unwinding without leaving a lasting imprint on underlying price dynamics — precisely what the ECB will have been hoping for.

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**Consumer Price Expectations: Are Households Convinced?**
The aggregate inflation picture looks relatively contained at the macro level, but whether households are similarly reassured is a separate question. Chart 4 below draws on the European Commission's consumer survey data on price expectations — one of the more timely and widely watched indicators of inflation psychology in the euro area. The survey captures whether consumers expect prices to rise, stay the same or fall over the coming twelve months, and its relationship with actual inflation outturns has historically been close. A sustained elevation in consumer price expectations risks becoming self-fulfilling, feeding into wage demands and pricing behaviour in ways that complicate the ECB's task considerably. The June survey, however, brought an encouraging development: expectations fell steeply, suggesting that households have begun to register the reversal in energy prices and the broader easing of the inflationary impulse. That said, the absolute level of expectations remains elevated relative to the pre-conflict period, and one month's decline does not constitute a trend. Whether the June reading marks the beginning of a sustained normalisation — or proves a temporary dip before expectations re-anchor at a higher level — will be one of the key variables shaping the ECB's decision calculus in the months ahead.

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**Japan: A Weak Yen at the Worst Possible Time**
Japan occupies a particularly uncomfortable position in the current global conjuncture. The yen has depreciated to levels not seen since December 1986, with USD/JPY touching 162 this week. The move reflects the persistence of a large interest rate differential: even as the Bank of Japan has continued its gradual tightening, the Fed’s hawkish pivot under chair Kevin Warsh — with the mid-June FOMC dot plot signalling a possible hike before year-end — has reinforced the carry trade dynamics weighing on the currency. For Japan, which imports virtually all of its energy, yen weakness at a time of still-elevated global oil prices is a double burden, amplifying domestic inflation and squeezing real incomes. Verbal warnings from Japan’s Finance Ministry have had only a modest and short-lived effect on the exchange rate. The Bank of Japan’s next policy decision is on 31 July, and the pressure to act more decisively is building. The BCFF panel’s July survey revised upward its expectation for a stronger US dollar against the yen over the coming year — consistent with the fundamental picture that chart 5 below describes.

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**AI: Optimism on the Technology, Scepticism on the Price**
Returning to the BCFF survey, its special questions reveal a panel that continues to look beyond the current cyclical turbulence toward a longer-horizon structural narrative. On artificial intelligence, respondents are broadly optimistic: 45% expect a noticeable impact on US productivity and growth within one to three years, with a further 45% believing those effects are already becoming evident. That is a striking degree of conviction about a technology whose macro-level productivity impact remains, by most empirical measures, still to fully materialise. Yet the same panellists are considerably more cautious about financial markets than about the technology itself. Nearly all respondents believe that expected AI gains are already fully reflected — or even over-reflected — in current asset prices. Chart 6 below captures this tension. It is a combination — high conviction on transformative potential, high scepticism on current valuations — that has historically been associated with stretched risk premia and vulnerability to disappointment, even where the underlying technology story ultimately proves correct.

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Global financial markets have had a more settled feel this week, reflecting the continued unwinding of the geopolitical risk premium that had built up during the worst of the US-Iran conflict. Oil prices have fallen further, equity markets have been broadly supported, and incoming inflation data — notably the euro area’s June flash CPI estimate — have come in below expectations. The US holiday-shortened week ahead, with Independence Day on Friday, is likely to keep volumes thin and activity subdued. The bigger picture, however, remains one of tension between a more benign near-term inflation trajectory and central banks that may not yet be ready to stand down. In the charts below we look first at what the latest Blue Chip Financial Forecasts (BCFF) survey reveals about the expected change in and timing of policy rates across the major economies (charts 1 and 2), then at the divergence between headline and core inflation across the advanced economies (chart 3), and at what euro area consumers are more specifically expecting about inflation in the period ahead (chart 4). We turn next to Japan and the yen’s slide this week to 40-year lows (chart 5), and finally to the BCFF survey’s special questions on artificial intelligence and asset valuations (chart 6).

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Charts of the Week: Forecasters Hold Firm

Sandy Batten

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The luster fell a bit off the employment rose in June with nonfarm payrolls rising 57,000 against expectations of a 115,000 increase, according to today’s report from the Bureau of Labor Statistics. Moreover, the increases previously reported for April and May were revised down by a total of 74,000. Upon revision, payrolls increased 148,000 in April versus 179,000 previously reported and rose 129,000 in May versus 172,000 previously reported. The average increase over the past three months fell to 111,000 from 164,000 in May while the average increase over the past six months rose to 92,000 in June, its highest reading since February 2025, from 80,000 in May. Both remain on a modest uptrend and much stronger than payroll gains last year. In 2025, monthly payroll gains averaged only 10,000.

The weaker-than-expected payroll report was reinforced by a weak report from the **household survey**. While the number of unemployed fell 213,000 and the unemployment rate edged down to 4.2% from 4.3% in May, the number of employed slumped 507,000 in June, the largest monthly decline since May 2025 (with population adjustment to January 2026). The labor force plunged 720,000 with the labor force participation rate falling to 61.5%, its lowest level since March 2021.

Growth of average hourly earnings (AHE), a key variable for the Federal Reserve, was relatively well behaved in June. AHE increased 0.3% m/m, the same monthly gain as in May, in line with expectations. The y/y rate of advance edged up to 3.5% in June from 3.4% in May. Wage growth in private services-producing firms picked up in June, rising 0.4% m/m (3.4% y/y) versus 0.2% m/m (3.2% y/y) in May. Goods-producing wages increased 0.2% m/m in June after 0.3% monthly gains in both April and May with the y/y rate holding at 4.1%.

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In the **establishment survey**, private-sector employment was also weaker than expected in June, increasing only 49,000 against an expected 115,000 increase. Moreover, April and May figures were also revised down by a total of 50,000. Government employment rose 8,000 following a 32,000 increase in May. Private goods-producing employment increased 10,000, its largest monthly gain in three months with an 11,000 gain in construction and a 3,000 rise in manufacturing jobs, the first increase in three months. In contrast, services-producing employment increased only 39,000 in June, its weakest monthly performance in four months. Private education and health services jobs posted another solid gain of 69,000, up from 45,000 in May. However, retail jobs fell 7,500, their first monthly decline in four months, and leisure and hospitality jobs slumped 61,000, their largest monthly decline since December 2020, after increasing 40,000 in May. There had been speculation in the market that the World Cup would generate additional leisure and hospitality jobs, but this obviously failed to pan out. On a brighter note, although the one-month payroll diffusion index, a measure of the breadth of job gains, slipped to 54.4 in June from 56.0 in May, it remained well above the key 50 level that indicates that more industries were adding jobs than losing them.

The length of the workweek was unchanged at 34.3 hours in June with the aggregate weekly hours index edging up 0.1% m/m, the same monthly gain as in May. The aggregate hours index rose 1.3% q/q saar in Q2, the fastest quarterly gain in four quarters, providing a solid base for Q2 real GDP growth. The goods-producing workweek was unchanged at 40.1 hours, the highest since January 2023, while the private service-producing workweek edged down to 33.2 hours from 33.3 hours in May.

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

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- U.S. nonfarm payrolls increased 57,000 in June with meaningful downward revisions to both April and May.
- The market consensus looked for a 115,000 increase.
- The unemployment rate edged down to 4.2% from 4.3%, due mostly to a large decrease in the labor force.
- Average hourly earnings rose 0.3% m/m (3.5% y/y), in line with expectations.

U.S. Payroll Employment Gains Smaller than Expected in June

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Unemployment rates in the European Monetary Union (EMU) were steady in May at 6.2%, the same level as in April, after April had fallen to 6.2% from 6.3%. The 6.2% reading is the lowest for the community since it was formed. Meanwhile, for the larger community, the EU, the unemployment rate has stabilized at 5.9%, the same as in April, again, a tick lower than it was in March. This 5.9% reading is a tick above the historic low for the European Union (EU). In both cases, the performance of these two economic conglomerations is quite excellent.

**Monthly**
The table looks at 12 of the most senior members of the monetary union, including an observation for the United Kingdom based on its claimant-count unemployment rate, presented at the bottom of the table. In May, the monetary union saw 4 of 12 members in the table with lower unemployment rates than they had in April. In April, five members had lower unemployment rates than in March. In March, seven members had lower unemployment rates than they posted in February. The progression to lower unemployment rates has slowed based on monthly data.

**Sequentially**
Looking at changes in the unemployment rates over broader sequential periods—three months, six months, and 12 months—6 out of 12 reporters have lower unemployment rates over three months; 7 have lower unemployment rates over six months; only 4 report unemployment rates that are lower over 12 months. The broader periods for comparison show changes in the unemployment rates that report more declines over the shorter and more recent periods compared to the longer/older periods. This is not the same trend leaning that we get from the last three months of data. It'll be good to watch these developments in the coming months to see if the tendency to lower unemployment rates is slowing or whether dropping unemployment is continuing in force.

**Rankings**
The ranking of unemployment rates since 1990 finds only three of these 12 monetary union members with unemployment rates above their medians. Those are Luxembourg, with a 98.2 percentile standing, Finland with an 81.9 percentile standing, and Austria with a 76.6 percentile standing. Italy, on the other hand, is reporting the lowest unemployment rate that it has seen during this period. The Greek unemployment rate has been this low or lower only about 3% of the time, while in Spain the unemployment rate has been this low or lower 11% of the time. For Portugal, the unemployment ranking figure has been weaker 13% of the time. The monetary union continues to report excellent labor market results even though economic growth has been relatively disappointing.

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**Summing up and central bankers**
In the wake of the monetary conference in the Sintra this past week, central banks featuring contributions from the European Central Bank, the Bank of England, the Federal Reserve, and the Bank of Canada, saw central bank heads talking about getting back to basics and stopping the use of some of the newer tools that had been pressed into service after the great financial crisis and during COVID. Bankers are getting back to basics to focus on short-term interest rates and say they will stop fiddling with the size of the balance sheet and to largely set aside the use of forward guidance. It will take time to determine what these changes are going to mean in terms of how policy performs and how markets will react. While there was a lot of discussion, and in some places concerns about the loss of forward guidance, what is clear is that, with forward guidance gone, there will be more volatility; however, the markets will be freer to price economic events themselves and will not be so stuck to the outlook of the central bank.  That could turn out to be a gigantic win for both markets and central bankers.

Economy in Brief

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