Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091201d.jpg" align="right" border="0" height="265" width="353">
Gasoline
prices continued their sideways movement last week. The pump
price for regular gasoline of $2.63 per gallon equaled the
June average. Moreover, during the six months, prices moved in a tight
range between $2.47 and $2.69. Nevertheless, gasoline prices remain up
from the December low of $1.61. Yesterday, wholesale gasoline prices
began the week roughly equal to last week's average. The figures are
reported by the U.S. Department of Energy and can be found in Haver's WEEKLY
&amp; DAILY databases.Breaking away from the recently
firm pricing pattern, the price for a barrel of light sweet crude (WTI)
oil moved down last week to $76.10 which was the lowest level in one
month. Still, prices were up from the December low of $32.37.
Yesterday, the spot market price for light sweet crude oil moved
slightly higher to $77.28 per barrel.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091201e.jpg" align="right" border="0" height="265" width="353">
Behind the stabilization in
gasoline prices is a leveling of past gains in gasoline demand. Last
week, demand posted a 0.2% increase versus one year ago versus a 3.9%
increase at the beginning of last month. Breaking away from earlier y/y
strength, the demand for residual fuel oil fell 0.4% y/y while
distillate demand continued weak and fell 10.7% y/y.· Natural gas
prices remained weak last week at an average $3.62 per mmbtu (-45.7%
y/y). They remained down by two-thirds from the high reached in
early-July of last year of $13.19/mmbtu. The weekly energy price data
can be found in Haver's WEEKLY database while the
daily figures are in DAILY. The gasoline demand
figures are in OILWKLY.Small business
lending is yesterday's House testimony by Jon D. Greenlee,
Associate Director, Division of Banking Supervision and Regulation at
the Federal Reserve Board and it can be found <a href="http://www.federalreserve.gov/newsevents/testimony/greenlee20091130a.htm">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM" style="color: rgb(255, 255, 255);">Weekly Prices</a></th>
<th scope="col">11/30/09</th>
<th scope="col">11/23/09</th>
<th scope="col">11/16/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per
Gallon, Regular)</td>
<td>2.63</td>
<td>2.64</td>
<td>2.63</td>
<td>45.2%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>76.10</td>
<td>78.36</td>
<td>78.21</td>
<td>45.0%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body></html>

Gasoline prices continued their sideways movement last week. The pump price for regular gasoline of $2.63 per gallon equaled the June average. Moreover, during the six months, prices moved in a tight range between $2.47 and $2.69. [...]

Weekly Gasoline Prices Are Flat Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091201a.jpg" align="right" border="0" height="265" width="353">The pace of
this economic recovery has lagged of late as the strength of inventory
rebuilding has disappointed. The National Association of Purchasing
Management reported that the November composite index unexpectedly
slipped to 53.6 from 55.7 during October. A more modest decline to 54.7
had been the Consensus expectation. (Any reading above the break-even
point of 50 suggests rising activity .) Despite the November decline,
the reading was up from the low of 32.9 reached last December. The ISM
data is available in Haver's USECON database.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091201b.jpg" align="right" border="0" height="265" width="353">While just
above the break-even level of 50, the positive
factory-sector growth rate suggested by the ISM index is in-line with
recoveries accompanying past upturns from severe recessions. To mirror
the strength of those recoveries, however, the index still needs to
rise to a level near or above the level of 60.
Holding back any
improvement in the total index was a decline in the inventory component
to 41.3 from 46.9 in October. The latest was the lowest level since
August. An increased 19% (NSA) of respondents indicated that they were
raising inventory levels versus 16% last November. However, during the
strong 2005 inventory accumulation 26% of firms indicated that they
were raising inventories. A decline in the production component to
59.9 from the cycle high of 63.3 also was part of the decline in the
November composite index. During the last ten years there has been an
84% correlation between the level of the production component of the
composite index and the three-month growth in factory sector industrial
production. It is appropriate to correlate the ISM index level
with factory sector output growth because the ISM
index is a diffusion index. It measures growth by using all of the
positive changes in activity added to one half of the zero change in
activity measures. The pace of supplier deliveries sped up
last month with the easing of production.
Finally, the employment
index fell to 50.8 from 53.1 during October. Still, the level indicated
positive growth in factory-sector payrolls. It has increased from a low
reading of 26.1 this past February. Twenty percent of respondents
indicated higher payrolls versus only seven percent last November. Just
sixteen percent indicated a lower level of hiring versus forty percent
last November. During the last ten years there has been a 90%
correlation between the index level and the three-month change in
manufacturing payrolls.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091201c.jpg" align="right" border="0" height="265" width="353">The new
orders index was the only component
series to improve m/m during November. The modest gain to 60.3,
however, left it below the August high. Working the other way, the
export order index improved modestly m/m to 56.0 which was the highest
level since August of last year and up from 35.5 last December. During
the last ten years there has been a 53% correlation between the index
and the q/q change in real exports of goods in the GDP accounts.· The
separate index of prices paid fell ten points to its lowest level since
July. Still, the figure was up from the December low of 18.0. During
the last twenty years there has been a 79% correlation between the
price index and the three-month change in the PPI for intermediate
goods.
 The ISM data are available in Haver's USECON
database.
 Do Alternative Measures of GDP Affect Its
Interpretation? from the Federal Reserve Bank of New York can
be found <a href="http://www.newyorkfed.org/research/current_issues/ci15-7.pdf">here
</a>.
<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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">November '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>53.6</td>
<td>55.7</td>
<td>52.6</td>
<td>36.6</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>60.3</td>
<td>58.5</td>
<td>60.8</td>
<td>28.1</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment</td>
<td>50.8</td>
<td>53.1</td>
<td>46.2</td>
<td>34.3</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Production</td>
<td>59.9</td>
<td>63.3</td>
<td>55.7</td>
<td>32.0</td>
<td>45.2</td>
<td>54.1</td>
<td>55.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Supplier Deliveries</td>
<td>55.7</td>
<td>56.9</td>
<td>58.0</td>
<td>48.6</td>
<td>51.6</td>
<td>51.2</td>
<td>54.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>41.3</td>
<td>46.9</td>
<td>42.5</td>
<td>40.1</td>
<td>45.5</td>
<td>45.4</td>
<td>48.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>55.0</td>
<td>65.0</td>
<td>63.5</td>
<td>25.5</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>

</body></html>

The pace of this economic recovery has lagged of late as the strength of inventory rebuilding has disappointed. The National Association of Purchasing Management reported that the November composite index unexpectedly slipped to 53.6 [...]

ISM Factory Index Disappoints As Inventory Rebuilding Lags

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091130d.jpg" align="left" border="0" height="265" width="353">
Canada's Real Gross Domestic Product rose 0.40% on an annual
rate basis in the third quarter, its first increase after three
quarters of decline. The annual rate of rise was smaller than the 2%
the Bank of Canada had predicted a month or so ago and smaller than
more recent consensus estimate of 1.0%. Canada's annual rate of growth
in the third quarter was also below those of the Mexico and the United
States, its NAFTA partners, as can be seen in the first chart.
The annual rates of change of the major components of real GDP
are shown in the table below. Private consumption showed its first
increase in the second quarter and has continued to increase in the
third quarter. Private fixed investment and exports have had their
first increases in the third quarter. Canada's stimulus programs are
reflected in the increases in Government consumption and fixed
investment over the past several quarters.
The dynamics of the change in Canada's third quarter GDP is
best seen by looking at the contribution (the weighted percent changes)
of the various components of GDP to total growth. The quarterly
increase in GDP in the third quarter was 0.088%. Private consumption
contributed .448 points; private fixed investment,.246; inventories,
.229; government spending on goods and services, .265; government fixed
investment, .218 and government inventories .001. Exports contributed
.998. These positive contributions amounted to 2.405 points. They were,
however, offset by the 2.316 point negative contribution of imports.
Part of the rise in imports was due to the increase in private and
government fixed investment. It has been estimated that Canadian
businesses import more than 70% of their spending on plant and
equipment.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">
Annual Rates of&nbsp; Change</th>
<th scope="col">Q3 09</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1&nbsp; 09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3&nbsp;08</th>
<th scope="col">Q2 08&nbsp;</th>
<th scope="col">Q1 08&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> Real Gross Domestic
Product</td>
<td>0.35</td>
<td>-3.05</td>
<td>-6.19</td>
<td>-3.74</td>
<td>0.41</td>
<td>0.33</td>
<td>-0.75</td>
</tr>
<tr>
<td class="firstcol"> Private Consumption</td>
<td>3.08</td>
<td>1.76</td>
<td>-1.41</td>
<td>-3.13</td>
<td>0.57</td>
<td>1.10</td>
<td>2.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Fixed
Investment</td>
<td>5.60</td>
<td>-9.03</td>
<td>-27.00</td>
<td>-18.59</td>
<td>0.45</td>
<td>-2.13</td>
<td>-1.73</td>
</tr>
<tr>
<td class="firstcol">Government Consumption</td>
<td>4.99</td>
<td>3.27</td>
<td>2.15</td>
<td>2.48</td>
<td>0.02</td>
<td>4.56</td>
<td>5.67</td>
</tr>
<tr class="odd">
<td class="firstcol"> Government Fixed
Investment</td>
<td>24.66</td>
<td>16.55</td>
<td>8.60</td>
<td>8.72</td>
<td>7.11</td>
<td>11.81</td>
<td>18.89</td>
</tr>
<tr>
<td class="firstcol"> Exports</td>
<td>15.35</td>
<td>-19.54</td>
<td>-29.81</td>
<td>-17.69</td>
<td>-4.15</td>
<td>-4.11</td>
<td>-2.30</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>36.0</td>
<td>-6.91</td>
<td>-39.24</td>
<td>-23.36</td>
<td>-3.44</td>
<td>2.99</td>
<td>-4.68</td>
</tr>
</tbody>
</table>
</body></html>

Canada's Real Gross Domestic Product rose 0.40% on an annual rate basis in the third quarter, its first increase after three quarters of decline. The annual rate of rise was smaller than the 2% the Bank of Canada had predicted a month [...]

The Canadian Economy Begins to Show Growth

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091130c.jpg" align="left" border="0" height="265" width="353">
EMU prices rose in October. Trends are still good but core
inflation is showing a hint of acceleration as three month core prices
are up at a 1.4% annual rate above their six-month and 12-month pace of
increase.
Headline inflation shows a clear acceleration from an annual
pace of -0.1% Yr/Yr to a +1.2% annual rate over six-months and to a
2.3% annualized pace over three- months.
Germany, France, Italy and Spain all show the same
accelerating headline inflation pattern from 12-months to six-months to
three-months. Italy&#8217;s 3-mo inflation rate is up to 3.4% annualized.
Core inflation has much less clear patterns across countries.
Core inflation is not accelerating from 12-months to
six-months to three-months in any of these large EMU countries. It is
accelerating from six-months to three-months in Germany and in Italy.
But that similarity has little breadth. In Italy core inflation is
running at a strong 4.1% pace. In Germany it is at 1.1% only the same
as its Yr/Yr pace but up from its six-month pace. In France the core
rate is still steadily decelerating. Spain&#8217;s core is back down after a
pop-up over six-months.
On balance combined with news that UK consumers are repaying
credit this holiday season and that German firms are having a tough
time getting credit, it hardly seems that inflation is about to take
root. The recent rise in energy prices is the reason for most headline
inflation to be creeping higher. Core inflation is still largely under
wraps. Still it is notable that inflation is starting to show some
traces in the more inflation-prone country of Italy.
We don&#8217;t expect any policy change in EMU but the inflation
worm may be starting its turn. Even so we expect it to be a big slow
turn, even for a worm.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th scpoe="col" colspan="8">Trends in HICP</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="3">% saar</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>1.2%</td>
<td>-0.1%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.2%</td>
<td>1.4%</td>
<td>1.0%</td>
<td>1.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>0.4%</td>
<td>0.5%</td>
<td>0.4%</td>
<td>5.5%</td>
<td>-0.2%</td>
<td>-1.4%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>-1.7%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">HICP</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>2.3%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>1.3%</td>
<td>0.8%</td>
<td>-0.2%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.0%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>3.6%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>2.1%</td>
<td>1.9%</td>
<td>-0.6%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Core:xFE&amp;A</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>1.1%</td>
<td>0.9%</td>
<td>1.1%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>0.9%</td>
<td>1.0%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>4.1%</td>
<td>1.7%</td>
<td>1.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.7%</td>
<td>0.2%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body></html>

EMU prices rose in October. Trends are still good but core inflation is showing a hint of acceleration as three month core prices are up at a 1.4% annual rate above their six-month and 12-month pace of increase. Headline inflation [...]

EMU Prices Rise - Has The Worm Tuned?

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091130a.jpg" align="right" border="0" height="265" width="353">
The
Chicago Purchasing Managers' Association reported that its November
Business Barometer improved to the highest level since August of last
year. The index level of 56.1 was up sharply from the March low of
31.4. The survey covers a sample of over 200 purchasing professionals
in the Chicago area with a monthly response rate of about 50%. During
the last ten years there has been a 72% correlation between the
Business Barometer and the three-month change in factory sector
industrial production. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091130b.jpg" align="right" border="0" height="265" width="353">
The Association indicated that gains in the
index of vendor deliveries (slower speed), order backlogs and
employment contributed greatly to the November rise in the overall
index. The new orders index rose modestly m/m but was more than double
the year-ago level. The production component fell and reversed much of
the prior month's increase. Nevertheless, it remained nearly double the
January low. The index of prices paid increased and made up an
October decline. The latest level was more than double its May low.
During the last ten years there has been a 78% correlation between the
Prices Paid Index and the three-month change in the PPI for
intermediate materials. Why Are Banks Failing?
from the Federal Reserve Bank of St. Louis can be found <a href="http://www.stlouisfed.org/publications/cb/articles/?id=1667">here
</a>.
<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/SURVEYS/@S5/@S503/@S503.HTM">Chicago
Purchasing Mgs.</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">November '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp; Business Barometer</td>
<td>56.1</td>
<td>54.2</td>
<td>46.1</td>
<td>33.6</td>
<td>46.8</td>
<td>54.4</td>
<td>56.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Production</td>
<td>57.6</td>
<td>63.9</td>
<td>47.2</td>
<td>34.1</td>
<td>48.1</td>
<td>58.3</td>
<td>60.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
New Orders</td>
<td>62.8</td>
<td>61.4</td>
<td>46.3</td>
<td>29.2</td>
<td>46.7</td>
<td>57.7</td>
<td>59.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Employment</td>
<td>41.9</td>
<td>38.3</td>
<td>38.8</td>
<td>33.4</td>
<td>41.4</td>
<td>51.5</td>
<td>51.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Prices Paid</td>
<td>52.6</td>
<td>48.6</td>
<td>51.3</td>
<td>54.1</td>
<td>73.5</td>
<td>66.5</td>
<td>72.8</td>
</tr>
</tbody>
</table>

</body></html>

The Chicago Purchasing Managers' Association reported that its November Business Barometer improved to the highest level since August of last year. The index level of 56.1 was up sharply from the March low of 31.4. The survey covers a [...]

Chicago Purchasing Managers Index Improves Steadily

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091130a.jpg" align="right" border="0" height="265" width="353">The
Chicago Purchasing Managers' Association reported that its November
Business Barometer improved to the highest level since August of last
year. The index level of 56.1 was up sharply from the March low of
31.4. The survey covers a sample of over 200 purchasing professionals
in the Chicago area with a monthly response rate of about 50%. During
the last ten years there has been a 72% correlation between the
Business Barometer and the three-month change in factory sector
industrial production. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091130b.jpg" align="right" border="0" height="265" width="353">The
Association indicated that gains in the
index of vendor deliveries (slower speed), order backlogs and
employment contributed greatly to the November rise in the overall
index. The new orders index rose modestly m/m but was more than double
the year-ago level. The production component fell and reversed much of
the prior month's increase. Nevertheless, it remained nearly double the
January low. 
 The index of prices paid increased and made up an
October decline. The latest level was more than double its May low.
During the last ten years there has been a 78% correlation between the
Prices Paid Index and the three-month change in the PPI for
intermediate materials. 
 Why Are Banks Failing?
from the Federal Reserve Bank of St. Louis can be found <a href="http://www.stlouisfed.org/publications/cb/articles/?id=1667">here
</a>.
<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/SURVEYS/@S5/@S503/@S503.HTM">Chicago
Purchasing Mgs.</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">November '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp; Business Barometer</td>
<td>56.1</td>
<td>54.2</td>
<td>46.1</td>
<td>33.6</td>
<td>46.8</td>
<td>54.4</td>
<td>56.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Production</td>
<td>57.6</td>
<td>63.9</td>
<td>47.2</td>
<td>34.1</td>
<td>48.1</td>
<td>58.3</td>
<td>60.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
New Orders</td>
<td>62.8</td>
<td>61.4</td>
<td>46.3</td>
<td>29.2</td>
<td>46.7</td>
<td>57.7</td>
<td>59.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Employment</td>
<td>41.9</td>
<td>38.3</td>
<td>38.8</td>
<td>33.4</td>
<td>41.4</td>
<td>51.5</td>
<td>51.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Prices Paid</td>
<td>52.6</td>
<td>48.6</td>
<td>51.3</td>
<td>54.1</td>
<td>73.5</td>
<td>66.5</td>
<td>72.8</td>
</tr>
</tbody>
</table>

 EMU Prices Rise - Has The Worm
Tuned? 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 30, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091130c.jpg" align="left" border="0" height="265" width="353">
EMU prices rose in October. Trends are still good but core
inflation is showing a hint of acceleration as three month core prices
are up at a 1.4% annual rate above their six-month and 12-month pace of
increase.
Headline inflation shows a clear acceleration from an annual
pace of -0.1% Yr/Yr to a +1.2% annual rate over six-months and to a
2.3% annualized pace over three- months.
Germany, France, Italy and Spain all show the same
accelerating headline inflation pattern from 12-months to six-months to
three-months. Italy&#8217;s 3-mo inflation rate is up to 3.4% annualized.
Core inflation has much less clear patterns across countries.
Core inflation is not accelerating from 12-months to
six-months to three-months in any of these large EMU countries. It is
accelerating from six-months to three-months in Germany and in Italy.
But that similarity has little breadth. In Italy core inflation is
running at a strong 4.1% pace. In Germany it is at 1.1% only the same
as its Yr/Yr pace but up from its six-month pace. In France the core
rate is still steadily decelerating. Spain&#8217;s core is back down after a
pop-up over six-months.
On balance combined with news that UK consumers are repaying
credit this holiday season and that German firms are having a tough
time getting credit, it hardly seems that inflation is about to take
root. The recent rise in energy prices is the reason for most headline
inflation to be creeping higher. Core inflation is still largely under
wraps. Still it is notable that inflation is starting to show some
traces in the more inflation-prone country of Italy.
We don&#8217;t expect any policy change in EMU but the inflation
worm may be starting its turn. Even so we expect it to be a big slow
turn, even for a worm.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th scpoe="col" colspan="8">Trends in
HICP</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="3">% saar</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>1.2%</td>
<td>-0.1%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.2%</td>
<td>1.4%</td>
<td>1.0%</td>
<td>1.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>0.4%</td>
<td>0.5%</td>
<td>0.4%</td>
<td>5.5%</td>
<td>-0.2%</td>
<td>-1.4%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>-1.7%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">HICP</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>2.3%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>1.3%</td>
<td>0.8%</td>
<td>-0.2%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.0%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>3.6%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>2.1%</td>
<td>1.9%</td>
<td>-0.6%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Core:xFE&amp;A</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>1.1%</td>
<td>0.9%</td>
<td>1.1%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>0.9%</td>
<td>1.0%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>4.1%</td>
<td>1.7%</td>
<td>1.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.7%</td>
<td>0.2%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
 The Canadian Economy Begins to
Show Growth 
by <a href="/comment/Curley.html">Louise
Curley</a> November 30, 2009

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091130d.jpg" align="left" border="0" height="265" width="353">
Canada's Real Gross Domestic Product rose 0.40% on an annual
rate basis in the third quarter, its first increase after three
quarters of decline. The annual rate of rise was smaller than the 2%
the Bank of Canada had predicted a month or so ago and smaller than
more recent consensus estimate of 1.0%. Canada's annual rate of growth
in the third quarter was also below those of the Mexico and the United
States, its NAFTA partners, as can be seen in the first chart.
The annual rates of change of the major components of real GDP
are shown in the table below. Private consumption showed its first
increase in the second quarter and has continued to increase in the
third quarter. Private fixed investment and exports have had their
first increases in the third quarter. Canada's stimulus programs are
reflected in the increases in Government consumption and fixed
investment over the past several quarters.
The dynamics of the change in Canada's third quarter GDP is
best seen by looking at the contribution (the weighted percent changes)
of the various components of GDP to total growth. The quarterly
increase in GDP in the third quarter was 0.088%. Private consumption
contributed .448 points; private fixed investment,.246; inventories,
.229; government spending on goods and services, .265; government fixed
investment, .218 and government inventories .001. Exports contributed
.998. These positive contributions amounted to 2.405 points. They were,
however, offset by the 2.316 point negative contribution of imports.
Part of the rise in imports was due to the increase in private and
government fixed investment. It has been estimated that Canadian
businesses import more than 70% of their spending on plant and
equipment.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">
Annual Rates of&nbsp; Change</th>
<th scope="col">Q3 09</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1&nbsp; 09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3&nbsp;08</th>
<th scope="col">Q2 08&nbsp;</th>
<th scope="col">Q1 08&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> Real Gross Domestic
Product</td>
<td>0.35</td>
<td>-3.05</td>
<td>-6.19</td>
<td>-3.74</td>
<td>0.41</td>
<td>0.33</td>
<td>-0.75</td>
</tr>
<tr>
<td class="firstcol"> Private Consumption</td>
<td>3.08</td>
<td>1.76</td>
<td>-1.41</td>
<td>-3.13</td>
<td>0.57</td>
<td>1.10</td>
<td>2.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Fixed
Investment</td>
<td>5.60</td>
<td>-9.03</td>
<td>-27.00</td>
<td>-18.59</td>
<td>0.45</td>
<td>-2.13</td>
<td>-1.73</td>
</tr>
<tr>
<td class="firstcol">Government Consumption</td>
<td>4.99</td>
<td>3.27</td>
<td>2.15</td>
<td>2.48</td>
<td>0.02</td>
<td>4.56</td>
<td>5.67</td>
</tr>
<tr class="odd">
<td class="firstcol"> Government Fixed
Investment</td>
<td>24.66</td>
<td>16.55</td>
<td>8.60</td>
<td>8.72</td>
<td>7.11</td>
<td>11.81</td>
<td>18.89</td>
</tr>
<tr>
<td class="firstcol"> Exports</td>
<td>15.35</td>
<td>-19.54</td>
<td>-29.81</td>
<td>-17.69</td>
<td>-4.15</td>
<td>-4.11</td>
<td>-2.30</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>36.0</td>
<td>-6.91</td>
<td>-39.24</td>
<td>-23.36</td>
<td>-3.44</td>
<td>2.99</td>
<td>-4.68</td>
</tr>
</tbody>
</table>
</body></html>

Chicago Purchasing Managers IndexImproves Steadily

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091127g.jpg" align="right" border="0" height="265" width="353">
Improvement in factory sector activity was apparent in the
latest orders figures. Durable goods orders slipped 0.6% in October
after an upwardly revised 2.0% rise during September. Despite the
monthly setback, however, the deterioration in factory sector activity
has abated. That is consistent with the recent monthly ISM reports on
manufacturing sector activity. Durable goods orders have risen 5.0%
from their March low and the y/y decline is less than half the worst of
this past winter.
Much of the recent improvement has been due to the
transportation equipment sector where orders rose 1.5% last month
(-13.6% y/y) after an upwardly revised, strong September increase.
Higher orders for aircraft &amp; parts account for most of the
recent gains. Excluding the transportation equipment sector altogether,
orders fell 1.3% during October but they have risen 4.3% from their
April low.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091127h.jpg" align="right" border="0" height="265" width="353">
Primary metals orders also continued their recovery with a
3.6% October increase (-13.7% y/y) and they have risen one-quarter from
the March low. A 2.7% rise in electrical equipment orders also helped
last month's total. They have risen slightly from the spring low after
falling by one-third from last year's high. Showing tenuous improvement
have been orders for computers &amp; related equipment. While
orders remain off their recession low, the gain stalled during the last
three months. The same is true for machinery orders.
The capital goods sector also has improved as indicated by a
slower year-to-year rate of decline. However, declines in nondefense
capital goods orders less aircraft during three of the last four months
raises uncertainty about the momentum behind the trend.
Shipments of durable goods slipped 0.2% during October
following increases during two of the prior three months. Nevertheless,
the y/y decline eased to 13.6% from 20.2% at its worst this spring. The
improvement has been paced by firm monthly gains in shipments of metals
(-27.9% y/y) but the machinery (-22.9% y/y) and electrical equipment
(-20.3% y/y) sectors continue to lag.
Perhaps the shedding of inventories of durable manufactured
goods is coming to its end after nearly a year of correction.
Inventories were essentially unchanged during October after steep
declines in each of the prior nine months. The shedding of inventory
has been broad-based led by an 18.6% decline this year in the metals
area, a 14.4% drop in computer inventories, a 14.3% drop in motor
vehicles and a 13.6% decline in electrical equipment. The recent
decline in inventories has been successful in lowering the ratio to
shipments to its lowest since November of last year.
The durable goods figures are available in Haver's USECON
database.


<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/@ED/@ED01/@ED0101/@ED0101.HTM" style="color: rgb(0, 0, 0);">NAICS Classification
</a>(%)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>-0.6</td>
<td>2.0</td>
<td>-2.7</td>
<td>-11.9</td>
<td>-5.8</td>
<td>1.4</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Excluding Transportation</td>
<td>-1.3</td>
<td>1.8</td>
<td>-0.5</td>
<td>-11.3</td>
<td>-1.2</td>
<td>-0.3</td>
<td>9.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>1.2</td>
<td>3.2</td>
<td>-7.8</td>
<td>-14.1</td>
<td>-6.8</td>
<td>3.5</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-2.9</td>
<td>2.6</td>
<td>-1.0</td>
<td>-12.8</td>
<td>-0.3</td>
<td>-2.7</td>
<td>10.7</td>
</tr>
</tbody>
</table>
</body></html>

Improvement in factory sector activity was apparent in the latest orders figures. Durable goods orders slipped 0.6% in October after an upwardly revised 2.0% rise during September. Despite the monthly setback, however, the [...]

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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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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.

Europe

Unemployment Remains Quite Low in Europe

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

Winnie Tapasanun

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The ISM U.S. manufacturing PMI fell to a lower-than-expected 53.3 in June, the first m/m fall since February, following a 1.3-point increase to 54.0 in May, according to data from the Institute for Supply Management. The June reading, above the 50 expansion-contraction threshold, indicated the U.S. manufacturing sector expanded for the sixth straight month, albeit at a slightly slower pace. A reading of 53.8 for June had been expected in the Action Economics Forecast Survey. The June manufacturing PMI, while above a contraction-level 49.0 in June 2025 and a low of 47.0 in October 2024, remained below a peak of 63.8 in March 2021.

The production index declined to 52.2 in June from 54.3 in May, indicating production expanded for the eighth consecutive month but at the slowest pace since December. The index was above a low of 44.8 in April 2025 but below a peak of 66.5 in March 2021. In June, 19.0% (NSA) of respondents reported higher production while 13.0% reported lower production. The new orders index slipped to 56.0 in June from 56.8 in May, signaling new orders grew for the sixth straight month following four successive months of contraction. The index remained well above a low of 41.8 in January 2023 but below a high of 67.0 in May 2021. In June, 22.3% (NSA) of respondents reported higher new orders while 13.4% reported declines. The inventories index climbed to 51.4 in June from 49.9 in May, marking the first expansion since April 2025. The index was slightly below a high of 52.7 in March 2025 but above a low of 43.8 in October 2024. Meanwhile, the supplier deliveries index fell to 57.4 in June from 60.6 in May and April, indicating slowing delivery performance for the seventh consecutive month after faster deliveries in November. In June, 18.1% (NSA) of respondents reported slower delivery speeds while 3.4% reported faster speeds.

On the labor front, the employment index improved to 49.7 in June from 48.6 in May, showing employment contracted for the 33rd straight month but at the slowest contraction pace since January 2025. The index was above a low of 44.1 in November 2025 but below a high of 56.5 in March 2022. In June, 16.2% (NSA) of respondents reported higher employment while 13.8% reported lower hiring.

On the pricing front, the prices paid index fell to a still-high 73.0 (NSA) in June, a 9.1-point drop—the largest decline since July 2022—from 82.1 in May, indicating raw materials prices rose for the 21st straight month but at the slowest rising pace since February. The index remained well above a low of 39.4 in December 2022 but below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. In June, 55.1% (NSA) of respondents reported higher prices while 9.2% reported price declines.

In other ISM series not included in the composite index, the new export orders index fell to 48.5 in June from 50.6 in May, indicating new export orders contracted for the third time in four months. The index was up from a low of 40.1 in May 2025 but down from a high of 52.4 in January 2025 and a peak of 57.1 in February 2022. The imports index edged down to 52.9 in June from 53.0 in May, suggesting imports expanded for the fifth successive month. The index was below its recent high of 54.9 in February but above a low of 39.9 in May 2025. The order backlog index decreased to 50.5 (NSA) in June from 52.2 in May, showing backlog levels grew at the slowest pace in six months. The index was below a high of 56.6 in February and a peak of 70.6 in May 2021 but well above a low of 37.5 in May 2023.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- ISM Mfg. PMI down slightly to 53.3 in June; sixth straight month above 50.
- Production (52.2) expands for the eighth consecutive mth.; new orders (56.0) for the sixth successive mth.
- Employment (49.7) contracts for the 33rd straight mth.; at the slowest contraction pace since Jan. ’25.
- Prices Index (73.0) at a four-month low, still indicating prices rising for the 21st consecutive mth.
- Exports (48.5) contract for the third time in four mths.; imports (52.9) continue to grow.

U.S. ISM Manufacturing PMI Still Expansionary in June; New Orders and Production Growing at a Slower Pace; Employment Contracting

Michael J. Moran

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The monthly report on construction activity receives scant attention in the financial press, and investors and traders in financial markets typically pay little heed. However, it is a valuable report for economists, as it provides a broad-based view of building activity, covering private residential and business construction, as well as government-related activity. The figures feed into the calculation of GDP. Unfortunately, results have been soft since early 2025.

Total construction activity rose 0.1 percent in May, marking the third consecutive increase. However, the gains have not been especially large, averaging 0.3%, and they have barely dented the string of weak readings in the preceding 17 months. The year-over-year change in May totaled -1.5%.

Private residential construction, the largest component of the total (41% share), rose 0.3% in May, adding to an average gain of 1.1% in the prior two months and leaving a year-over-year increase of 1.8% (chart, upper left). Most of the advance in the past year was the result of improvements to existing homes (up 8.1%). Construction of new multi-family units has shown little net change in the past year or so, while new single-family building has traced a mild downward trend (off 4.0% in the past year). Public construction has been flat in the past year, with both the federal government and state and local governments showing little net change (chart, upper right).

Private nonresidential construction (34% of the total) has received considerable press attention in the past few years because of explosive growth in the building of data centers. Growth has indeed been vigorous. Building started in 2020 and grew moderately at first, but this sector took off in 2022, about the time when artificial intelligence models became publicly available (chart, lower left, in levels to show the strong trend more clearly). Average annual growth for the three years ended 2025 totaled 48%.

Interestingly, despite the rapid growth in the building of data centers, the private nonresidential sector has been the weakest area of the construction report, with activity trending lower since early 2025 (chart, lower right). Some components of private nonresidential construction have held steady or improved (e.g. amusement & recreation, electric power), but three areas stand out on the soft side: general office, commercial, and manufacturing.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- Building activity in the US was firm in 2023 and 2024, but it has lost ground since then.
- Government-related construction and private residential building have been little changed in the past year or so.
- Private nonresidential construction has been notably weak, despite robust activity in the building of data centers.

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