Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090721a.jpg" align="right" border="0" height="265" width="353">
The Chicago Federal Reserve Bank reported that its June
National Activity Index rose further to the highest level since July of
last year. The reading of -1.80 was up from May and both figures were
higher than the series' low of -3.99 reached this past January. Since
1970 there has been a 74% correlation between the level of the index
and the q/q change in real GDP.
The three-month moving average of the index also
improved to its highest level since August.
An index level at or below -0.70 typically has indicated
negative U.S. economic growth. A zero value of the CFNAI indicates that
the economy is expanding at its historical trend rate of growth of
roughly 3%. The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_july2009.pdf">here.</a>
The production and income components made the largest positive
contributions to the JUnel CFNAI. Twenty-two of the index components
had a positive influence while 63 made a negative contribution.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090721b.jpg" align="right" border="0" height="265" width="353">
The CFNAI is a weighted average of 85 indicators of economic
activity. The indicators reflect activity in the following categories:
production &amp; income, the labor market, personal consumption
&amp; housing, manufacturing &amp; trade sales, and inventories
&amp; orders.
In a separate survey, the Chicago Fed indicated that its
Midwest manufacturing index fell during May to its lowest level since
1994. Indicators for the auto, steel, and machinery each fell. The
Chicago Federal Reserve figures are available in Haver's SURVEYS
database.
Today's testimony by Fed Chairman Ben S. Bernanke is available
<a href="http://www.federalreserve.gov/newsevents/testimony/DBBB5C9F26B6440AA4A21E104A61577A.htm">here.</a>




<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/@S5/@S503/@S503.HTM">Chicago
Fed</a></th>
<th scope="col">June</th>
<th scope="col">May</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>
<td class="firstcol">CFNAI</td>
<td>-1.80</td>
<td>-2.30</td>
<td>-0.98</td>
<td>-1.76</td>
<td>-0.35</td>
<td>0.05</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Moving
Average</td>
<td>-2.12</td>
<td>-2.65</td>
<td>-1.07</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
Gasoline Prices Fall Again 
by <a href="/comment/Moeller.html">Tom
Moeller</a> July 21, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090721c.jpg" align="left" border="0" height="265" width="353">
Recession in the U.S. economy prompted a lower retail price
for gasoline last week. The pump price for regular gasoline fell
to an average $2.46 per gallon, down twenty-three cents from last
month's high. Nevertheless, prices remained up by eighty-five cents
(53%) from the December low. In the cash market, gasoline prices
yesterday continued to rally off last week's low. At $1.75 per gallon
the price was up from the low of $1.60. The figures are reported by the
U.S. Department of Energy and can be found in Haver's WEEKLY
&amp; DAILY databases.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090721d.jpg" align="right" border="0" height="265" width="353">
Crude oil prices also fell last week, but
not by as much as gasoline costs. Light sweet crude oil prices (WTI)
fell to $61.27 per barrel, off nearly ten dollars from last week's high
of $70.83. Yesterday the one-month futures price for light sweet crude
oil recovered and moved up to $63.98 per barrel. Prices had reached a
daily high of $72.68.
The ongoing recession lowered the demand for motor gasoline by
2.2% y/y during the last four weeks. The rate of decline has moderated
from the 4.8% shortfall this past autumn. Demand for distillate also is
off by a sharp 21.5% though residual fuel oil demand has moved higher.
Finally, oil remains plentiful as evidenced by a 13.7% y/y rise in
inventories of crude oil &amp; petroleum products. The figures on
crude oil inventories are available in Haver's OILWKLY database.
The weakening of natural gas prices stabilized last week at
the seven-year low. Last week's average price of $3.28 per mmbtu
(-70.8% y/y) was down by three-quarters from the high reached in
early-July of $13.19/mmbtu.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">07/20/09</th>
<th scope="col">07/13/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per
Gallon, Regular)</td>
<td>2.46</td>
<td>2.53</td>
<td>-39.4%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>61.27</td>
<td>61.48</td>
<td>-54.7%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Remain
Flat 
by <a href="/comment/Moeller.html">Tom
Moeller</a> July 21, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090721e.jpg" align="left" border="0" height="265" width="353">
The strengthening of chain store sales around the July 4th
holiday faded as the month progressed. During the latest week, chain
store sales rose 0.5% but that recovered just half of the prior week's
decline. So far in July sales have increased 0.7% since June after that
month's 0.3% decline and a 0.2% May downtick.
During the last ten years there has been a 69% correlation
between the year-to-year growth in chain store sales and the growth in
general merchandise sales. The weekly figures are available
in Haver's SURVEYW database.
The ICSC-Goldman
Sachs retail chain-store sales index is constructed using the
same-store sales (stores open for one year) reported by 78 stores of
seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney,
Sears and Wal-Mart.


Prospects for improvement in sales seems limited. The leading
indicator of sales ticked up 0.3% (-2.4% y/y) during the latest week
and it has been flat-to-lower all this year.
Exit Strategies for the Federal Reserve
from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/econ/bullard/PhiladelphiaGIC28june2009FINAL653pm.pdf">here.</a>
<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/surveyw/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></th>
<th scope="col">07/18/09</th>
<th scope="col">07/11/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain
Store Sales</td>
<td>491.7</td>
<td>489.4</td>
<td>-0.3%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
</body></html>

The Chicago Federal Reserve Bank reported that its June National Activity Index rose further to the highest level since July of last year. The reading of -1.80 was up from May and both figures were higher than the series' low of -3.99 [...]

Chicago Fed Index Indicates ThatEconomic Activity Improved Further

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720g.jpg" align="left" border="0" height="265" width="353">
Industrial orders in Italy made a slight bounce in May. French
orders fell after a slight bounce in April. Neither shows any sign of
upward momentum and the downward momentum has only just been trimmed if
we compare 3-month growth rates to 12-month growth rates. 
What is interesting is the very different performance in foreign
orders as between Italy and France and Germany. Germany is showing some
very substantial recovery in foreign-sourced orders. But it Italy,
foreign order are falling at an accelerating pace through May. In
France, foreign orders have shown a clear patterns of progress with the
three-month growth rate reduced to an annual pace of -9.7% compared to
-24% Yr/Yr. 
Whatever progress is being experienced in Europe, it is irregular.
Clearly some economies in the Zone are doing better than others despite
the common currency regime - and that is true for sales overseas
underlining the that exchange rates are not the only factor in the
success of foreign sales efforts. The more variance there is across
e-Zone countries in their respective economic performances, the more it
will wear on the fragile e-Zone area where talk of integration is tough
despite member countries efforts to continue to go it alone on fiscal
policy. Europe still has a recession and still has some divisive
political forces to weather. And yet more European &#8216;integration&#8217; lies
ahead. 

<table border="0" cellspacing="0" width="100%">

</table>
Italy Orders<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>

</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.4%</td>
<td>-3.6%</td>
<td>-2.6%</td>
<td>-20.9%</td>
<td>-24.3%</td>
<td>-29.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>0.2%</td>
<td>-2.9%</td>
<td>-9.3%</td>
<td>-39.4%</td>
<td>-27.5%</td>
<td>-33.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic</td>
<td>0.5%</td>
<td>-3.9%</td>
<td>1.0%</td>
<td>-9.3%</td>
<td>-22.7%</td>
<td>-26.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>-1.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
<td>-7.3%</td>
<td>-22.3%</td>
<td>-21.9%</td>
</tr>
<tr>
<td colspan="7">French Orders</td>
</tr>
<tr>
<td class="firstcol">Saar exept m/m</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-1.1%</td>
<td>0.6%</td>
<td>-5.7%</td>
<td>-22.3%</td>
<td>-9.2%</td>
<td>-23.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>0.4%</td>
<td>6.5%</td>
<td>-8.8%</td>
<td>-9.7%</td>
<td>-12.4%</td>
<td>-27.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">IP xConstruct</td>
<td>2.4%</td>
<td>-0.6%</td>
<td>-1.4%</td>
<td>1.4%</td>
<td>-15.1%</td>
<td>-15.0%</td>
</tr>
</tbody>
</table>
</body></html>

Industrial orders in Italy made a slight bounce in May. French orders fell after a slight bounce in April. Neither shows any sign of upward momentum and the downward momentum has only just been trimmed if we compare 3-month growth [...]

Industrial Orders Trends Begin To Turn...Ever So Slowly

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720e.jpg">
The Conference Board&#39;s Index of Leading Economic Indicators continued to suggest a pending economic recovery. The June composite index of leaders rose another 0.7% after gains of 1.3% (upwardly revised) and 1.0% during the prior two months. The combined 3.0% rise during those three months was the strongest since early 2002 while the index itself was at the highest level since last July. The leading index is based on actual reports for eight economic data series. The Conference Board initially estimates two series, orders for consumer goods and orders for capital goods.
For the third straight month, nearly three quarters of the ten components of the leading index increased with the largest positive contributions coming from a steeper yield curve, higher building permits and higher stock prices. The money supply and consumer expectations made slight negative contributions.
Again suggesting that the rate of decline in the economy is slowing were the coincident indicators. They fell 0.2%, about as they have for three consecutive months. These compare with monthly declines of 0.6%-to-1.1% dating back to September. The negative contributions from lower employment and production have eased. The remaining two component series actually rose during June, led by very slight gains in real disposable income and business sales. Over the last ten years there has been a 76% correlation between this y/y change and real GDP.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720f.jpg">
In a sign that excesses in the U.S. economy are diminishing, the lagging index fell for the sixth month in the last seven. The declines have been paced by a longer duration of unemployment, lower commercial and industrial loans and lower consumer installment credit. The ratio of coincident-to-lagging indicators (a measure of economic excess) rose m/m to the highest level since December.
The Conference Board figures are available in Haver&#39;s BCI database. Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
World Economic Outlook Update; Contractionary Forces Receding But Weak Recovery Ahead from the international Monetary Fund can be found <a href="http://www.imf.org/external/pubs/ft/weo/2009/update/02/index.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a> (%)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March 6-Month % (AR)</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">Leading</td>
<td>0.7</td>
<td>1.3</td>
<td>1.0</td>
<td>4.1</td>
<td>-2.8</td>
<td>-0.3</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.2</td>
<td>-0.3</td>
<td>-0.7</td>
<td>-5.9</td>
<td>-0.8</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.2</td>
<td>-0.8</td>
<td>-0.6</td>
<td>-5.9</td>
<td>2.9</td>
<td>2.8</td>
<td>3.3</td>
</tr>
</tbody>
</table>


</html>

The Conference Board's Index of Leading Economic Indicators continued to suggest a pending economic recovery. The June composite index of leaders rose another 0.7% after gains of 1.3% (upwardly revised) and 1.0% during the prior two [...]

U.S. Leading Indicators Rise For A Third Month Signaling Economic Recovery

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720a.jpg" align="right" border="0" height="265" width="353">
The current recession has been harshest in the labor market.
Employers look to cut costs as top-line revenues falter. Though the
June unemployment rate of 9.5% was below the 1981-82 peak of 10.8%, the
speed of the rate's recent increase has been notably swift. Today the
rate is up 3.9 percentage points from one year ago. That matches the
record increase for twelve months set during the 1973-75 recession when
the unemployment rate reached its peak of 9.0%. The recent increase is
against a 3.8% decline in employment during the last twelve months and
by 4.4% since the recession began in late-2007.
It's not bad enough that the overall rate of unemployment has
risen so quickly to its current level, but the experience of specific
groups has been most severe. The unemployment rate for men over the
last year has risen a record 4.7 percentage points to a near-record
10.6%. For teenage men, the 12-month increase to an unemployment rate
of 26.2% lags the record increase only slightly while the increase in
the adult male unemployment rate to 9.2% sets a new record, up 4.7
percentage points y/y. The pain for women has been every bit as great.
The 3.0 point, twelve-month increase to an unemployment rate of 8.3%
about matches the record pace. For teenage women, the speed of the
rate's increase to 21.8% also is near the record. Finally, the adult
women unemployment rate is up nearly three points to 7.0%, also near
the record twelve-month increase reached back in 1975.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720b.jpg" align="right" border="0" height="265" width="353">
Schooling matters when it comes to employability, and the
Labor Department measures individuals' level of education. For those
with a college degree, the labor market has indeed weakened, but not as
significantly as the overall figures have. For these individuals
employment has declined 1.2% during the last year compared to 3.7%
growth as recently as 2007. That weakening has doubled the unemployment
rate, but only to 4.7%. For those with less than a high school diploma,
the story is different and more dire. The unemployment rate more than
doubled to 15.5% as employment fell 6.0% y/y. For high school graduates
without college the unemployment rate also doubled to 15.5%. For those
with at least some college the unemployment rate rate rose but to a
lesser 8.0%. Back to school and back to work: community
colleges and workforce development is a recent article from
the Federal Reserve Bank of San Francisco and it is available <a href="http://www.frbsf.org/publications/community/investments/0905/Choi_Laura.pdf">
here</a>.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720c.jpg" align="right" border="0" height="265" width="353">
The job market figures also indicate great divergence by race
and age. The white teenager unemployment rate jumped sharply last month
to 21.4% from 16.7% for all of last year. Black teens also experienced
joblessness, but at much higher level. Their level of unemployment
touched 37.9% last month and employment over the last year fell 14.2%
versus a lesser 10.7% decline amongst white teens. For adult whites,
unemployment doubled to a below average 8.1% as employment fell 3.2%
y/y while blacks' unemployment rose to 13.7%. Monetary policy
and racial unemployment rates is a 2000
article from the Federal Reserve Bank of Atlanta and it can be found <a href="http://www.frbatlanta.org/frbatlanta/filelegacydocs/ACF74.pdf">
here</a>.

Also notable during this recession is how much the
unemployment rate has risen despite slower growth in the labor force.
The labor force growth rate of 0.3% y/y through June is down from 1.4%
during all of 2006. Drop-outs from the labor force, the so-called
discouraged-workers, have been numerous and total 5.9 million, up 26%
since the recession began. Had they remained in the labor force the
unemployment rate would now stand at 13.3%, up 5.4 percentage points
from the recession's start. That compares to the 4.5 percentage point
increase in the official unemployment rate to 9.5%.
The labor department also keeps track of why individuals are
not working full time, or so-called underemployment. At 6.5 million,
the number of those putting in less than 34 hours per week due to slack
work has more than doubled since the recession began. Those who could
only find part-time work also has doubled to 2.2 million. Even the
number of those who found a job and saw it end within a week rose by
two-thirds during the last year to 211,000. In all, the jobless rate
for the unemployed plus workers who are marginally attached plus those
working part-time for economic reasons constitute 16.8% of the labor
force, double the 2006-07 low. A dynamic analysis of recent
changes in the rate of part-time employment is a 1991
working paper from the Federal Reserve Bank of Cleveland and it can be
found <a href="http://www.clevelandfed.org/research/Workpaper/1991/wp9120.pdf">
here</a>.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720d.jpg" align="right" border="0" height="265" width="353">
Industry employment trends are behind the relative severity of
the employment patterns above. Factory sector jobs have fallen 14.0%
since the recession began and construction jobs are down 17.1%. Even
for the service sector, which typically is somewhat insulated from the
full force behind cyclical downturns which drive employment lower, this
time is different. Private service sector jobs are off 3.6% from their
peak led by an 8.2% decline in professional &amp; business service
jobs. Jobs in the financial services group also have fallen a severe
5.9%, retail jobs are down 5.1% while government payrolls are up just
slightly.

<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/@S4/@S4.HTM">Civilian
Unemployment Rate</a> (%)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">&nbsp;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">Total</td>
<td>9.5</td>
<td>9.4</td>
<td>5.6</td>
<td>5.8</td>
<td>4.6</td>
<td>4.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; By Sex</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Female</td>
<td>8.3</td>
<td>8.0</td>
<td>5.3</td>
<td>5.4</td>
<td>4.5</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Male</td>
<td>10.6</td>
<td>10.5</td>
<td>5.9</td>
<td>6.2</td>
<td>4.7</td>
<td>4.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; By Age</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
16-19</td>
<td>24.0</td>
<td>22.7</td>
<td>18.8</td>
<td>18.7</td>
<td>15.7</td>
<td>15.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
20 &amp; Over</td>
<td>8.9</td>
<td>8.8</td>
<td>5.0</td>
<td>5.2</td>
<td>4.1</td>
<td>4.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; By Educational
Attainment</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Less Than High School</td>
<td>15.5</td>
<td>15.5</td>
<td>8.9</td>
<td>9.0</td>
<td>7.1</td>
<td>6.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Bachelors Degree or Higher</td>
<td>4.7</td>
<td>4.8</td>
<td>2.4</td>
<td>2.6</td>
<td>2.0</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; By Race &amp; Age</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
White</td>
<td>8.7</td>
<td>8.6</td>
<td>5.0</td>
<td>5.2</td>
<td>4.1</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
16-19</td>
<td>21.4</td>
<td>20.3</td>
<td>17.0</td>
<td>16.7</td>
<td>13.9</td>
<td>13.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
20 &amp; Over</td>
<td>8.1</td>
<td>8.1</td>
<td>4.4</td>
<td>4.6</td>
<td>3.7</td>
<td>3.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Black or African American</td>
<td>14.7</td>
<td>14.9</td>
<td>9.4</td>
<td>10.1</td>
<td>8.3</td>
<td>8.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
16-19</td>
<td>37.9</td>
<td>39.4</td>
<td>29.8</td>
<td>31.2</td>
<td>29.4</td>
<td>29.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
20 &amp; Over</td>
<td>&nbsp;13.7</td>
<td>13.8</td>
<td>8.5</td>
<td>9.1</td>
<td>7.2</td>
<td>7.9</td>
</tr>
</tbody>
</table>
</body></html>

The current recession has been harshest in the labor market. Employers look to cut costs as top-line revenues falter. Though the June unemployment rate of 9.5% was below the 1981-82 peak of 10.8%, the speed of the rate's recent [...]

U.S. Unemployment Rates Rise Sharply And Rapidly For All

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720a.jpg" align="right" border="0" height="265" width="353">
The current recession has been harshest in the labor market.
Employers look to cut costs as top-line revenues falter. Though the
June unemployment rate of 9.5% was below the 1981-82 peak of 10.8%, the
speed of the rate's recent increase has been notably swift. Today the
rate is up 3.9 percentage points from one year ago. That matches the
record increase for twelve months set during the 1973-75 recession when
the unemployment rate reached its peak of 9.0%. The recent increase is
against a 3.8% decline in employment during the last twelve months and
by 4.4% since the recession began in late-2007.
It's not bad enough that the overall rate of unemployment has
risen so quickly to its current level, but the experience of specific
groups has been most severe. The unemployment rate for men over the
last year has risen a record 4.7 percentage points to a near-record
10.6%. For teenage men, the 12-month increase to an unemployment rate
of 26.2% lags the record increase only slightly while the increase in
the adult male unemployment rate to 9.2% sets a new record, up 4.7
percentage points y/y. The pain for women has been every bit as great.
The 3.0 point, twelve-month increase to an unemployment rate of 8.3%
about matches the record pace. For teenage women, the speed of the
rate's increase to 21.8% also is near the record. Finally, the adult
women unemployment rate is up nearly three points to 7.0%, also near
the record twelve-month increase reached back in 1975.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720b.jpg" align="right" border="0" height="265" width="353">
Schooling matters when it comes to employability, and the
Labor Department measures individuals' level of education. For those
with a college degree, the labor market has indeed weakened, but not as
significantly as the overall figures have. For these individuals
employment has declined 1.2% during the last year compared to 3.7%
growth as recently as 2007. That weakening has doubled the unemployment
rate, but only to 4.7%. For those with less than a high school diploma,
the story is different and more dire. The unemployment rate more than
doubled to 15.5% as employment fell 6.0% y/y. For high school graduates
without college the unemployment rate also doubled to 15.5%. For those
with at least some college the unemployment rate rate rose but to a
lesser 8.0%. Back to school and back to work: community
colleges and workforce development is a recent article from
the Federal Reserve Bank of San Francisco and it is available <a href="http://www.frbsf.org/publications/community/investments/0905/Choi_Laura.pdf">
here</a>.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720c.jpg" align="right" border="0" height="265" width="353">
The job market figures also indicate great divergence by race
and age. The white teenager unemployment rate jumped sharply last month
to 21.4% from 16.7% for all of last year. Black teens also experienced
joblessness, but at much higher level. Their level of unemployment
touched 37.9% last month and employment over the last year fell 14.2%
versus a lesser 10.7% decline amongst white teens. For adult whites,
unemployment doubled to a below average 8.1% as employment fell 3.2%
y/y while blacks' unemployment rose to 13.7%. Monetary policy
and racial unemployment rates is a 2000
article from the Federal Reserve Bank of Atlanta and it can be found <a href="http://www.frbatlanta.org/frbatlanta/filelegacydocs/ACF74.pdf">
here</a>.

Also notable during this recession is how much the
unemployment rate has risen despite slower growth in the labor force.
The labor force growth rate of 0.3% y/y through June is down from 1.4%
during all of 2006. Drop-outs from the labor force, the so-called
discouraged-workers, have been numerous and total 5.9 million, up 26%
since the recession began. Had they remained in the labor force the
unemployment rate would now stand at 13.3%, up 5.4 percentage points
from the recession's start. That compares to the 4.5 percentage point
increase in the official unemployment rate to 9.5%.
The labor department also keeps track of why individuals are
not working full time, or so-called underemployment. At 6.5 million,
the number of those putting in less than 34 hours per week due to slack
work has more than doubled since the recession began. Those who could
only find part-time work also has doubled to 2.2 million. Even the
number of those who found a job and saw it end within a week rose by
two-thirds during the last year to 211,000. In all, the jobless rate
for the unemployed plus workers who are marginally attached plus those
working part-time for economic reasons constitute 16.8% of the labor
force, double the 2006-07 low. A dynamic analysis of recent
changes in the rate of part-time employment is a 1991
working paper from the Federal Reserve Bank of Cleveland and it can be
found <a href="http://www.clevelandfed.org/research/Workpaper/1991/wp9120.pdf">
here</a>.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720d.jpg" align="right" border="0" height="265" width="353">
Industry employment trends are behind the relative severity of
the employment patterns above. Factory sector jobs have fallen 14.0%
since the recession began and construction jobs are down 17.1%. Even
for the service sector, which typically is somewhat insulated from the
full force behind cyclical downturns which drive employment lower, this
time is different. Private service sector jobs are off 3.6% from their
peak led by an 8.2% decline in professional &amp; business service
jobs. Jobs in the financial services group also have fallen a severe
5.9%, retail jobs are down 5.1% while government payrolls are up just
slightly.

<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/@S4/@S4.HTM">Civilian
Unemployment Rate</a> (%)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">&nbsp;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">Total</td>
<td>9.5</td>
<td>9.4</td>
<td>5.6</td>
<td>5.8</td>
<td>4.6</td>
<td>4.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; By Sex</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Female</td>
<td>8.3</td>
<td>8.0</td>
<td>5.3</td>
<td>5.4</td>
<td>4.5</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Male</td>
<td>10.6</td>
<td>10.5</td>
<td>5.9</td>
<td>6.2</td>
<td>4.7</td>
<td>4.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; By Age</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
16-19</td>
<td>24.0</td>
<td>22.7</td>
<td>18.8</td>
<td>18.7</td>
<td>15.7</td>
<td>15.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
20 &amp; Over</td>
<td>8.9</td>
<td>8.8</td>
<td>5.0</td>
<td>5.2</td>
<td>4.1</td>
<td>4.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; By Educational
Attainment</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Less Than High School</td>
<td>15.5</td>
<td>15.5</td>
<td>8.9</td>
<td>9.0</td>
<td>7.1</td>
<td>6.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Bachelors Degree or Higher</td>
<td>4.7</td>
<td>4.8</td>
<td>2.4</td>
<td>2.6</td>
<td>2.0</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; By Race &amp; Age</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
White</td>
<td>8.7</td>
<td>8.6</td>
<td>5.0</td>
<td>5.2</td>
<td>4.1</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
16-19</td>
<td>21.4</td>
<td>20.3</td>
<td>17.0</td>
<td>16.7</td>
<td>13.9</td>
<td>13.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
20 &amp; Over</td>
<td>8.1</td>
<td>8.1</td>
<td>4.4</td>
<td>4.6</td>
<td>3.7</td>
<td>3.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Black or African American</td>
<td>14.7</td>
<td>14.9</td>
<td>9.4</td>
<td>10.1</td>
<td>8.3</td>
<td>8.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
16-19</td>
<td>37.9</td>
<td>39.4</td>
<td>29.8</td>
<td>31.2</td>
<td>29.4</td>
<td>29.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
20 &amp; Over</td>
<td>&nbsp;13.7</td>
<td>13.8</td>
<td>8.5</td>
<td>9.1</td>
<td>7.2</td>
<td>7.9</td>
</tr>
</tbody>
</table>
U.S. Leading Indicators Rise For A
Third Month Signaling Economic Recovery 
by <a href="/comment/Moeller.html">Tom
Moeller</a> July 20, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720e.jpg" align="left" border="0">
The Conference Board's Index of Leading Economic Indicators
continued to suggest a pending economic recovery. The June composite
index of leaders rose another 0.7% after gains of 1.3% (upwardly
revised) and 1.0% during the prior two months. The combined 3.0% rise
during those three months was the strongest since early 2002 while the
index itself was at the highest level since last July. The leading
index is based on actual reports for eight economic data series. The
Conference Board initially estimates two series, orders for consumer
goods and orders for capital goods.
For the third straight month, nearly three quarters of the ten
components of the leading index increased with the largest positive
contributions coming from a steeper yield curve, higher building
permits and higher stock prices. The money supply and consumer
expectations made slight negative contributions.
Again suggesting that the rate of decline in the economy is
slowing were the coincident indicators. They fell 0.2%, about as they
have for three consecutive months. These compare with monthly declines
of 0.6%-to-1.1% dating back to September. The negative contributions
from lower employment and production have eased. The remaining two
component series actually rose during June, led by very slight gains in
real disposable income and business sales. Over the last ten years
there has been a 76% correlation between this y/y change and real GDP.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720f.jpg" align="right" border="0">
In a sign that excesses in the U.S. economy are diminishing,
the lagging index fell for the sixth month in the last seven. The
declines have been paced by a longer duration of unemployment, lower
commercial and industrial loans and lower consumer installment credit.
The ratio of coincident-to-lagging indicators (a measure of economic
excess) rose m/m to the highest level since December.
The Conference Board figures are available in Haver's BCI
database. Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world.



World Economic Outlook Update; Contractionary
Forces Receding But Weak Recovery Ahead from the
international Monetary Fund can be found <a href="http://www.imf.org/external/pubs/ft/weo/2009/update/02/index.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business
Cycle Indicators</a> (%)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March 6-Month % (AR)</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">Leading</td>
<td>0.7</td>
<td>1.3</td>
<td>1.0</td>
<td>4.1</td>
<td>-2.8</td>
<td>-0.3</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.2</td>
<td>-0.3</td>
<td>-0.7</td>
<td>-5.9</td>
<td>-0.8</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.2</td>
<td>-0.8</td>
<td>-0.6</td>
<td>-5.9</td>
<td>2.9</td>
<td>2.8</td>
<td>3.3</td>
</tr>
</tbody>
</table>
Industrial Orders Trends Begin To
Turn...Ever So Slowly 
by <a href="/comment/Brusca.html">Robert
Brusca</a> July 20, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090720g.jpg" align="left" border="0" height="265" width="353">
Industrial orders in Italy made a slight bounce in May. French
orders fell after a slight bounce in April. Neither shows any sign of
upward momentum and the downward momentum has only just been trimmed if
we compare 3-month growth rates to 12-month growth rates. 
 

What is interesting is the very different performance in
foreign
orders as between Italy and France and Germany. Germany is showing some
very substantial recovery in foreign-sourced orders. But it Italy,
foreign order are falling at an accelerating pace through May. In
France, foreign orders have shown a clear patterns of progress with the
three-month growth rate reduced to an annual pace of -9.7% compared to
-24% Yr/Yr. 
 

Whatever progress is being experienced in Europe, it is
irregular.
Clearly some economies in the Zone are doing better than others despite
the common currency regime - and that is true for sales overseas
underlining the that exchange rates are not the only factor in the
success of foreign sales efforts. The more variance there is across
e-Zone countries in their respective economic performances, the more it
will wear on the fragile e-Zone area where talk of integration is tough
despite member countries efforts to continue to go it alone on fiscal
policy. Europe still has a recession and still has some divisive
political forces to weather. And yet more European &#8216;integration&#8217; lies
ahead. 
 


<table border="0" cellspacing="0" width="100%">
</table>
Italy Orders
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.4%</td>
<td>-3.6%</td>
<td>-2.6%</td>
<td>-20.9%</td>
<td>-24.3%</td>
<td>-29.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>0.2%</td>
<td>-2.9%</td>
<td>-9.3%</td>
<td>-39.4%</td>
<td>-27.5%</td>
<td>-33.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic</td>
<td>0.5%</td>
<td>-3.9%</td>
<td>1.0%</td>
<td>-9.3%</td>
<td>-22.7%</td>
<td>-26.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>-1.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
<td>-7.3%</td>
<td>-22.3%</td>
<td>-21.9%</td>
</tr>
<tr>
<td colspan="7">French Orders</td>
</tr>
<tr>
<td class="firstcol">Saar exept m/m</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-1.1%</td>
<td>0.6%</td>
<td>-5.7%</td>
<td>-22.3%</td>
<td>-9.2%</td>
<td>-23.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>0.4%</td>
<td>6.5%</td>
<td>-8.8%</td>
<td>-9.7%</td>
<td>-12.4%</td>
<td>-27.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">IP xConstruct</td>
<td>2.4%</td>
<td>-0.6%</td>
<td>-1.4%</td>
<td>1.4%</td>
<td>-15.1%</td>
<td>-15.0%</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Unemployment Rates RiseSharply And Rapidly For All

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090717a.jpg" width="353">
Perhaps this is the convincing sign that housing activity has turned the corner from its dramatic decline. Housing starts increased to 582,000 (AR) units last month versus 562,000 starts during May which was revised up from 532,000. The latest figure greatly exceeded Consensus expectations for 528,000 starts.
Higher starts of single-family homes led the increase in the total last month. The 14.4% m/m rise was the fourth consecutive monthly increase. The gains have been off the record low for the series which dates back to 1959 and the latest level was down three-quarters from the peak in early-2006. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.
Starts of multi-family homes fell to 112,000 and reversed slightly more than half their gain during May. Starts of apartments, condominiums &amp; town houses remained down by roughly two-thirds from the 2006 peak.
By region increases in starts of single-family units last month spread across the country. Single-family starts in the Midwest rose 26.4% to their highest level since October (-18.0% y/y). In the Northeast, single-family starts also firmed after two months of decline and rose to the highest level this year (-42.4% y/y). Starts in the West rose for the fourth straight month (-22.2% y/y) and in the South single-family starts rose a lesser 8.1% m/m. It was the third straight monthly gain (-34.0% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090717b.jpg" width="353">
Overall, building permits during June remained near the record low. Though the latest gain was the second in a row and to the highest level this year, it still left permits slightly lower than at yearend. Overall, permits were down by roughly one-half from last May. As with starts, recent gains in building permits have been led by higher single-family permits. Single-family permits, a leading indicator of starts, were stronger than the total and rose for the third straight month. They were up 16.2% since December (-28.9% y/y). Permits to build multi-family units rose 18.8% but only after eleven straight months of decline (-76.6% y/y).
The housing starts figures can be found in Haver&#39;s USECON database.
Strong Medicine for an Ailing Economy from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=084C6ABC-5056-9F12-1274013344A169C9&amp;method=display_body">here</a>.
Productivity Swings and Housing Prices from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci15-3.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts (000s, SAAR)</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>582</td>
<td>562</td>
<td>-46.0%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>470</td>
<td>411</td>
<td>-28.2</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>112</td>
<td>151</td>
<td>-73.5</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>563</td>
<td>518</td>
<td>-52.0</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>


</html>

Perhaps this is the convincing sign that housing activity has turned the corner from its dramatic decline. Housing starts increased to 582,000 (AR) units last month versus 562,000 starts during May which was revised up from 532,000. [...]

U.S. Housing Starts Post A Surprising Gain During June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090717a.jpg" width="353">
Perhaps this is the convincing sign that housing activity has turned the corner from its dramatic decline. Housing starts increased to 582,000 (AR) units last month versus 562,000 starts during May which was revised up from 532,000. The latest figure greatly exceeded Consensus expectations for 528,000 starts.
Higher starts of single-family homes led the increase in the total last month. The 14.4% m/m rise was the fourth consecutive monthly increase. The gains have been off the record low for the series which dates back to 1959 and the latest level was down three-quarters from the peak in early-2006. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.
Starts of multi-family homes fell to 112,000 and reversed slightly more than half their gain during May. Starts of apartments, condominiums &amp; town houses remained down by roughly two-thirds from the 2006 peak.
By region increases in starts of single-family units last month spread across the country. Single-family starts in the Midwest rose 26.4% to their highest level since October (-18.0% y/y). In the Northeast, single-family starts also firmed after two months of decline and rose to the highest level this year (-42.4% y/y). Starts in the West rose for the fourth straight month (-22.2% y/y) and in the South single-family starts rose a lesser 8.1% m/m. It was the third straight monthly gain (-34.0% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090717b.jpg" width="353">
Overall, building permits during June remained near the record low. Though the latest gain was the second in a row and to the highest level this year, it still left permits slightly lower than at yearend. Overall, permits were down by roughly one-half from last May. As with starts, recent gains in building permits have been led by higher single-family permits. Single-family permits, a leading indicator of starts, were stronger than the total and rose for the third straight month. They were up 16.2% since December (-28.9% y/y). Permits to build multi-family units rose 18.8% but only after eleven straight months of decline (-76.6% y/y).
The housing starts figures can be found in Haver&#39;s USECON database.
Strong Medicine for an Ailing Economy from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=084C6ABC-5056-9F12-1274013344A169C9&amp;method=display_body">here</a>. 
Productivity Swings and Housing Prices from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci15-3.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts (000s, SAAR)</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>582</td>
<td>562</td>
<td>-46.0%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>470</td>
<td>411</td>
<td>-28.2</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>112</td>
<td>151</td>
<td>-73.5</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>563</td>
<td>518</td>
<td>-52.0</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>


</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716g.jpg" width="353">
According to the National Association of Home Builders, improvement in the housing market continued during July. Their Composite Housing Market Index recovered the June slip and rose to 17, which equaled the highest level since June of last year. The index is compiled from survey questions asking builders to rate market conditions as &#147;good&#148;, &#147;fair&#148;, &#147;poor&#148; or &#147;very high&#148; to &#147;very low&#148;. Numerical results over 50 indicate a predominance of &#147;good&#148; readings.
Also showing improvement during all of the first quarter was the Home Builders&#39; Housing Opportunity Index, which is the share of homes sold that could be considered affordable to a family earning the median income. It jumped to a record high of 72.5% buoyed by lower home prices, lower interest rates and higher income. (There is a break in the series from 2002 to 2003.)
The Home Builders Association indicated that its sub-index of present sales rose this month to the highest level since June &#39;08. At a reading of 17 the figure was up significantly from the January low of 6. Since 1990, the year-to-year change in this index has had an 80% correlation with the year-to-year percentage change in new single-family home sales.
The index of builders&#146; expectations for home sales in six months held stable but remained near its highest since September. The &#147;traffic&quot; of prospective buyers also improved from June and was up from the record lows of this past Winter.
The strength in the July composite index readings was concentrated in the South. Elsewhere in the country composite indexes were flat-to-lower.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716h.jpg" width="353">
The NAHB has compiled the Housing Market Index since 1985. The weights assigned to the individual index components are .5920 for single family detached sales, present time; .1358 for single family detached sales, next six months; and .2722 for traffic of prospective buyers. The results, along with other housing and remodeling indexes from NAHB Economics, are included in Haver&#146;s SURVEYS database.
Today&#39;s House testimony by Fed Governor Elizabeth A. Duke titled Consumer Protection can be found <a href="http://www.federalreserve.gov/newsevents/testimony/duke20090716a.htm">here</a>.

<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/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">&nbsp;July &#39;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 Housing Market Index (All Good = 100)</td>
<td>17</td>
<td>15</td>
<td>16</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>17</td>
<td>14</td>
<td>15</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales: Next Six Months</td>
<td>26</td>
<td>26</td>
<td>23</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of Prospective Buyers</td>
<td>14</td>
<td>13</td>
<td>12</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the National Association of Home Builders, improvement in the housing market continued during July. Their Composite Housing Market Index recovered the June slip and rose to 17, which equaled the highest level since June [...]

U.S. Home Builders’ Index Recovers To Its Highest Since June '08

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Winnie Tapasanun

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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**.

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- 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

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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

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**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. 

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**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

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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.

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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. 

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**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.

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**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.

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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.

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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.

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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.

Economy in Brief

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