Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803d.jpg" align="left" border="0" height="265" width="353">
The FACT: German ex-auto retail sales fell
sharply in June, the second sharp drop in a row after posting a strong
gain in April. 
 

THE REVERSAL: After a terrible January
German non-auto retail sales have been on a nice strong recovery path
as sales cut their decline of over 1% (m/m) in January to drop of -0.2%
in February then rose in March and rose strongly in April by 1.8%. That
was before this new episode in which they have posted back to back
large drops in May and in June. 
 

THE IMPACT: Despite the disappointing
numbers in the last two months, earlier increases will hold retail
sales ex-autos flat in real terms; the nominal numbers will rise by
1.7% at an annual rate in Q2. 
 

THE PARADOX: The retail sales report was a
bitter one for June and it comes in a day that Europe-wide and German
MFG PMI results we better-than-expected. The EMU report registered its
second highest month-to-month gain in its relatively modest history-
still an impressive jump. The German MFG reading rose to 45.7 on its
largest point gain ever, reaching a ten-month high, although still
indicating a declining state. All of that is impressive. 
 

THE UPSHOT: So the day&#8217;s reports are mixed.
In Europe and in Germany manufacturing is making a strong step toward
recovery. Still, the level of the reading tells us that the strong
month-to-month improvement leaves industry output contracting. The
retailing sector that had begun to look like it was in a state of
repair is now looking much worse. While the quarter will not end too
badly for German retail sales that is because of past strength. The
recent collapse in retail sales should be a warning to policymakers
about complacency &#8211; even in the face of a manufacturing turnaround that
is in progress. 
 

THE FUTURE: The new bout of retail weakness
puts retail sales in a deep hole from which to start off in 2009-Q3.
For example if German retail sales do not rise in July they will carry
a growth rate off the previous quarter of -6.4% at annual rate in Q3
over Q2. This is a big inherited weakness that is unlikely to spur any
increase in the output of consumer goods in Germany &#8211; setting aside the
auto sector where special incentives are having a positive impact. The
optimistic spin here is that all of consumer attention is going into
the auto incentives and that is leaving other retail behind. Things may
not be as weak as they seem by looking at non-auto retail sales alone.
That may be true, but that is only a matter of solace if attention and
spending in the non-auto sector turns up, because it is starting off Q3
in a really deep hole. The auto sales revival in Q2 will only make it
that much more difficult to get Q3 sales higher. In other words if the
auto incentives don&#8217;t stay in place and do not continue to have a
strong positive impact, German overall retail sales will become a heavy
negative weight on German GDP in Q3. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> German
Real and Nominal Retail
Sales
</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp; Nominal</td>
<td>Jun-09</td>
<td>May-09</td>
<td>Apr-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Year Ago</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.6%</td>
<td>-1.4%</td>
<td>1.8%</td>
<td>-4.7%</td>
<td>-3.9%</td>
<td>-2.2%</td>
<td>1.6%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">&nbsp;
Real</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.8%</td>
<td>-1.3%</td>
<td>1.4%</td>
<td>-6.9%</td>
<td>-5.5%</td>
<td>-1.9%</td>
<td>-1.7%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

The FACT: German ex-auto retail sales fell sharply in June, the second sharp drop in a row after posting a strong gain in April. THE REVERSAL: After a terrible January German non-auto retail sales have been on a nice strong recovery [...]

German Retail Sales Take A Dive - Without The Swan

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803e.jpg" width="353">
It&#39;s been a long time coming, but a bottoming of the two-year decline in construction outlays arrived in 2008. During June, the value of overall construction put-in-place ticked up 0.3% after a little-revised 0.8% May slip, and the latest beat expectations for a 0.5% decline. More to the point, however, was that outlays through June versus January fell just 2.1% (AR) versus the 9.9% three-month rate of decline through January.
Private nonresidential building outlays continued to support overall construction activity. Though the monthly increases so far this year have been small, the gains versus January lead to an 8.6% annual rate of growth and that reverses the decline through the beginning of this year.Spending in virtually all sectors has turned positive, notably in the education, health care and transportation areas. The rate of decline in office construction also has moderated but still is quite negative.
The best that can be pointed out about residential building activity is that there was a 0.5% uptick in June, but that only lessened the negative growth rate this year to -25.9%, half that at its worst. Single-family home construction is down by nearly half from its January level while multi-family construction fell the same 7% it did did in May (-33.1% y/y).Spending on improvements reversed all of a 1.2% May decline and have risen at a 12.3% annual rate since January.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803f.jpg" width="353">
Public construction activity was firm again during June and the 1.0% gain lifted spending since January at quite-strong 17.9% rate since January. The increase has been led by strong gains in the heath care (24.0% y/y), educational (4.6% y/y) and transportation (+1.0% y/y) areas.
The construction put-in-place figures are available in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Construction (%)</th>
<th scope="col">June</th>
<th scope="col">May</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">Total</td>
<td>0.3</td>
<td>-0.8</td>
<td>-10.2</td>
<td>-6.9</td>
<td>-1.6</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.1</td>
<td>-1.4</td>
<td>-16.3</td>
<td>-11.1</td>
<td>-5.7</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.5</td>
<td>-3.1</td>
<td>-30.0</td>
<td>-29.1</td>
<td>-19.7</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.5</td>
<td>-0.4</td>
<td>-4.8</td>
<td>13.2</td>
<td>23.1</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>1.0</td>
<td>0.4</td>
<td>5.1</td>
<td>5.6</td>
<td>13.1</td>
<td>9.3</td>
</tr>
</tbody>
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It's been a long time coming, but a bottoming of the two-year decline in construction outlays arrived in 2008. During June, the value of overall construction put-in-place ticked up 0.3% after a little-revised 0.8% May slip, and the [...]

Bottoming Of U.S. Construction Spending Evident For A Fifth Month

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803a.jpg" align="right" border="0" height="265" width="353">Though
overall activity declined again last month, the recession in the
factory sector continued to moderate, according to The National
Association of Purchasing Management. Its July composite index rose to
48.9 from an unrevised June reading of 44.8 and reached it's highest
level since August of last year. The August figure was up from the low
of 32.9 hit last December. (Any reading below the break-even point of
50 suggests declining activity.) The July figure about matched
Consensus expectations. The ISM data is available in Haver's USECON
database. Improvement in the components of the overall
June ISM index again was broad-based. The production component surged
to 57.9, up from the low of 26.3 in December, and was at its highest
since June of 2007. 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. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803b.jpg" align="right" border="0" height="265" width="353">
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 new orders figure also jumped sharply
to the highest level in nearly two years. At 55.3 it was up from the
December low of 23.1. Suggesting some stabilization in the recessions
abroad was a modest rise in the export order index to 50.5 versus the
December low of 35.5. 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. Factory sector improvement also was
indicated by a rise in the employment index. The jump to 45.6 was to
its highest level since last August and that was up from the February
low of 26.1. 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/090803c.jpg" align="right" border="0" height="265" width="353">
The rate of inventory destocking picked finally may have
stabilized as indicated by a modest rise in the inventory index to
33.5. It still was near the lowest level since 1982. That improvement
brought with it another decline in the speed of supplier deliveries. At
52.0, the vendor performance index rose for the fourth consecutive
month to its highest level in one year. The separate index of prices
paid again rose with improved factory sector activity levels. At 55.0,
the reading above the break-even level of 50 was its highest since last
August and it's 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. 
Below The Line: Estimates of Negative Equity Among Nonprime Mortgage
Borrowers from the Federal Reserve Bank of New York can be
found <a href="http://www.newyorkfed.org/research/epr/09v15n1/0907haug.pdf">
here</a>.&nbsp;
<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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">June '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>48.9</td>
<td>44.8</td>
<td>49.5</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>55.3</td>
<td>49.2</td>
<td>44.9</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>45.6</td>
<td>40.7</td>
<td>51.0</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>55.0</td>
<td>50.0</td>
<td>88.5</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
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Though overall activity declined again last month, the recession in the factory sector continued to moderate, according to The National Association of Purchasing Management. Its July composite index rose to 48.9 from an unrevised June [...]

ISM Factory Sector Index Reaches Its Highest Level In Nearly One Year

ISM Factory Sector Index ReachesIts Highest Level In Nearly One Year

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731e.jpg" width="353">
Employment compensation remained sluggish in Q2, although it picked up slightly. The total employment cost index rose 0.4%, following Q1&#39;s 0.3% and also a bit better than expectations for 0.3%. However, the improvement came in state and local government workers, who saw a 1.0% rise compared with 0.8% in Q1; private industry workers&#39; compensation had a second consecutive record-small 0.2% increase. On a year-to-year basis, the total slower more, with a rise of just 1.8% from 2.1% in Q1.
Wage and salary growth also ticked up from 0.3% in Q1 to 0.4% in Q2. As with total compensation, the &quot;gain&quot; occurred among state and local governments, which went from 0.7% to 1.0%. Private sector workers got a slim 0.2% raise, the same as the quarter before.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731f.jpg" width="353">
These gains for state and local governments are interesting. Both major categories had a marked acceleration in wages. Public administration went from 0.8% in Q1 to 1.2% in Q2, and education and health services from 0.5% to 0.9%. The public administration number is the strongest since Q4 2006, while education and health is marginally more than the recent trends. In light of recent budget pressures in that sector, these labor cost increases would seem to be unsustainable.
Total benefit costs for all civilian workers slowed to a 0.3% increase in Q2 from 0.5% in Q1. This produced a 1.8% year-to-year increase; it is the lowest since mid-1997, but not worse than that period. The associated non-published information on health benefit costs showed a 4.4% rise in the latest 12 months, about in line with the trends of the last two or three years.
The employment cost index figures are available in Haver&#39;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/@EB/@EB08/@EB08.HTM">ECI - Private Industry Workers</a> (%)</th>
<th scope="col">2Q &#39;09</th>
<th scope="col">1Q &#39;09</th>
<th scope="col">4Q &#39;08</th>
<th scope="col">2Q 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">Compensation</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>3.0</td>
<td>3.4</td>
<td>&nbsp;2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.2</td>
<td>0.2</td>
<td>0.4</td>
<td>1.3</td>
<td>2.6</td>
<td>2.4</td>
<td>2.9</td>
</tr>
</tbody>
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Employment compensation remained sluggish in Q2, although it picked up slightly. The total employment cost index rose 0.4%, following Q1's 0.3% and also a bit better than expectations for 0.3%. However, the improvement came in state [...]

U.S. Employment Cost Index Remains Weak, But State & Local Government Workers See Some Pickup

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731d.jpg" align="left" border="0">
Inflation remains under control in the EMU region in July.
Despite ECB concerns about inflation and German and other concerns
about the degree of stimulus money supply growth remains very tepid in
the EMU region and inflation continues to drop. In July the FLASH HICP
(a figure for which there are no details available) fell by 0.2%.
Overall inflation on this measure is a negative 0.6% over 12-months and
is running at a pace of zero over three months. 
 

HICP inflation has fallen in two of the last three months in
Germany. German inflation is down by 0.7% over 12-months. Inflation
even fell in Italy in July and prices in Italy are falling over
12-months as well. 
 

On balance the news from Europe is quite good on the inflation
front. Japan also reported out a decline in CPI prices. For Japan it
was June inflation falling by 1.7% Yr/Yr. 
 

Growth: both sides of the pond 
The US GDP report reverberated with signs that the slowdown is abating
as US exports cut the rate of descent and most US GDP components cut
their rate of descent as well. US GDP dropped at just a 1% annual rate,
making positive growth in Q3 a real possibility. The fact that nearly
all GDP components in the US cut their pace of decline is a good sign.
The fact that inflation remains under control throughout the global
economy is another good sign. The data from the EU Commission yesterday
reminded us that although &#8216;things&#8217; are improving the diffusion readings
on growth by sector show that that contraction is overwhelmingly the
name of the game across Europe. The US alone looks poised to break the
growth barrier any minute. 
 

Growth, inflation and central banks 
Today is a day when we are getting some of the news we have been
waiting on for a long time. It is still not clear how much of an
inflation threat we have when the US economy turns around. For now the
growth turnaround appears to be nearly at hand. Inflation appears to
still be well under wraps. It seems that the world&#8217;s central banks are
in a good a position to look at what they have done and to make the
needed adjustments without creating one sort of chaos or another. But
you never can tell until they have done something. The one fly in the
ointment is the still large external imbalances and the behavior of
exchange rates. Everyone seems to want a weak currency and
mathematically it just is not possible. This will be the market to keep
close watch on as things begin to improve. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="8" scope="col" class="firstcol">Trends
in EMU HICP; Flash Index</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.0%</td>
<td>1.0%</td>
<td>0.9%</td>
<td>1.3%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.8%</td>
<td>1.1%</td>
<td>-1.5%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>1.2%</td>
<td>1.9%</td>
<td>2.5%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.4%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-1.1%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>4.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>1.0%</td>
<td>-0.5%</td>
<td>-1.0%</td>
<td>5.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Core excl FE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>1.2%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.9%</td>
<td>1.6%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>3.4%</td>
</tr>
<tr>
<td colspan="4">Blue shaded area data trail by one
month</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

Inflation remains under control in the EMU region in July. Despite ECB concerns about inflation and German and other concerns about the degree of stimulus money supply growth remains very tepid in the EMU region and inflation [...]

EMU Inflation Rate Moves Lower

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731a.jpg" align="right" border="0" height="265" width="353">The
Commerce
Department indicated that real GDP declined last quarter at a 1.0%
annual rate, indicating a slowing in the U.S. recession. The diminution
in the rate of GDP decline versus the prior two quarters was due to a
reduced rate of inventory decumulation and a smaller shortfall in
domestic sales. The 2Q reading compares to Consensus expectations for a
1.5% decline. Revisions to past data, nonetheless, indicate a greater
decline in GDP for all of the current recession. It now amounts to a
3.7% drop since the official peak in 4Q '07. Also, comprehensive
revision of the National Income Accounts, the first since 2003,
incorporate some restructuring of PCE categories and a new impact of
natural disasters. In addition there are new input-output tables and
re-indexing to 2005=100.

Though its magnitude
diminished somewhat last quarter to 0.8 percentage points, the
reduction of unwanted inventories has been a major force behind this
recession. Three factors are behind the large size: 1) The size of the
shortfall in final sales, 2) No inclination to hold inventories due to
rising prices and 3) Tighter inventory management systems. The negative
contribution from inventories this recession rivals the
early-1980s.&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731b.jpg" align="right" border="0" height="265" width="353">
Improvement in the foreign
trade sector helped the domestic economy last quarter, but for reasons
that emphasize the weakness in global activity. Improvement in real net
exports added 1.4 percentage points to 2Q GDP growth after a 2.6 point
addition during 1Q. That addition occurred because a 7.0% (-15.7% y/y)
decline in exports was accompanied by a 15.1% (-18.6% y/y) decline in
imports.&nbsp;Credit storm sinking global trade
from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=440A110B-5056-9F12-1273B38469A2401E&amp;method=display_body">here</a>.
Domestic demand remained under pressure last quarter, but
the negative forces eased somewhat from earlier in the recession. After
having declined over 3% in each of the final quarters of 2008, real
personal consumption expenditures last quarter slipped at a 1.2% annual
rate (-1.8% y/y), following a 0.6% 1Q decline. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731c.jpg" align="right" border="0" height="265" width="353">
The auto sector
exemplifies this moderation in decline. Spending on motor vehicles fell
at an 11.9% rate in 2Q after a 6.7% 1Q gain, compared to quarterly
declines between 20% and 40% last year. Weak corporate profits,
however, continue to prompt weakness in business fixed investment which
fell last quarter at an 8.9% rate (-19.5% y/y). These figures, however,
compare favorably to the severely depressed activity in the housing
sector. Residential investment fell last quarter at a 29.3% annual rate
(-27.1% y/y) which was every bit like the declines since late-2006.

Finally, improved spending by the government sector
helped to offset weakness in private sector spending. A 5.6% 2Q
increase (2.2% y/y) was the strongest since 2003. It was fueled by a
10.9% (6.4% y/y) gain in Federal spending which reflected a 13.3 (3.2%
y/y) rise in defense expenditures. Even spending by states and
localities rose for the first time in three quarters (-0.3%
y/y).Pricing
power has suffered as a result of economic weakness. The
chained GDP price deflator rose at just a 0.2% annual rate last quarter
and the uptick pulled the y/y gain down to 1.6% which was its weakest
since 2002. Expectations had been for a 1.0% quarterly rise. Domestic
prices, however, were even weaker. The 0.7% uptick followed a sharp 1Q
decline and pulled the y/y change to a negative 0.3%. The PCE price
index recovered all of a 1Q decline but the y/y decline of 0.2% is the
weakest price performance since 1950. The residential investment chain
price index made up half of the 1Q decline and remained down a
near-record 4.0% y/y. The weakness in business spending caused the
nonresidential investment price index to fall for the second straight
quarter (+0.9% y/y). The U.S. National Income &amp; Product
Account data is available in Haver's USECON and the
USNA databases.
<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/@E7/@E701/@E701.HTM">Chained
2005$, % AR</a></th>
<th scope="col">2Q '09 (Advance)</th>
<th scope="col">1Q '09 (Final)</th>
<th scope="col">4Q '08</th>
<th scope="col">2Q 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">GDP</td>
<td>-1.0</td>
<td>-6.4</td>
<td>-5.4</td>
<td>-3.9</td>
<td>0.4</td>
<td>2.1</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>-0.8</td>
<td>-2.4</td>
<td>-0.6</td>
<td>-0.9</td>
<td>-0.4</td>
<td>-0.4</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.2</td>
<td>-4.1</td>
<td>-4.7</td>
<td>-3.0</td>
<td>0.8</td>
<td>2.5</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>1.4</td>
<td>2.6</td>
<td>-0.1</td>
<td>0.9</td>
<td>-1.2</td>
<td>0.8</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-1.5</td>
<td>-6.4</td>
<td>-4.9</td>
<td>-3.9</td>
<td>-0.4</td>
<td>1.7</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>0.2</td>
<td>1.9</td>
<td>0.1</td>
<td>1.5</td>
<td>2.1</td>
<td>2.9</td>
<td>3.3</td>
</tr>
</tbody>
</table>

</body></html>

The Commerce Department indicated that real GDP declined last quarter at a 1.0% annual rate, indicating a slowing in the U.S. recession. The diminution in the rate of GDP decline versus the prior two quarters was due to a reduced rate [...]

Rate of U.S. GDP Decline Slows in Q2 2009

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731a.jpg" align="right" border="0" height="265" width="353">The
Commerce
Department indicated that real GDP declined last quarter at a 1.0%
annual rate, indicating a slowing in the U.S. recession. The diminution
in the rate of GDP decline versus the prior two quarters was due to a
reduced rate of inventory decumulation and a smaller shortfall in
domestic sales. The 2Q reading compares to Consensus expectations for a
1.5% decline. Revisions to past data, nonetheless, indicate a greater
decline in GDP for all of the current recession. It now amounts to a
3.7% drop since the official peak in 4Q '07. Also, comprehensive
revision of the National Income Accounts, the first since 2003,
incorporate some restructuring of PCE categories and a new impact of
natural disasters. In addition there are new input-output tables and
re-indexing to 2005=100.

Though its magnitude
diminished somewhat last quarter to 0.8 percentage points, the
reduction of unwanted inventories has been a major force behind this
recession. Three factors are behind the large size: 1) The size of the
shortfall in final sales, 2) No inclination to hold inventories due to
rising prices and 3) Tighter inventory management systems. The negative
contribution from inventories this recession rivals the
early-1980s.&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731b.jpg" align="right" border="0" height="265" width="353">
Improvement in the foreign
trade sector helped the domestic economy last quarter, but for reasons
that emphasize the weakness in global activity. Improvement in real net
exports added 1.4 percentage points to 2Q GDP growth after a 2.6 point
addition during 1Q. That addition occurred because a 7.0% (-15.7% y/y)
decline in exports was accompanied by a 15.1% (-18.6% y/y) decline in
imports.&nbsp;Credit storm sinking global trade
from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=440A110B-5056-9F12-1273B38469A2401E&amp;method=display_body">here</a>.
Domestic demand remained under pressure last quarter, but
the negative forces eased somewhat from earlier in the recession. After
having declined over 3% in each of the final quarters of 2008, real
personal consumption expenditures last quarter slipped at a 1.2% annual
rate (-1.8% y/y), following a 0.6% 1Q decline. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731c.jpg" align="right" border="0" height="265" width="353">
The auto sector
exemplifies this moderation in decline. Spending on motor vehicles fell
at an 11.9% rate in 2Q after a 6.7% 1Q gain, compared to quarterly
declines between 20% and 40% last year. Weak corporate profits,
however, continue to prompt weakness in business fixed investment which
fell last quarter at an 8.9% rate (-19.5% y/y). These figures, however,
compare favorably to the severely depressed activity in the housing
sector. Residential investment fell last quarter at a 29.3% annual rate
(-27.1% y/y) which was every bit like the declines since late-2006.

Finally, improved spending by the government sector
helped to offset weakness in private sector spending. A 5.6% 2Q
increase (2.2% y/y) was the strongest since 2003. It was fueled by a
10.9% (6.4% y/y) gain in Federal spending which reflected a 13.3 (3.2%
y/y) rise in defense expenditures. Even spending by states and
localities rose for the first time in three quarters (-0.3%
y/y).Pricing
power has suffered as a result of economic weakness. The
chained GDP price deflator rose at just a 0.2% annual rate last quarter
and the uptick pulled the y/y gain down to 1.6% which was its weakest
since 2002. Expectations had been for a 1.0% quarterly rise. Domestic
prices, however, were even weaker. The 0.7% uptick followed a sharp 1Q
decline and pulled the y/y change to a negative 0.3%. The PCE price
index recovered all of a 1Q decline but the y/y decline of 0.2% is the
weakest price performance since 1950. The residential investment chain
price index made up half of the 1Q decline and remained down a
near-record 4.0% y/y. The weakness in business spending caused the
nonresidential investment price index to fall for the second straight
quarter (+0.9% y/y).
 The U.S. National Income &amp; Product
Account data is available in Haver's USECON and the
USNA databases.
<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/@E7/@E701/@E701.HTM">Chained
2005$, % AR</a></th>
<th scope="col">2Q '09 (Advance)</th>
<th scope="col">1Q '09 (Final)</th>
<th scope="col">4Q '08</th>
<th scope="col">2Q 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">GDP</td>
<td>-1.0</td>
<td>-6.4</td>
<td>-5.4</td>
<td>-3.9</td>
<td>0.4</td>
<td>2.1</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>-0.8</td>
<td>-2.4</td>
<td>-0.6</td>
<td>-0.9</td>
<td>-0.4</td>
<td>-0.4</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.2</td>
<td>-4.1</td>
<td>-4.7</td>
<td>-3.0</td>
<td>0.8</td>
<td>2.5</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>1.4</td>
<td>2.6</td>
<td>-0.1</td>
<td>0.9</td>
<td>-1.2</td>
<td>0.8</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-1.5</td>
<td>-6.4</td>
<td>-4.9</td>
<td>-3.9</td>
<td>-0.4</td>
<td>1.7</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>0.2</td>
<td>1.9</td>
<td>0.1</td>
<td>1.5</td>
<td>2.1</td>
<td>2.9</td>
<td>3.3</td>
</tr>
</tbody>
</table>

EMU Inflation Rate Moves
Lower&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> July 31, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731d.jpg" align="left" border="0">
Inflation remains under control in the EMU region in July.
Despite ECB concerns about inflation and German and other concerns
about the degree of stimulus money supply growth remains very tepid in
the EMU region and inflation continues to drop. In July the FLASH HICP
(a figure for which there are no details available) fell by 0.2%.
Overall inflation on this measure is a negative 0.6% over 12-months and
is running at a pace of zero over three months. 
 

HICP inflation has fallen in two of the last three months in
Germany. German inflation is down by 0.7% over 12-months. Inflation
even fell in Italy in July and prices in Italy are falling over
12-months as well. 
 

On balance the news from Europe is quite good on the inflation
front. Japan also reported out a decline in CPI prices. For Japan it
was June inflation falling by 1.7% Yr/Yr. 
 

Growth: both sides of the pond 
The US GDP report reverberated with signs that the slowdown is abating
as US exports cut the rate of descent and most US GDP components cut
their rate of descent as well. US GDP dropped at just a 1% annual rate,
making positive growth in Q3 a real possibility. The fact that nearly
all GDP components in the US cut their pace of decline is a good sign.
The fact that inflation remains under control throughout the global
economy is another good sign. The data from the EU Commission yesterday
reminded us that although &#8216;things&#8217; are improving the diffusion readings
on growth by sector show that that contraction is overwhelmingly the
name of the game across Europe. The US alone looks poised to break the
growth barrier any minute. 
 

Growth, inflation and central banks 
Today is a day when we are getting some of the news we have been
waiting on for a long time. It is still not clear how much of an
inflation threat we have when the US economy turns around. For now the
growth turnaround appears to be nearly at hand. Inflation appears to
still be well under wraps. It seems that the world&#8217;s central banks are
in a good a position to look at what they have done and to make the
needed adjustments without creating one sort of chaos or another. But
you never can tell until they have done something. The one fly in the
ointment is the still large external imbalances and the behavior of
exchange rates. Everyone seems to want a weak currency and
mathematically it just is not possible. This will be the market to keep
close watch on as things begin to improve. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="8" scope="col" class="firstcol">Trends
in EMU HICP; Flash Index</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.0%</td>
<td>1.0%</td>
<td>0.9%</td>
<td>1.3%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.8%</td>
<td>1.1%</td>
<td>-1.5%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>1.2%</td>
<td>1.9%</td>
<td>2.5%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.4%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-1.1%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>4.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>1.0%</td>
<td>-0.5%</td>
<td>-1.0%</td>
<td>5.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Core excl FE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>1.2%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.9%</td>
<td>1.6%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>3.4%</td>
</tr>
<tr>
<td colspan="4">Blue shaded area data trail by one
month</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
U.S. Employment Cost Index Remains
Weak, But State &amp; Local Government Workers See Some Pickup 
by <a href="/comment/Stone.html">Carol
Stone</a> July 31, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731e.jpg" align="left" border="0" height="265" width="353">
Employment compensation remained sluggish in Q2, although it
picked up slightly. The total employment cost index rose 0.4%,
following Q1's 0.3% and also a bit better than expectations for 0.3%.
However, the improvement came in state and local government workers,
who saw a 1.0% rise compared with 0.8% in Q1; private industry workers'
compensation had a second consecutive record-small 0.2% increase. On a
year-to-year basis, the total slower more, with a rise of just 1.8%
from 2.1% in Q1.
Wage and salary growth also ticked up from 0.3% in Q1 to 0.4%
in Q2. As with total compensation, the "gain" occurred among state and
local governments, which went from 0.7% to 1.0%. Private sector workers
got a slim 0.2% raise, the same as the quarter before.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731f.jpg" align="right" border="0" height="265" width="353">
These gains for state and local governments are interesting.
Both major categories had a marked acceleration in wages. Public
administration went from 0.8% in Q1 to 1.2% in Q2, and education and
health services from 0.5% to 0.9%. The public administration number is
the strongest since Q4 2006, while education and health is marginally
more than the recent trends. In light of recent budget pressures in
that sector, these labor cost increases would seem to be unsustainable.
Total benefit costs for all civilian workers slowed to a 0.3%
increase in Q2 from 0.5% in Q1. This produced a 1.8% year-to-year
increase; it is the lowest since mid-1997, but not worse than that
period. The associated non-published information on health benefit
costs showed a 4.4% rise in the latest 12 months, about in line with
the trends of the last two or three years.
The employment cost index 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/@EB/@EB08/@EB08.HTM">ECI
- Private Industry Workers</a> (%)</th>
<th scope="col">2Q '09</th>
<th scope="col">1Q '09</th>
<th scope="col">4Q '08</th>
<th scope="col">2Q 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">Compensation</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp;
Salaries</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>3.0</td>
<td>3.4</td>
<td>&nbsp;2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.2</td>
<td>0.2</td>
<td>0.4</td>
<td>1.3</td>
<td>2.6</td>
<td>2.4</td>
<td>2.9</td>
</tr>
</tbody>
</table>
</body></html>

Rate of U.S. GDP Decline Slows inQ2 2009

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

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

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Winnie Tapasanun

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The ISM U.S. manufacturing PMI held at a lower-than-expected 52.7 in April and March following a 0.2-point easing to 52.4 in February, data from the Institute for Supply Management showed. The April reading, above the 50 expansion-contraction dividing line, indicated the U.S. manufacturing sector expanded for the fourth successive month. A reading of 53.0 for April had been expected in the Action Economics Forecast Survey. The April manufacturing PMI, while above a contraction-level 48.8 in April 2025 and a low of 47.0 in October 2024, remained below a peak of 63.8 in March 2021.

The production index slipped to 53.4 in April from 55.1 in March, indicating production expanded for the sixth consecutive month but at the slowest pace since December. The index was above its recent low of 44.8 in April 2025 but below a peak of 66.5 in March 2021. In April, 28.3% (NSA) of respondents reported higher production while 13.0% reported lower production. The new orders index rebounded to 54.1 in April from 53.5 in March, signaling new orders grew for the fourth straight month following four successive months of contraction. The index remained well above a low of 41.8 in January 2023. In April, an increased 31.6% (NSA) of respondents reported higher new orders while 15.2% reported declines. The inventories index increased to 49.0 in April from 47.1 in March, marking the 12th straight month of contraction. The index was below its recent high of 52.7 in March 2025 but above a low of 43.8 in October 2024. Meanwhile, the supplier deliveries index rose to 60.6 in April from 58.9 in March, indicating slower delivery performance for the fifth consecutive month after faster deliveries in November. In April, 22.6% (NSA) of respondents reported slower delivery speeds while only 1.5% reported faster speeds.

On the labor front, the employment index slid to 46.4 in April from 48.7 in March, showing employment contracted for the 31st straight month and at the lowest level since December following a brief expansion in September 2023. The index was above its recent low of 44.1 in November 2025 but below a high of 49.7 in January 2025 and a high of 56.5 in March 2022. In April, 17.5% (NSA) of respondents reported higher employment while 20.2% reported less hiring.

On the pricing front, the prices paid index jumped to 84.6 (NSA) in April from 78.3 in March, indicating raw materials prices rose for the 19th consecutive month and at the fastest pace since April 2022. 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 April, an increased 70.3% (NSA) of respondents reported higher prices while only 1.2% reported price declines.

In other ISM series not included in the composite index, the new export orders index fell to 47.9 in April from 49.9 in March, indicating new export orders contracted for the second successive month after expanding in February and January. The index was up from a low of 40.1 in May 2025 but down from its recent high of 52.4 in January 2025 and a high of 57.1 in February 2022. The imports index decreased to 50.3 in April from 52.6 in March, suggesting imports expanded at the weakest pace in three months. 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 declined to 51.4 (NSA) in April from 54.4 in March, showing backlog levels grew at the slowest pace in four months. The index was well above a low of 37.5 in May 2023 but far below a peak of 70.6 in May 2021.

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 at 52.7 in Apr. and Mar.; fourth consecutive month of expansion.
- Production (53.4) expands for the sixth straight mth.; new orders (54.1) for the fourth successive mth.
- Employment (46.4) contracts for the 31st straight mth.; at a four-month low.
- Prices Index (84.6) highest since Apr. ’22; prices rising for the 19th consecutive mth.
- Exports (47.9) contract; imports (50.3) still grow but at a three-month low.

U.S. ISM Manufacturing PMI Steady in April; New Orders and Production Growing; Employment Contracting

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GDP growth in Europe in the first quarter of 2026 continued to be weak. First-quarter annualized growth at 0.6% followed a fourth-quarter annualized growth rate at 0.8%. Year-over-year growth in the monetary union logged a 0.8% annual rate; that represents a slowdown from earlier quarters where the growth rates were generally above 1% and more on the order of 1.5% at an annual rate.

**Early GDP reporters in EMU**
Among the 8 early reporters of GDP in the first quarter, in the table, only three posted growth pickups compared to the previous quarter. Those were Belgium, with a growth rate in the first quarter annualized at 0.8%, up from 0.2% in Q4 2025; Germany, where the growth rate picked up to 1.3% in the first quarter from 1.0% in Q4; and Ireland, with a dubious acceleration of growth to a -7.8% annualized rate, improving from -14.5% annualized in Q4.

**Big country, small country**
The table also looks at growth divided into the four largest economies in the monetary union versus the rest of the monetary union. There we see a growth rate of 1% for the four largest economies, a slowdown from 1.3% in the fourth quarter. For the rest of the monetary union, the growth rate held at 0.5% in the first quarter, the same rate logged in the fourth quarter.

**Median growth**
The median growth rate among these reporters was 0.6%, the same as for the weighted growth rate in the EMU, while the median in the fourth quarter was 1.5% compared to a weighted growth rate for the monetary union at 0.8%.

**Ranking the growth rates vs. their own histories**
The ranking data on the far-right column rank growth in the first quarter on its year-over-year growth pace. On a historic profile, we see only three monetary union reporters with growth in the first quarter at a rate that exceeds median on data back to the 1990s. Those economies are Italy with a 52.2 percentile ranking, Spain with a 53.3 percentile ranking, and Portugal with a 65.2 percentile ranking. For the monetary union as a whole, the growth rate rank is 28.3%, placing it at a ranking between its lower 1/4 and lower 1/3. The median for the monetary union among these early reporting countries is a 32.6 percentile growth rate, and these compared to the United States where the growth rate has a 60.2 percentile standing.

Other data sources report that growth in the services sector has been extremely weak, while there actually has been some resilience in manufacturing. That is somewhat surprising given the Middle East War that affects the world trade and global supply chains. New disruptions because of war in the Middle East are a new fact of life. However, war itself sometimes is a stimulant to some forms of growth. These sector trends will be for us to watch, but for right now growth rates are not impressive and they're certainly not gaining momentum.

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Europe

GDP Remains Weak in EMU

Andrew Cates

**Front-End Yields Reflect Policy Reassessment**
Against a backdrop of key central bank meetings either having just taken place or imminent, short-dated government bond yields have moved decisively higher across most major economies since the escalation of the Middle East conflict, with the sharpest increase seen in the UK. The rise in 2-year yields reflects a repricing of near-term monetary policy expectations, as markets respond to the inflationary implications of higher energy prices and the growing likelihood that central banks will delay easing cycles. Moves have been most pronounced in economies where inflation is expected to be more persistent—most notably the UK—while increases have been more modest in the US and particularly Japan, where policy normalisation remains gradual. In effect, the front end of the curve is signalling a shift away from the “rate cuts soon” narrative that prevailed earlier in the year toward a more cautious, higher-for-longer policy outlook.

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**US Recession Risks Remain Contained—For Now**
Despite the recent deterioration in the macro backdrop, real-time recession risk indicators for the US remain relatively subdued. This is notable given the combination of softer growth momentum, higher bond yields and heightened geopolitical risk. The nowcast—derived from a blend of high-frequency activity data and financial stress measures—has historically tended to move sharply when conditions turn, rather than drift higher gradually. That asymmetry is important in the current environment. While recession risks are not yet flashing red, past cycles suggest they can reprice abruptly, and arguably at present if energy-driven inflation were to feed much more forcefully into financial conditions or begin to weigh more materially on demand.

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**Consumer Confidence Diverges: Europe and UK Slide, US Stabilises**
Consumer confidence has weakened across the major economies, but the deterioration has been more pronounced in the euro area and the UK than in the US. While sentiment in the US has recently edged up, it remains at relatively subdued levels. By contrast, confidence in Europe and the UK has fallen more sharply, reflecting greater exposure to higher energy costs and a more direct squeeze on real household incomes. This divergence is consistent with broader macro trends, suggesting that demand in Europe may prove more sensitive to the current shock, with weaker sentiment feeding more quickly into consumption.

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**Euro area Credit Conditions Turn More Restrictive**
The latest ECB lending survey points to a clear tightening in credit conditions across the euro area, with banks raising lending standards for both firms and households while loan demand weakens. This combination—more restrictive supply alongside softer demand—is typically associated with a cooling in activity, particularly in interest-sensitive sectors. Recent evidence suggests that higher perceived risks, rising funding costs and geopolitical uncertainty are all weighing on banks’ willingness to lend, while weaker confidence and reduced investment appetite are dampening borrowing needs. The result is a tightening in financial conditions that is likely to amplify the broader slowdown already evident in survey data, reinforcing the more fragile growth dynamics now emerging across the region.

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**An Intensifying AI Boom with Supply-Side Undercurrents**
Against the backdrop of surging AI-related investment, semiconductor prices are not just high—they are rising at an increasingly rapid pace. This chart shows a clear acceleration in both prices and export values, pointing to an intensifying boom in global chip demand. While this is in part a reflection of strong, structural demand, supply-side factors may also be playing a growing role. Although the Middle East is not a direct source of key chip-making minerals, it is central to the energy and petrochemical inputs that underpin semiconductor production. Ongoing geopolitical tensions are therefore likely feeding into higher costs and renewed frictions across supply chains. The combination of accelerating demand and tightening supply conditions suggests that semiconductor inflation could prove more persistent—and more globally consequential—than currently assumed.

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**Labour Markets Reflect the AI Acceleration**
Our final chart this week highlights the extent to which the current AI boom is now feeding through into labour markets. This high-frequency indicator—based on the share of job listings containing AI-related keywords—shows a sharp and sustained increase since the widespread adoption of generative AI tools in late 2022. What began as a more traditional build-out in machine learning roles has evolved into a broader and more intense wave of hiring tied to generative AI capabilities, with demand accelerating markedly across multiple economies. The scale and persistence of this trend point to a structural shift rather than a cyclical upswing, reinforcing the view that AI is becoming an increasingly important driver of investment, productivity expectations and, potentially, broader macroeconomic dynamics.

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Against a backdrop of persistent geopolitical tensions, firmer energy prices and a busy week of central bank meetings—including the Fed, ECB, BoE and BoJ—financial markets have remained notably resilient, even as the macro narrative has softened at the margin. The message from this week’s charts is one of growing tension beneath that surface calm. Front-end bond yields have moved higher, signalling a shift toward a more cautious, “higher-for-longer” policy outlook (chart 1). At the same time, real-time recession indicators for the United States suggest risks remain contained for now (chart 2). Consumer confidence data paint a more uneven picture, with sharper declines in the euro area and UK than in the US, highlighting regional vulnerabilities to the current energy shock (chart 3). The ECB’s latest bank lending survey reinforces this, pointing to tighter credit conditions and weaker demand—factors that are likely to weigh further on European growth (chart 4). By contrast, developments in the semiconductor sector underline a different dynamic: an intensifying global boom, with accelerating price pressures reflecting both strong AI-driven demand and emerging supply-side constraints linked indirectly to energy and logistics disruptions (chart 5). Finally, labour market data confirm that the AI surge is not merely a market narrative but a tangible structural shift, with hiring for AI-related roles accelerating across economies (chart 6). Taken together, these signals point to a more complex macro environment—one in which resilient markets coexist with softening growth, more persistent inflation risks and increasingly delicate policy trade-offs.

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Charts of the Week: Tension Beneath the Surface

Michael J. Moran

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Real GDP grew at an annual rate of 2.0% in the first quarter of 2026, almost identical to the expected advance of 2.1%. The latest change was comfortably within the range of recent observations and close to the economy’s potential rate of growth. The year-over-year change totaled 2.7%, but that shift reflected what might be viewed as a special factor (robust growth in the second and third quarters that offset a trade-tariff-induced drop in 2025-Q1 GDP).

Business fixed investment was the star of the show in the first quarter, registering growth of 10.4%. Outlays for information processing equipment and software were especially strong, while outlays for industrial equipment and Research & Development contributed positively as well. Outlays for structures remained decidedly soft, dropping for the ninth consecutive quarter. Building of data centers have been vigorous, but softness in offices and manufacturing facilities has dwarfed the strength in this new area.

Federal spending surged 9.4% in Q1, but the rise reflected the reopening of most federal agencies after their closure during much of the fourth quarter. Excluding this noise, support from the federal government has been softening. Nondefense outlays peaked in the fourth quarter of 2024, and they were 6.9% shy of that total in the first quarter. Defense spending also peaked in 2024-Q4 and has eased 2.4% since then. Defense spending most likely will grow in coming quarters because of the efforts in the Middle East. Orders for defense goods have already started to rise.

Consumer spending rose 1.5% in the first quarter, a bit shy of the 2.1% pace over the four quarters of last year and less than half the rates in 2023 and 2024. Consumer spending showed signs of softening in late 2025 and January of this year, but activity picked up in February and March. Firm tax refunds might have provided a boost to household spending in the latest months. Some of the tax cuts from the One Big Beautiful Bill were applied retroactively to 2025, but withholding schedules were not adjusted last year. Thus, many households are receiving larger-than-normal tax refunds.

International trade acted as a drag on economic growth in Q1, with net exports subtracting 1.3 percentage points from the GDP increase. Exports did well in the first quarter with growth of 12.9%, but imports were even stronger with a jump of 21.4%. The real trade deficit of $1.1 trillion was noticeably smaller than the shortfall of $1.4 trillion in 2025-Q1 when importers were rushing to get goods into the US before the imposition of tariffs. Still, the trade shortfall was sizeable and its effect on growth noticeable.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Robust business investment led the advance; moderate support from consumers.
- Government spending jumped with the reopening of most federal agencies.
- The trade sector remained volatile, making a sizeable negative contribution in Q1.

Q1 GDP: Weathering the Challenges; Trend-Like Growth

Sandy Batten

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This monthly report contains a wealth of information concerning the state of the consumer. The anticipation ahead of today’s report centered on how much the surge in energy prices since the escalation of the US-Iran conflict in early March would push up overall PCE inflation. Prices of energy goods and services jumped 11.6% m/m not annualized in March. This was the largest monthly increase since September 2005. As a result, the headline PCE price index increased 0.7% m/m (3.5% y/y versus 2.8% y/y in February), the largest monthly gain since July 2022 but in line with expectations of the Action Economics Forecast Survey.

The core index (that is, excluding food and energy prices) rose by a more modest 0.3% m/m in March, down from a 0.4% monthly increase in February and in line with expectations. However, the yearly rate rose further to 3.2% y/y in March from 3.0% in February, well above and moving away from the Fed’s 2% target. The FOMC left its fed funds rate target unchanged at yesterday’s meeting, but some committee members dissented, opposing the implied easing bias contained in the statement. Chair Powell, in his press conference, noted that a number of members have become more concerned over the inflation outlook and the possible need for a Fed response.

Nominal personal income posted a solid 0.6% m/m (3.7% y/y) increase in March following an upwardly revised unchanged reading in February (previously -0.1% m/m). The March increase was twice the 0.3% monthly gain expected by the Action Economics Forecast Survey. However, after adjusting for inflation, real personal income slipped 0.1% m/m in March on top of a 0.4% m/m decline in February.

Employee compensation continued to be a major driver of personal income in March. It rose 0.4% m/m (4.1% y/y) in March after a 0.2% monthly increase in February. In March, proprietors’ income jumped 2.8%. This outsized increase reflected payments to farmers from the federal government’s Farmer Bridge Assistance Program. Rental income rose a solid 0.7% m/m, the same gain as in February. Income from financial assets increased 0.4% m/m following a 0.9% m/m decline in February. Personal current transfer payments edged up 0.1% m/m versus a 0.3% m/m decline in February.

Nominal consumption expenditures jumped 0.9% m/m (5.7% y/y) in March following an upwardly revised 0.6% monthly gain in February (previously +0.5% m/m). Spending on goods rose 2.0% m/m (4.5% y/y) while spending on services increased 0.4% m/m (6.3% y/y). As for overall inflation, the surge in energy prices also accounted for a large portion of the March gain in nominal spending. After adjusting for overall inflation, real PCE rose a more modest 0.2% m/m following an upwardly revised 0.3% m/m increase in February (previously +0.1% m/m). Still, the solid gains in February and March provide a strong starting point for Q2. The March level is 1.5% at an annual rate above the Q1 average. For all of Q1, real PCE rose 1.6% q/q saar.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- The PCE price index jumped 0.7%, reflecting an 11.6% m/m surge in energy prices.
- The core index was up 0.3%, in line with expectations but still well above the Fed’s target.
- Personal income increased 0.6% m/m, led by a 0.4% m/m rise in compensation.
- Personal consumption jumped 0.9% m/m with a slight upward revision to February.
- However, much of the March gain in nominal consumption also reflected the jump in energy prices.
- Real consumption rose by a more modest 0.2% m/m.