Tom Moeller

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<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>
</table>
</body>
</html>

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

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 




<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>
</body></html>

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

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<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>
</table>
</body>
</html>

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

Robert Brusca

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<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

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 


<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

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 


<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

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090730c.jpg" align="left" border="0" height="265" width="353">BETTER:
The EU commission indices for EU and EMU continue to show substantial
progress. The EU index rose to 75.0 from 71.1 while the EU index rose
to 76.0 from 73.2. The better showing in the EMU rise implies a better
rise in the month by non EMU members of EU. On a mo/mo basis the UK
index did rise sharply by 7.3% compared to Spain&#8217;s 5.3%, the best among
large EMU nations. 
&#8230;but still low: Overall the EU and EMU indices are standing the bottom
26% to 21% of their respective ranges. That is still a very low
reading. But the UK has bounced some 31% from its lowest level on this
overall index and Italy has risen by 25%. The least rebound by a major
EU/EMU economy is the 11.9% rises from its low reading posted by
Germany. Germany also has the lowest ranked sentiment index among large
EU/EMU economies (even though it is third highest by raw score).
 INDUSTRY: EU industry readings are only
in the
19th percentile of their range like services. But unfortunately the
worst reading on its components are from the selling prices expectation
that is in the bottom 7% of its historic range and from orders that are
in the bottom 3% of their range (both overall orders and export
orders). The production trend is in the 23rd percentile of its range
and production expectations are in the 35th percentile or their range -
despite the weaker reading in orders. Employment is a sort of neutral
17.8 percentile reading which is the same as for EMU industry
confidence overall. So we can&#8217;t say for industry that the problem is
jobs, it&#8217;s just demand.&nbsp;

SERVICE: Services Confidence in EMU stands
at it 12.1% percentile lower than for EU overall (19.0%). The weakest
reading for services is from current employment which is as low a
reading as it ever has seen. Current demand is the next lowest in the
bottom 10 percentile of its range. The business climate in services
ranks in the 12th percentile overall. Expected demand and expected
employment are more upbeat but still in only the 15th percentile of
their respective ranges. Despite some monthly improvement employment in
this sector is weak and expectations while improving are still very
weak. The weakest service sector by the relative measure of the
position of the index in its range is France followed closely by Spain;
the strongest is the UK.

RETAILING: Retailing ranks in the 28th
percentile of its range in EMU, making it relatively less strong than
in EU (35th percentile). The present situation is rated as in the 26th
percentile; the expected business situation is at a higher raw reading
but a lower position in its range at the 23rd range percentile.
Employment expectations are a weak 8% reading. The Italy has the
highest retail range reading in the 46th range percentile compared to
the UK in the 42nd percentile while Spain is at a 28 percentile
reading, worst reading for a large EMU country.&nbsp;

CONSUMER CONFIDENCE: Consumer confidence
ranks about the same as the retailing reading, in the 29th percentile
of its EMU range (below the 32.4 percentile for EU). Spain and Italy
have the highest relative consumer rankings at or above a 50 percentile
range reading; the UK reading is at the 42nd percentile. Germany stands
the lowest among large EMU nations at the 16th percentile. EU consumers
rate the past 12-months as in the bottom 5% of all readings
historically. While the next 12-months reading posted a much, much
higher 48th percentile reading.&nbsp;

SUMMING UP: The consumer confidence results
epitomize the EU/EMU results. Current conditions have improved from
their worst. Yet the quantitative measures that look forward are not
yet very strong. Still expectations for the future are advancing
strongly in Europe. There seems to be a much more &#8216;hard to pin down&#8217;
blanket optimism about the future that is in existence.&nbsp; 
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol" colspan="13">EU
Sectors and Country level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>By Queue rank%</td>
<td>R-SQ 
w/Overall</td>
</tr>
<tr>
<td class="firstcol">Overall</td>
<td>75</td>
<td>71.1</td>
<td>67.9</td>
<td>64</td>
<td>26.3</td>
<td>242</td>
<td>116</td>
<td>60</td>
<td>56</td>
<td>100</td>
<td>3.6%</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-30</td>
<td>-33</td>
<td>-34</td>
<td>-36</td>
<td>19.6</td>
<td>244</td>
<td>7</td>
<td>-39</td>
<td>46</td>
<td>-7</td>
<td>2.8%</td>
<td>0.90</td>
</tr>
<tr>
<td class="firstcol">Consumer Confid</td>
<td>-21</td>
<td>-23</td>
<td>-26</td>
<td>-28</td>
<td>32.4</td>
<td>224</td>
<td>2</td>
<td>-32</td>
<td>34</td>
<td>-11</td>
<td>10.8%</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-14</td>
<td>-17</td>
<td>-17</td>
<td>-21</td>
<td>35.5</td>
<td>232</td>
<td>6</td>
<td>-25</td>
<td>31</td>
<td>-5</td>
<td>7.6%</td>
<td>0.66</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-37</td>
<td>-37</td>
<td>-39</td>
<td>-38</td>
<td>10.9</td>
<td>232</td>
<td>4</td>
<td>-42</td>
<td>46</td>
<td>-16</td>
<td>7.6%</td>
<td>0.47</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-19</td>
<td>-23</td>
<td>-26</td>
<td>-30</td>
<td>19.0</td>
<td>242</td>
<td>32</td>
<td>-31</td>
<td>63</td>
<td>11</td>
<td>3.6%</td>
<td>0.75</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>% m/m</td>
<td>&nbsp;</td>
<td>Jul-09</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>3.8%</td>
<td>4.3%</td>
<td>4.3%</td>
<td>76.0</td>
<td>21.7</td>
<td>236</td>
<td>117</td>
<td>65</td>
<td>53</td>
<td>100</td>
<td>6.0%</td>
<td>0.95</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>4.1%</td>
<td>4.3%</td>
<td>1.5%</td>
<td>80.8</td>
<td>17.6</td>
<td>235</td>
<td>121</td>
<td>72</td>
<td>49</td>
<td>100</td>
<td>6.4%</td>
<td>0.70</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.4%</td>
<td>4.4%</td>
<td>3.9%</td>
<td>81.2</td>
<td>19.8</td>
<td>236</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>6.0%</td>
<td>0.84</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>4.4%</td>
<td>1.4%</td>
<td>7.3%</td>
<td>83.7</td>
<td>30.1</td>
<td>228</td>
<td>122</td>
<td>67</td>
<td>55</td>
<td>100</td>
<td>9.2%</td>
<td>0.83</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>5.2%</td>
<td>2.0%</td>
<td>2.1%</td>
<td>79.0</td>
<td>24.7</td>
<td>230</td>
<td>117</td>
<td>67</td>
<td>50</td>
<td>100</td>
<td>8.4%</td>
<td>0.73</td>
</tr>
<tr>
<td class="firstcol">Memo:UK</td>
<td>7.3%</td>
<td>4.1%</td>
<td>7.8%</td>
<td>73.8</td>
<td>24.5</td>
<td>242</td>
<td>128</td>
<td>56</td>
<td>72</td>
<td>100</td>
<td>3.6%</td>
<td>0.59</td>
</tr>
<tr>
<td class="firstcol">Since April 1988</td>
<td></td>
<td></td>
<td>251</td>
<td>-Count</td>
<td>Services:</td>
<td>251</td>
<td>-Count</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan="9">Sentiment is an index, sector
readings are net balance diffusion measures</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>


</body></html>

BETTER: The EU commission indices for EU and EMU continue to show substantial progress. The EU index rose to 75.0 from 71.1 while the EU index rose to 76.0 from 73.2. The better showing in the EMU rise implies a better rise in the [...]

EMU Recovery Continues

Surging orders for computers and electronics propelling durable goods orders

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

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

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

US is big leader in global surge in private AI investment

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

Sharply rising share of AI-related jobs

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

Our global data offering is unparalleled in terms of coverage, quality, and organization. We offer 290+ databases from 2500 government and private sources, a wealth of key survey and forecast data covering the world’s economies, and a robust offering of archive databases that drive machine learning for big data applications.

Optimized for precision analytics, our data is seamlessly integrated with Microsoft Office and all leading statistical packages through our DLX® software and platform independent HaverView™ website. We further offer direct database feeds, client server or cloud-based delivery, and RESTful API.


Privacy Policy

Disclaimer

Contact us

Service Health

A premier time series data platform for the global strategy, research, and quant communities. 

New York

London

Singapore

Tokyo

Economy in Brief

Viewpoints

Contact Us

Our Data

Our Products

What We Do

Our Authors

About Us

Data News

Featured Data Additions

Resources

Release Calendars

Training Center

Webinars

Newsletters

Download Software

For Clients

Live Updates

Winnie Tapasanun

260630N3.jpg

260630O3.jpg

The Conference Board U.S. Consumer Confidence Index rose 0.7% m/m (-4.2% y/y) to a lower-than-expected 91.2 in June, the fourth monthly rise in five months, after a downwardly revised 3.4% decline to a four-month-low 90.6 in May (-0.7%; 93.1 initially). A reading of 94.3 had been expected in the Action Economics Forecast Survey. The June reading was 6.4% above a low of 85.7 in April 2025 but down from 95.2 in June 2025 and 19.1% below a high of 112.8 in November 2024.

Consumers' views of present economic conditions weakened for the second consecutive month in June, while the views of future economic conditions improved m/m. The Present Situation Index—which assesses current business and labor market conditions—fell 2.5% m/m (-12.5% y/y) to 116.4 in June, the lowest level since February 2021, following a 4.0% drop to 119.4 in May and two successive m/m increases. The index was lower than 133.0 in June 2025 and 25.0% below a high of 155.3 in June 2023. The Expectations Index—which measures the short-term outlook for income, business, and labor market conditions—rose 4.2% m/m (6.4% y/y) to 74.4 this month, the highest level since December and the second increase in three months, after a 2.7% decline to 71.4 in May. The index was higher than 69.9 in June 2025, while 20.6% below a high of 93.7 in November 2024.

Labor market readings showed less optimism this month. The jobs gap—representing the difference between respondents indicating that jobs are plentiful and those saying jobs are hard to get—dropped to 2.4% in June, the lowest reading since February 2021, from 5.0% in May. Calculated by Haver Analytics, this series had an 85% correlation with the unemployment rate over the last 20 years. The jobs plentiful measure inched up to 24.9% of respondents in June from 24.8% in May (the lowest since February 2021). Perceptions of the current labor market weakened, with the jobs hard-to-get measure rising to 22.5% this month, the highest level since January 2021, from 19.8% in May.

Consumers generally viewed business conditions as slightly more favorable compared to last month. Current business conditions were perceived as good by 20.0% of respondents in June, up from 19.2% in May but below a high of 23.4% in June 2023. Expectations that business conditions would improve in six months were 19.0% of respondents, up from 18.8% in May but below a high of 24.7% in November 2024. More jobs were expected in six months by 15.2% of respondents, slightly down from 16.6% in May and below a high of 22.8% in November 2024. The percentage expecting rising income rose to 20.8% in June from 19.2% in May, the highest since February 2020 and above a low of 14.4% in February 2023.

Inflation expectations eased this month but remained elevated. The expected inflation rate in twelve months slipped to 6.0% in June, the lowest since February, after holding at 6.2% for three straight months. The latest reading was below a high of 7.0% in April 2025 but above a low of 5.0% in November 2024. In June, 61.5% of respondents expected that interest rates would rise over the next twelve months, down from 62.4% in May but up from 42.1% in January 2024.

The share of respondents planning to buy a home within six months rebounded to 6.6% in June from 6.5% in May. It was below its most recent high of 7.0% in April but above a low of 4.6% in February 2024. Those planning to buy automobiles rose to 13.3% of respondents this month from 12.6% in May; it was up from a low of 10.6% in April 2025. Meanwhile, the share of respondents planning a vacation within six months declined to 39.1%, the lowest since April 2021, from 41.4% in May.

The Consumer Confidence data are available in Haver’s **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

260630P3.jpg

260630Q3.jpg

- Headline up 0.6 pts. to 91.2 in June, below expectations; fourth m/m increase in five mths.
- Present Situation Index down 3.0 pts. to 116.4, lowest since Feb. ’21.
- Expectations Index up 3.0 pts. to 74.4, a six-month high.
- Consumers less optimistic about current business & labor market conditions; more upbeat about future business & financial conditions.
- Inflation expectations down to 6.0%, lowest since Feb., as lower oil prices in recent weeks eased consumer inflation fears.

U.S. Consumer Confidence Rebounds in June from a Four-Month Low

Sandy Batten

260630X20.jpg

260630Y20.jpg

Total job openings edged up 0.1% m/m (+3.9% y/y) to 7.594 million in May from a downwardly revised 7.585 million in April (previously 7.618 million), according to the Job Openings and Labor Turnover Survey. Even with only a small rise, the level of openings in May was the highest since May 2024. Accordingly, the job openings rate (the ratio of openings to nonfarm employment plus openings) was unchanged at 4.6% in May. The April and May readings for the job openings rate were the highest since November 2024. In May, the number of unemployed fell while the number of openings edged up. Consequently, the number of openings rose further above the number of unemployed for the second consecutive month, another sign that previously observed softening in labor market conditions may be reversing.

Private sector openings were essentially unchanged in May from April, edging up 2,000 (+4.3% y/y) with the private job openings rate unchanged at 4.8%. The sluggishness in private openings in May was due entirely to a 119,000 decline in private education and health care openings. However, this followed a total increase of 298,000 in March and April. Openings increased in all other major sectors, led by a 95,000 increase in openings in leisure and hospitality. Openings were up 32,000 in construction, 33,000 in manufacturing, and 37,000 in trade and transportation. Total government openings rose 7,000 in May after an upwardly revised 63,000 jump in April (previously +47,000).

Total hiring slipped 0.9% m/m (-3.0% y/y) to 5.170 million in May from an upwardly revised 5.215 million in April (previously 5.116 million). This was the third monthly decline in hiring in the past four months. The hiring rate was unchanged in May at 3.3%. Private sector hiring fell 1.6% m/m (-3.5% y/y) in May, also the third monthly decline in the past four months. The weakness in hiring in May was concentrated in trade and transportation (-56,000) and in construction (-24,000). Manufacturing posted a small decline while professional and business services, and private education and health care posted small increases. Leisure and hospitality hiring rose 15,000, the second monthly increase in the past three months. Total government hiring increased 32,000 in May.

Total separations increased 1.3% (-3.5% y/y) to 5.101 million in May from an upwardly revised 5.038 million in April (previously 4.978 million). Both quits (+22,000) and layoffs (+41,000) increased in May with no change in other separations. The separation rate in May was unchanged at 3.2%. Private separations also rose 1.3% m/m (+62,000, -2.9% y/y) in May. Private quits increased 37,000, private layoffs rose 27,000, while other private separations declined 2,000. The rise in private layoffs was concentrated in construction (+47,000), trade and transportation (+52,000), and private education and healthcare (+52,000). Layoffs declined 18,000 in manufacturing, fell 37,000 in professional and business services, and decreased 50,000 in leisure and hospitality. Even with the rise in private quits in May, they have been trending down in 2026, implying that workers are feeling less comfortable with their employment prospects and hence are choosing to remain in their current jobs.

On the whole, employers remain cautious in hiring. Furthermore, workers are sufficiently unsure of their alternative employment prospects that they are refraining from leaving their current position. Still, openings have gradually risen since the end of last year after having gradually fallen throughout 202 and once again exceed the number of unemployed.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

- Openings edged up 9,000 but to the highest level since May 2024.
- However, hiring fell 45,000 for the third monthly decline in the past four months.
- Separations rose 63,000 with increases in both quits and layoffs.

U.S. JOLTS: Openings and Hiring Little Changed in May

260630E.jpg

**Some inflation progress, but not enough**: The headline HICP in June for the largest monetary union economies have largely broken lower, with the exception of Spain. The German headline HICP fell by 0.1% in June after being flat in May. In France, the price index fell by 0.5% in June after growing by 0.3% in May. In Italy, the June index rose by 0.1% after rising by 0.3% in May. In Spain, June brought a 0.3% increase after a 0.2% increase in May.

**Core or ex-energy (Germany)**: The core inflation readings are available for Germany, Italy, and Spain. In the case of Germany, it's an index excluding energy only. June brought a 0.1% increase for the German index, a 0.1% decline for Italy's core index, and a 0.2% increase for Spain’s core measure. On balance, these are a good collection of results from the standpoint of the ECB that has an inflation target of 2% for the European Monetary Union as a whole, but no guidance for individual countries.

**Sequentially**: Sequentially, the headline inflation rate shows progress in Germany and France, while excesses are stubborn in Italy and Spain. Over 12 months, all the inflation rates are excessive, but France is only technically excessive and probably acceptable at 2.1% year-over-year. Germany's increase over 12 months is 2.4%, Italy's is 3.1%, and Spain’s is 3.6%. The progression of inflation from 12-months to 6-months to 3-months shows accelerations over six months compared to 12 months for France and Italy, while Germany and Spain show decelerations. However, Spain's six-month inflation rate is still 3.3%. Germany has dropped to 2.2%, France is at 3.3%, and Italy has jumped up to 5.5%. Over three months, the German headline inflation rate is zero and France has fallen to 2%, but in Italy’s headline pace has accelerated to 6.9% and Spain remains at 3.3%. These are all compounded rates of change over three months.

**Three-month trends are mixed**: None of this is really surprising since oil prices have been surging over the period and are now starting to decline. Over 12 months, the oil price is down by 22.6%; over six months, it’s down by 37% at an annual rate; and over three months, the oil price is flat. Much of this price action is still quite recent. These figures are for Brent crude measured in euros. Over three months, German inflation is flat for the headline HICP, while France’s inflation rate is down to 2%. In Italy, the three-month pace is 6.9%; in Spain it’s at 3.3%. Headline inflation still has a somewhat erratic performance over three months, although it's quite acceptable in Germany and France and quite not acceptable in Italy and Spain.

**Core inflation is lower but still too high**: Core inflation shows much more moderation because the behavior of energy prices leaves core inflation largely unaffected. If the core is affected, it occurs only after a more substantial knock-on effects from other industries. German ex-energy inflation is at 2.3% over 12 months and then settles down to a 2% annualized pace over six months and three months. Italian core inflation is golden on all three periods, at 1.5% over 12 months, down to 1.4% over six months, and down to 1.2% over three months. Spain's core inflation is excessive, although it is making progress toward a more agreeable rate from a European standpoint. Spain’s core inflation is 2.9% over 12 months, remains at 2.9% over six months, then decelerates to a 2.4% annualized rate over three months. 

260630.jpg

**Policy**: The ECB has already started to raise rates and warned that there could be more ahead, depending on circumstances. However, we are seeing signs here that inflation is beginning to behave, particularly for the core measures. We could see the headlines improve more dramatically if oil prices continue to drop as they have been. Growth in the European area has been mixed on the continent; in the United Kingdom, growth is showing signs of weakening as the U.K. inflation rate has dropped rather sharply.

**Outlook**: The outlook is still guarded. There continues to be a war in Ukraine and unsettled conditions in the Middle East, including concerns over the Strait of Hormuz where Iran continues to say that it wants to be in control of traffic through the Strait. That position doesn't seem likely to be palatable to the U.S, although time will tell what kind of deal, if any, emerges from that conflict. Inflation developments are going to depend importantly on what happens with oil and how open the Strait becomes. As we can see, Germany and Italy already present relatively controlled core inflation rates. The rest of the monetary union should follow suit as all prices should continue to behave and follow oil prices lower. It has been a long period with inflation misbehaving. The core and ex-energy inflation statistics show us that over the last five years, Germany has had a compounded ex-energy inflation rate of 3.8%, Italy 3.1%, and Spain 3.9%. These are readings excluding energy and over that five-year period. Oil and energy are not the only price concerns. Energy prices had a compounded annual rate increase of 9.7% over the last five years. Monetary policy has gotten far behind where it's supposed to be and has allowed prices to rise far more than they should have. Central banks need to pay more attention to hitting their inflation targets in the future; they can't keep missing to this extent and convince anybody that they have a viable credible inflation target at 2%.

Europe

Large EU Economies Show Some Inflation Cooling

260629E.jpg

Headline indexes for the European Monetary Union improved in June to a reading of 95.0 from 93.7 in May. The index had been stronger at 96.4 in March; however, it fell to 93.3 in April, recovered slightly to 93.7 in May, and has now reached 95.0. While still below its March high, the index has made progress in the wake of the outbreak of war-like conditions and the closure of the Strait of Hormuz.

**Sector performance**
The industrial reading for the sector, at -8, has a 36.3 percentile standing, which better than the headline index for the Monetary Union with a 25.4 percentile standing. The EMU-wide sector index, consumer confidence, improved to a net diffusion reading of -17.7 in June from -19 in May, but that still leaves it with a very weak 8.1 percentile standing, the lowest among sector readings. Retailing improved to a net diffusion reading of -10 in June from -11 in May and posted a 38.1 percentile standing. The construction sector deteriorated, falling back to -5 from -4 in May; it has been undergoing steady degradation since at least March, but it still has a 68.4 percentile standing. It is the only sector with a percentile standing above 50, placing it above its historic median. The services sector had a net diffusion reading of +3, identical to its May reading and has a 24-percentile standing.

**Sector index ranking**
The sector readings clearly show that the monetary union is exhibiting a number of sectors with subpar growth; beyond ‘subpar,’ many are quite weak. The exception is—and has been for some time—the construction sector, which continues to perform above average and post an above-median metric. It is, perhaps surprising that we often think of consumer confidence as being relatively forward-looking, but in this schematic, consumer confidence is the weakest of the sectors; in fact, like statistics from the U.S., we find the same prevailing situation with consumer readings exceptionally weak. These weak consumer readings coexist with much stronger retailing readings and stronger industrial readings, although both of those are below their historic medians in Europe. This report is a sort of gut check for what consumer confidence means; it may not be as important as we used to think it was. Although the business cycle at this juncture seems to be concentrated more on the supply side and on recovery in the business community, that effect compounded by the influence of AI is much stronger in the U.S. than in Europe.

**Country detail – Large economies**
The country detail shows 16 of 20 early reporting countries with only one of the top four countries showing a decline month-to-month, and that's France. France recorded a 0.2% decline in June, while Germany posted a 1.9% increase, Italy gained 1.3%, and Spain rose 0.7%. Spain had the lone small decrease in May, while in April all of the large countries showed significant monthly declines in their overall indexes in the wake of the onset of the war with Iran.

**Smaller economies in EMU**
Apart from the Big Four economies, 12 other EMU members report in June; of those, 5 showed month-to-month declines in their country level indexes. This was up from three showing declines in May, although it was a vast improvement from April, when all of the country indexes turned negative and generated substantial month-to-month declines, except for Slovakia and Lithuania.

**Big Four economy rankings**
Among the Big Four economies, the strongest ranking reading in June is Spain at a 52.3 percentile standing, followed by Italy at a 41.6 percentile standing, France at a 22.7 percentile standing, and Germany at an 18.7 percentile standing.

**Other economy rankings**
Among the other 12 countries, the percentile standing readings range from a high of 76.1% for Greece to a low of 9.3% for Austria. Five of 12 of the smaller EMU members have percentile standings of 50% or greater, putting them above their historic medians, while the other 7 have rankings that range from a high of 44.6% in Portugal to a low of 9.3% in Austria.

**Summing up**
Conditions in the monetary union have improved over the last two months after a substantial stumble in the wake of the war in the Middle East with Iran and the closure of the Strait of Hormuz. However, the rebound in the European recovery is in gear; it is slow and measured. Conditions are still weak on balance.

260629.jpg

EU Indexes Show European Improvement in June

Tian Yong Woon

In this week's Letter, we explore the significant pullback in oil prices that followed the US-Iran memorandum of understanding and consider its broader economic implications. The agreement saw a fragile ceasefire ensue and a gradual resumption of shipping flows through the Strait of Hormuz (chart 1). We acknowledge that this major pullback will certainly be welcome to policymakers across the region and beyond. Previously elevated energy prices had added to the fiscal burdens of governments and sharpened the dilemma facing central banks (chart 2). That dilemma pits the need to rein in inflation against the risk of choking off economic growth. That said, while one source of inflationary pressure seems to be ebbing, another looks to be emerging on the horizon. It stems from a potential "Super El Niño" event, which meteorologists have been warning about for some time now. Asia sits at the centre of such risks, as past strong El Niño events have directly and adversely affected crop production (chart 3). The impact is not limited to potential surges in headline inflation via food supply shocks, especially in Asia. It extends directly to growth as well (chart 4), given the nontrivial share of GDP that agriculture still commands in many Asian economies (chart 5). Should price pressures simply rotate from energy to food, government subsidies may follow suit (chart 6). Central bankers, for their part, may find themselves unable to ease off the tightening pedal just yet. Some Asian economies, however, would still manage to offset such a growth shock through other engines. Electronics and semiconductors, buoyed by the current AI upcycle, offer one such cushion for the more fortunate. For others, lacking such offsets, the agricultural hit may simply have to be borne in full.

**The US-Iran conflict and oil prices**
The recent memorandum of understanding between the US and Iran, aimed at working towards a final deal, has already brought visible relief to crude oil markets (chart 1). This relief has held despite the renewed tensions that have followed the agreement, which markets seem to have largely looked past. The easing in prices should go a long way towards unwinding the inflation concerns that elevated oil prices had previously stoked. Much of the pullback reflects anticipation of the substantial supply now expected to return to global markets. Yet some shipping trackers, such as the IMF's, already point to a marked pickup in traffic through the Strait of Hormuz. Even so, those volumes still remain well below the levels seen before the conflict began in the region. 

260629T1.jpg

**Oil prices and inflation in Asia**
Should this normalisation of shipping flows through the Strait of Hormuz persist, it would support a corresponding easing in oil prices and energy inflation. That moderation in energy costs would, in turn, help bring down broader headline inflation across the economy. As chart 2 shows, energy has been a large contributor to headline inflation in recent years, though other important forces have been at play too. Such an outcome, in which restored oil supply cools energy inflation, would be a welcome development for central bankers. They face the delicate task of reining in price pressures without tightening policy so far that growth stalls or tips into contraction. That said, while one driver of price pressures now seems to be ebbing, albeit not without the risk of renewed tensions, another source of inflation is building on the horizon.

260629T2.jpg

**Risks of a “Super El Niño”**
As meteorological agencies have warned for some time, the world may be on the cusp of a Super El Niño. The probability of such an event has risen sharply in recent months. Were it to materialise, it would unleash a range of disruptions from the second half of this year, chief among them shifts in weather and climate patterns that can severely dent crop yields. Asian staples such as rice, wheat and palm oil are especially exposed, since strong El Niño events tend to bring drier conditions and reduced rainfall, in turn cutting output across affected economies in the region. Chart 3 illustrates just how tightly some crops are bound to these conditions: SOI readings correlate closely with certain economies' production, notably Thailand's rice harvest, underscoring how dependent such output remains on the weather. These supply shortfalls would then feed inflationary pressures through the food channel. So central bankers may not be able to rest entirely easy following the easing of tensions between the US and Iran, finding themselves wrestling with a fresh set of emerging inflation risks instead.

260629T3.jpg

Delving deeper, an examination of recent strong El Niño episodes against the growth of Asian economies' agricultural sectors shows that extreme weather weighs not just on food prices but on economic growth itself. As chart 4 shows, previous major El Niño episodes—notably in 2014–16 and 2023–24—were associated with weaker agricultural growth across parts of Asia, with India and Thailand appearing particularly vulnerable. This is understandable, since these episodes coincided with reduced crop production and, in turn, lower crop revenue. Should these past episodes serve as a gauge and given that the coming event is potentially the worst on record, these economies stand to suffer once more should it hit as hard as feared.

260629T4.jpg

Beyond the sensitivity of individual economies to extreme El Niño events, vulnerability also depends on the size of the agricultural sector itself. Economies where agriculture accounts for a larger share of output are naturally more exposed to weather-related disruptions. As chart 5 shows, economies such as India, Indonesia and, to a lesser extent, Vietnam carry a comparatively higher share of agriculture in their GDP, which presents a further source of risk. That said, this dimension should not be read in isolation, since the eventual impact would turn on a combination of factors: the degree of exposure, the intensity of El Niño's effect on each economy's agricultural output, and the actual weather conditions that come to pass.

260629T5.jpg

Bringing it all together, the recent de-escalation between the US and Iran and the early normalisation of flows through the Strait of Hormuz are certainly welcome news. Businesses, consumers and policymakers alike stand to benefit from the relief that lower energy prices would bring. Yet the formation of extreme El Niño conditions presents a looming inflation risk over the months ahead. It may displace energy as the dominant driver, shifting the pressure from the energy channel to the food channel. For Asia's central bankers, this could mean they are unable to ease off the tightening pedal just yet (chart 6). Food inflation may simply pick up where energy inflation leaves off, keeping price pressures elevated for longer. Regional governments, too, may have to redirect funds from energy subsidies to food subsidies should the supply shock play out. On growth, however, the picture may prove more uneven across the region than a single narrative suggests. Economies exposed to the current AI upcycle could keep leaning on those sectors for continued support. Those less exposed, by contrast, may simply have to absorb the hit to agriculture with little to offset it.