Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602f.jpg" align="left" border="0" height="265" width="353">
Unemployment rates are on the rise around the world. In EMU
the new rate jumped up to 9.2%; the highest rate for the Area in 9-1/2
years (Sept 1999). There have been 3.1million jobs losses since the
recession began. The US has seen a sharp rise in its rate of
unemployment over the past year, a gain of 3.9%. This surpasses the
1.9% point rise in EMU and the 1% point rise in Japan. However, the
rise in Spain as been of a whopping 8.1 percentage points, bringing in
its overall rate to 18.1%. And that spells e-Zone trouble. 
 

Since the start of the US recession in December of 2007 the
German rate of unemployment has dropped &#8211; dropped - by 0.2% points. The
French rate has risen by 0.2% points. Spain&#8217;s U-rate is up by 9.2%
points. The US unemployment rate is higher by 4% points. In Japan the
U-rate is up by 1.3% points. 
 

Spain&#8217;s rate has jumped as the property market has collapsed.
The rise there appears to have a very large structural element. In the
US the rise seems to be mostly cyclical but it is a substantial rise: a
gain of four percentage points compared to a level of 4.9% in December
of 2007. 
 

Europe seems to have forestalled much of the rise in the rate
of unemployment &#8211; Spain excepted, of course. That leads to the
conclusion that despite a substantial social safety net in Europe, the
rise in unemployment is still in progress and will hit Europe later.
Moreover, Europe has different sorts of stresses as the social safety
net is uneven and spreads stress unevenly, across the Area. EMU is only
a common currency area with some economic harmonization rules; fiscal
policy is left to local custom and practice with two overall metrics in
place to constrain aggregate usage. That lack of commonality is now a
problem for the Area. 
 

For the moment the e-Area&#8217;s MFG PMI indices are rising on only
a slight lag with the index in the US. This is with a relatively small
hike in the rate of unemployment in Europe (much of that in Spain) and
a substantial jump in the US. If the unemployment problem in Europe
grows worse, the European recovery that now seems to be on the heels of
the US could suffer substantial erosion. There is also a possibility of
political tensions in Europe as the recessions hit the various EMU
nations unevenly. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> Unemployment rate and changes</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> Level</td>
<td colspan="3"> Simple Changes</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">EU-Urate</td>
<td>8.6</td>
<td>8.4</td>
<td>8.1</td>
<td>0.7</td>
<td>1.3</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">EMU-Urate</td>
<td>9.2</td>
<td>8.9</td>
<td>8.7</td>
<td>0.8</td>
<td>1.4</td>
<td>1.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> m/m%</td>
<td colspan="3"> % changes (ar)</td>
</tr>
<tr>
<td class="firstcol">EU-U 000s</td>
<td>2.7%</td>
<td>3.2%</td>
<td>3.5%</td>
<td>9.7%</td>
<td>19.0%</td>
<td>28.8%</td>
</tr>
<tr>
<td class="firstcol">EMU-U 000s</td>
<td>2.8%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>9.1%</td>
<td>17.7%</td>
<td>27.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">U-Rates</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>7.7</td>
<td>7.6</td>
<td>7.4</td>
<td>0.4</td>
<td>0.6</td>
<td>0.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>8.9</td>
<td>8.8</td>
<td>8.6</td>
<td>0.4</td>
<td>0.9</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Spain</td>
<td>18.1</td>
<td>17.3</td>
<td>16.5</td>
<td>2.5</td>
<td>4.9</td>
<td>8.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; USA</td>
<td>8.9</td>
<td>8.5</td>
<td>8.1</td>
<td>1.3</td>
<td>2.3</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Japan</td>
<td>5</td>
<td>4.8</td>
<td>4.4</td>
<td>0.9</td>
<td>1.2</td>
<td>1</td>
</tr>
</tbody>
</table>
</body></html>

Unemployment rates are on the rise around the world. In EMU the new rate jumped up to 9.2%; the highest rate for the Area in 9-1/2 years (Sept 1999). There have been 3.1million jobs losses since the recession began. The US has seen a [...]

U-Rates On The Rise

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602d.jpg" width="353">
The National Association of Realtors reported that pending sales of existing homes during April rose for the third consecutive month. The 6.7% m/m rise was to the highest level since last September and doubled the unrevised 3.2% March gain. Consensus expectations had been for a slight 0.5% increase in April sales.
Last month&#39;s gain in home sales was spread across the country except in the South where they fell slightly from March (+3.6% y/y). In the West (-3.0%y/y) sales recovered a piece of March&#39;s decline but remained down sharply from the highs of last summer. Elsewhere, sales in the Northeast jumped by nearly one-third from the March level but they were roughly unchanged from one year earlier. Sales in the Midwest jumped 9.8% from March and have rebounded 11.1% versus 2008.
The home sales figures are analogous to the new home sales data from the Commerce Department in that they measure existing home sales when the sales contract is signed, not at the time the sale is closed. The series dates back to 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602e.jpg" width="353">
The latest monthly gains in home sales have been accompanied by a rise in home prices. The median sales price of an existing home increased a slight 0.2% in April (-15.4% y/y). The rise followed firm increases during the prior two months. The latest gains in home prices did lower housing affordability slightly but just slightly. Therefore, combined with lower interest rates, the affordability index of a home remained up by 29.2% year-to-year and by three quarters from the 2006 low. The latest level was a record high for the series which extends back to 1970.
As the Spring selling season began, the Realtors Association indicated in an earlier report that the number of homes on the market and available for sale rose 8.8% during April but were down 12.8% versus one year earlier. At the current sales rate there was a 10.2 months&#39; supply of homes on the market and there was a 10.4 months&#39; supply during all of last year, up from the 8.9 months supply during 2007 and 6.5 months during 2006. For single family homes, there was a 9.6 months&#39; supply in April versus a full-year figure of 10.0 months during 2008.
The pending home sales data are available in Haver&#39;s PREALTOR database. The number of homes on the market and prices are in the REALTOR database.

<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/@W5/@W507/@W507.HTM">Pending Home Sales (2001=100)&nbsp;</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>90.3</td>
<td>84.6</td>
<td>&nbsp;&nbsp; 3.2%</td>
<td>86.8</td>
<td>95.8</td>
<td>112.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>78.9</td>
<td>59.5</td>
<td>0.8</td>
<td>72.6</td>
<td>85.6</td>
<td>98.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Midwest</td>
<td>90.4</td>
<td>82.3</td>
<td>11.1</td>
<td>80.6</td>
<td>89.5</td>
<td>102.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>93.0</td>
<td>93.2</td>
<td>3.6</td>
<td>89.8</td>
<td>107.3</td>
<td>127.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; West</td>
<td>94.8</td>
<td>93.1</td>
<td>-3.0</td>
<td>99.3</td>
<td>92.1</td>
<td>109.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Realtors reported that pending sales of existing homes during April rose for the third consecutive month. The 6.7% m/m rise was to the highest level since last September and doubled the unrevised 3.2% March [...]

U.S. Pending Home Sales Rise To Their Highest Level Since September

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602c.jpg" width="353">
Consumers lost their mood for spending at the end of last month. According to the International Council of Shopping Centers-Goldman Sachs Index, store sales last week gave back with a 0.6% decline virtually all of the prior week&#39;s increase. That left sales for the entire month of May down 0.2% from April after that month&#39;s 1.4% rise from the March average.
During the last ten years there has been a 64% correlation between the year-to-year growth in chain store sales and the growth in general merchandise sales. These weekly figures are available in Haver&#39;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 spending also were tepid last week as indicated by the leading indicator of sales. It fell a modest 0.3% in the latest week. The May average stands just below April.

<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">05/30/09</th>
<th scope="col">05/23/09</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>487.4</td>
<td>490.5</td>
<td>0.6%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>


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Consumers lost their mood for spending at the end of last month. According to the International Council of Shopping Centers-Goldman Sachs Index, store sales last week gave back with a 0.6% decline virtually all of the prior week's [...]

U.S. Chain Store Sales Backpedal

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602a.jpg" width="353">
News of a rebound in the U.S. economy has generated the suspicion that more consumers will take to the roads on longer journeys. So far, the evidence of a recovery in driving is limited, but the energy market nevertheless has reacted in advance with higher prices. Regular gasoline prices last week moved even higher to an average $2.52 per gallon of regular. The gains have taken prices up by 91 cents, or by more than one-half, from the December low to the highest level since late-October. Yesterday, the cash market price for a gallon of regular gas rose further to $1.90 per gallon versus $1.85 averaged last week. These also were the highest prices since last October. The figures are reported by the U.S. Department of Energy and can be found in Haver&#39;s WEEKLY &amp; DAILY databases.
So far the evidence of a rebound in driving is limited. The figures for miles driven have rebounded from this past winter but that&#39;s usual as the weather warms. Year-to-year, economic weakness continues to lower gasoline demand, last week by 2.1%. That is, however, a less severe shortfall than during last autumn&#39;s 5% y/y decline. The change in demand is measured using the latest four weeks versus the same four weeks in 2008. Demand for all petroleum products was down 7.3% y/y in the latest week led by a 38.5% drop in demand for residual fuel oil and a 13.4% drop in distillate demand. These numbers also are available in Haver&#39;s OILWKLY database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602b.jpg" width="353">
Higher crude oil prices have accompanied the rise in gasoline costs. Crude prices averaged $64.32 last week for a barrel of West Texas Intermediate, up from the December low of $32.37 per barrel. Yesterday, crude oil prices rose even further to $68.58. Prices reached a high of $145.66 last July. The latest price increases occurred despite a 3.1% year-to-year rise in crude oil production during the latest four weeks. In addition, they have occurred despite a 12.3% y/y rise in inventories of crude oil &amp; petroleum products. The figures on crude oil production and inventories are available in Haver&#39;s OILWKLY database.
Finally, the gains in the price of natural gas paused last week and it fell back to $3.60 per mmbtu (-69.2% y/y). The latest price was nearly the lowest since 2002 and is down by two-thirds from the high reached in early-July of $13.19/mmbtu.
U.S. Treasury Secretary Timothy F. Geithner&#39;s speech titled The United States and China, Cooperating for Recovery and Growth is available <a href="http://www.ustreas.gov/press/releases/tg152.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/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">06/01/09</th>
<th scope="col">05/25/09</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>2.52</td>
<td>2.44</td>
<td>-36.5%</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>64.32</td>
<td>60.48</td>
<td>-49.9%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
</html>

News of a rebound in the U.S. economy has generated the suspicion that more consumers will take to the roads on longer journeys. So far, the evidence of a recovery in driving is limited, but the energy market nevertheless has reacted [...]

Gasoline Prices Rise Further Reflecting Strength In Crude Oil Prices

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602d.jpg" align="left" border="0" height="265" width="353">
The National Association of Realtors reported that pending
sales of existing homes during April rose for the third consecutive
month. The 6.7% m/m rise was to the highest level since last September
and doubled the unrevised 3.2% March gain. Consensus expectations had
been for a slight 0.5% increase in April sales.
Last month's gain in home sales was spread across the country
except in the South where they fell slightly from March (+3.6% y/y). In
the West (-3.0%y/y) sales recovered a piece of March's decline but
remained down sharply from the highs of last summer. Elsewhere, sales
in the Northeast jumped by nearly one-third from the March level but
they were roughly unchanged from one year earlier. Sales in the Midwest
jumped 9.8% from March and have rebounded 11.1% versus 2008.
The home sales figures are analogous to the new home sales
data from the Commerce Department in that they measure existing home
sales when the sales contract is signed, not at the time the sale is
closed. The series dates back to 2001.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602e.jpg" align="right" border="0" height="265" width="353">
The latest monthly gains in home sales have been accompanied
by a rise in home prices. The median sales price of an existing home
increased a slight 0.2% in April (-15.4% y/y). The rise followed firm
increases during the prior two months. The latest gains in
home prices did lower housing affordability slightly but just slightly.
Therefore, combined with lower interest rates, the affordability index
of a home remained up by 29.2% year-to-year and by three quarters from
the 2006 low. The latest level was a record high for the series which
extends back to 1970.
As the Spring selling season began, the Realtors Association
indicated in an earlier report that the number of homes on the market
and available for sale rose 8.8% during April but were down 12.8%
versus one year earlier. At the current sales rate there was a 10.2
months' supply of homes on the market and there was a 10.4 months'
supply during all of last year, up from the 8.9 months supply during
2007 and 6.5 months during 2006. For single family homes, there was a
9.6 months' supply in April versus a full-year figure of 10.0 months
during 2008.
The pending home sales data are available in Haver's PREALTOR
database. The number of homes on the market and prices are in
the REALTOR database.

<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/@W5/@W507/@W507.HTM">Pending
Home Sales (2001=100)&nbsp;</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>90.3</td>
<td>84.6</td>
<td>&nbsp;&nbsp; 3.2%</td>
<td>86.8</td>
<td>95.8</td>
<td>112.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>78.9</td>
<td>59.5</td>
<td>0.8</td>
<td>72.6</td>
<td>85.6</td>
<td>98.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Midwest</td>
<td>90.4</td>
<td>82.3</td>
<td>11.1</td>
<td>80.6</td>
<td>89.5</td>
<td>102.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>93.0</td>
<td>93.2</td>
<td>3.6</td>
<td>89.8</td>
<td>107.3</td>
<td>127.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; West</td>
<td>94.8</td>
<td>93.1</td>
<td>-3.0</td>
<td>99.3</td>
<td>92.1</td>
<td>109.5</td>
</tr>
</tbody>
</table>
Gasoline Prices Rise Further
Reflecting Strength In Crude Oil Prices 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602a.jpg" align="left" border="0" height="265" width="353">
News of a rebound in the U.S. economy has generated the
suspicion that more consumers will take to the roads on longer
journeys. So far, the evidence of a recovery in driving is limited, but
the energy market nevertheless has reacted in advance with higher
prices. Regular gasoline prices last week moved
even higher to an average $2.52 per gallon of regular. The gains have
taken prices up by 91 cents, or by more than one-half, from the
December low to the highest level since late-October. Yesterday, the
cash market price for a gallon of regular gas rose further to $1.90 per
gallon versus $1.85 averaged last week. These also were the highest
prices since last October. The figures are reported by the U.S.
Department of Energy and can be found in Haver's WEEKLY
&amp; DAILY databases.
So far the evidence of a rebound in driving is limited. The
figures for miles driven have rebounded from this past winter but
that's usual as the weather warms. Year-to-year, economic weakness
continues to lower gasoline demand, last week by
2.1%. That is, however, a less severe shortfall than during last
autumn's 5% y/y decline. The change in demand is measured using the
latest four weeks versus the same four weeks in 2008. Demand for
all petroleum products was down 7.3% y/y in the latest week
led by a 38.5% drop in demand for residual fuel oil and a 13.4% drop in
distillate demand. These numbers also are available in Haver's OILWKLY
database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602b.jpg" align="right" border="0" height="265" width="353">
Higher crude oil prices have accompanied
the rise in gasoline costs. Crude prices averaged $64.32 last week for
a barrel of West Texas Intermediate, up from the December low of $32.37
per barrel. Yesterday, crude oil prices rose even further to $68.58.
Prices reached a high of $145.66 last July. The latest price increases
occurred despite a 3.1% year-to-year rise in crude oil production
during the latest four weeks. In addition, they have occurred despite a
12.3% y/y rise in inventories of crude oil &amp; petroleum
products. The figures on crude oil production and inventories are
available in Haver's OILWKLY database.
Finally, the gains in the price of natural gas paused last
week and it fell back to $3.60 per mmbtu (-69.2% y/y). The latest price
was nearly the lowest since 2002 and is down by two-thirds from the
high reached in early-July of $13.19/mmbtu.
U.S. Treasury Secretary Timothy F. Geithner's speech titled The
United States and China, Cooperating for Recovery and Growth is
available <a href="http://www.ustreas.gov/press/releases/tg152.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/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">06/01/09</th>
<th scope="col">05/25/09</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>2.52</td>
<td>2.44</td>
<td>-36.5%</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>64.32</td>
<td>60.48</td>
<td>-49.9%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Backpedal 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602c.jpg" align="left" border="0" height="265" width="353">
Consumers lost their mood for spending at the end of last
month. According to the International Council of Shopping
Centers-Goldman Sachs Index, store sales last week gave back with a
0.6% decline virtually all of the prior week's increase. That left
sales for the entire month of May down 0.2% from April after that
month's 1.4% rise from the March average.
During the last ten years there has been a 64% correlation
between the year-to-year growth in chain store sales and the growth in
general merchandise sales. These 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 spending also were tepid last week as indicated
by the leading indicator of sales. It fell a modest 0.3% in the latest
week. The May average stands just below April.
<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">05/30/09</th>
<th scope="col">05/23/09</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>487.4</td>
<td>490.5</td>
<td>0.6%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
U-Rates On The Rise 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602f.jpg" align="left" border="0" height="265" width="353">
Unemployment rates are on the rise around the world. In EMU
the new rate jumped up to 9.2%; the highest rate for the Area in 9-1/2
years (Sept 1999). There have been 3.1million jobs losses since the
recession began. The US has seen a sharp rise in its rate of
unemployment over the past year, a gain of 3.9%. This surpasses the
1.9% point rise in EMU and the 1% point rise in Japan. However, the
rise in Spain as been of a whopping 8.1 percentage points, bringing in
its overall rate to 18.1%. And that spells e-Zone trouble. 
 

Since the start of the US recession in December of 2007 the
German rate of unemployment has dropped &#8211; dropped - by 0.2% points. The
French rate has risen by 0.2% points. Spain&#8217;s U-rate is up by 9.2%
points. The US unemployment rate is higher by 4% points. In Japan the
U-rate is up by 1.3% points. 
 

Spain&#8217;s rate has jumped as the property market has collapsed.
The rise there appears to have a very large structural element. In the
US the rise seems to be mostly cyclical but it is a substantial rise: a
gain of four percentage points compared to a level of 4.9% in December
of 2007. 
 

Europe seems to have forestalled much of the rise in the rate
of unemployment &#8211; Spain excepted, of course. That leads to the
conclusion that despite a substantial social safety net in Europe, the
rise in unemployment is still in progress and will hit Europe later.
Moreover, Europe has different sorts of stresses as the social safety
net is uneven and spreads stress unevenly, across the Area. EMU is only
a common currency area with some economic harmonization rules; fiscal
policy is left to local custom and practice with two overall metrics in
place to constrain aggregate usage. That lack of commonality is now a
problem for the Area. 
 

For the moment the e-Area&#8217;s MFG PMI indices are rising on only
a slight lag with the index in the US. This is with a relatively small
hike in the rate of unemployment in Europe (much of that in Spain) and
a substantial jump in the US. If the unemployment problem in Europe
grows worse, the European recovery that now seems to be on the heels of
the US could suffer substantial erosion. There is also a possibility of
political tensions in Europe as the recessions hit the various EMU
nations unevenly. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr> <th colspan="7" scope="col"> Unemployment
rate and changes</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> Level</td>
<td colspan="3"> Simple Changes</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">EU-Urate</td>
<td>8.6</td>
<td>8.4</td>
<td>8.1</td>
<td>0.7</td>
<td>1.3</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">EMU-Urate</td>
<td>9.2</td>
<td>8.9</td>
<td>8.7</td>
<td>0.8</td>
<td>1.4</td>
<td>1.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> m/m%</td>
<td colspan="3"> % changes (ar)</td>
</tr>
<tr>
<td class="firstcol">EU-U 000s</td>
<td>2.7%</td>
<td>3.2%</td>
<td>3.5%</td>
<td>9.7%</td>
<td>19.0%</td>
<td>28.8%</td>
</tr>
<tr>
<td class="firstcol">EMU-U 000s</td>
<td>2.8%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>9.1%</td>
<td>17.7%</td>
<td>27.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">U-Rates</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>7.7</td>
<td>7.6</td>
<td>7.4</td>
<td>0.4</td>
<td>0.6</td>
<td>0.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>8.9</td>
<td>8.8</td>
<td>8.6</td>
<td>0.4</td>
<td>0.9</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Spain</td>
<td>18.1</td>
<td>17.3</td>
<td>16.5</td>
<td>2.5</td>
<td>4.9</td>
<td>8.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; USA</td>
<td>8.9</td>
<td>8.5</td>
<td>8.1</td>
<td>1.3</td>
<td>2.3</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Japan</td>
<td>5</td>
<td>4.8</td>
<td>4.4</td>
<td>0.9</td>
<td>1.2</td>
<td>1</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601i.jpg" width="353">
There&#39;s no real upward momentum driving the recent gains in construction spending, but it seems that an interim stabilization of earlier declines occurred this Spring. How long it will last is the question. For the second consecutive month the value of construction put-in-place unexpectedly rose; during April by 0.8% after a little-revised 0.4% March uptick. The gains followed declines ranging from 2% to 4% during each of the prior four months. Consensus expectations had been for a 1.6% April drop.
Another strong gain in the value of nonresidential building activity paced the April surprise. The 1.8% rise followed a 2.6% March increase. Nevertheless, the y/y gain decelerated to 2.0% following double-digit growth during each of the prior three years. Much of April&#39;s upside surprise was due to a 2.4% increase in the lodging category. Regardless, spending in this area has turned negative y/y following gains ranging between 30% and 60% during each of the prior three years. Elsewhere, office construction continued lower (-17.8% y/y) as did building in the commercial (-25.4% y/y), educational (-4.8% y/y) and amusement &amp; recreation sectors (-18.0% y/y).
Residential building activity also bounced back by all of 0.7% during April. Nevertheless, it was still off by one-third over the last year and by two-thirds from the 2006 peak. Notably hard hit has been single-family construction activity which ticked up 0.7% after falling by three-quarters since 2006. Building activity on multi-family units fell 2.6% during April (-17.4% y/y) but spending on improvements rose 8.9% (-13.8% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601j.jpg" width="353">
In contrast to the private sector gains, public construction dipped 0.6% during April; and the recession&#39;s effect on tax revenues lowered the year-to-year growth to 3.3% from its 2007 peak of 18.6%. The value of spending on transportation facilities fell 4.6% year-to-year while spending on highways &amp; streets inched up just 0.2% y/y. The value of construction on highways &amp; streets is roughly one-third of the value of total public construction spending.
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
The more detailed categories of construction represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002, and that constant-dollar data are no longer computed.
The construction put-in-place figures are available in Haver&#39;s USECON database.
Making affordable housing greener from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2009/spring/Connelly_Miller_New_Ecology.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/USECON/@E9/@E907/@E907.HTM">Construction</a> (%)</th>
<th scope="col">April</th>
<th scope="col">March</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>0.8</td>
<td>0.4</td>
<td>-10.7</td>
<td>-5.7</td>
<td>-2.7</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>1.4</td>
<td>0.2</td>
<td>-16.1</td>
<td>-9.8</td>
<td>-6.9</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.7</td>
<td>-3.6</td>
<td>-35.0</td>
<td>-27.7</td>
<td>-19.8</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.8</td>
<td>2.6</td>
<td>2.0</td>
<td>14.9</td>
<td>19.6</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>-0.6</td>
<td>1.0</td>
<td>3.3</td>
<td>6.7</td>
<td>12.3</td>
<td>9.3</td>
</tr>
</tbody>
</table>
</body>
</html>

There's no real upward momentum driving the recent gains in construction spending, but it seems that an interim stabilization of earlier declines occurred this Spring. How long it will last is the question. For the second consecutive [...]

U.S. Construction Spending Increases Modestly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601g.jpg" width="353">
The manufacturing sector showed a further sign of modest improvement after its sharp decline in overall activity. The May composite index for the factory sector from the Institute for Supply Management rose to 42.8 from 40.1 in April. Though the latest figure still indicates a lower level of activity, as does any below the break-even point of 50, the rate of decline appears to be easing. The worst of the decline was at yearend &#39;08 when the index reached 32.9. Consensus expectations were for a May reading of 42.3.
Improvement in the May components of the overall ISM index was limited, but encouraging. The new orders figure broached the break-even level of 50 for the first time since late 2007 with a rise to 51.1. The improvement came as only 19% (NSA) of survey participants reported lower orders ,versus a December high of 64%, while a still-low 27% reported higher orders. The export order index also improved to 48.0 versus the December reading 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.
The production component also improved to a level of 46.0, which was its highest level since August and up off the low of 26.3 in December. During the last ten years there has been an 84% correlation between the level of the production component of the composite index and the three-month growth in factory sector industrial production. It is appropriate to correlate the ISM index level with factory sector output growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures. Another glimmer of improvement was that the speed of supplier deliveries slowed for the second month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601h.jpg" width="353">
Elsewhere, improvement in the components was limited. The employment index was unchanged at a low reading of 34.3, though that was up from the February low. During the last ten years there has been an 89% correlation between the index level and the one-month change in manufacturing payrolls. Continued destocking played a role in that weakness as suggested by a low inventory index reading of 32.9 which was near the lowest level since 1982.
The separate index of prices paid rose sharply indicating that pricing power is rebuilding with improved activity levels. The reading of 43.5 was its highest since last September. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.
The ISM data is available in Haver&#39;s USECON database.
Positive Economic Signs Are Emerging; Recovery Will Take Time from the Federal Reserve Bank of St. Louis can be found <a href="http://www.stlouisfed.org/newsroom/pdf/StackhousePresentation05-2009.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/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#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 Index</td>
<td>42.8</td>
<td>40.1</td>
<td>49.3</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>51.1</td>
<td>47.2</td>
<td>48.6</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>34.3</td>
<td>34.4</td>
<td>46.2</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>43.5</td>
<td>32.0</td>
<td>87.0</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The manufacturing sector showed a further sign of modest improvement after its sharp decline in overall activity. The May composite index for the factory sector from the Institute for Supply Management rose to 42.8 from 40.1 in April. [...]

ISM Index Suggests Downturn In Factory Sector Is Easing

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601e.jpg" align="left" border="0" height="265" width="353">
This May, the Hometrack Housing Survey, which processes
information gathered by real estate agents in England and Wales,
suggests that the decline in the property market may be reaching
bottom. Three of the indicators that Hometrack monitors continued to
improved in May and one was unchanged. The average price of a house was
unchanged from April, the first break in the steady monthly declines
that began in October 2007. The price is now 155,600 pounds, 16,600
pounds below a year ago and 29,700 pounds below the peak of 176,300
reached in June, July and August of 2007. The last time one could buy a
house near the current price was September 2002 when the average price
was 154,500 pounds.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601f.jpg" align="right" border="0" height="265" width="353">
The difference between the selling price and the asking price
has been narrowing since January and February of this year when the
sale price was 88.3% the asking price. The May percentage was 90.3%, up
from 89.6% in April. This percentage, however, is among the lower
percentages recorded over the nine-year history of the data. The
selling price was 97.7% of the selling price in January, 2002. The
first chart shows the average price of a house and sales price and a
percentage of the asking price since January 2001.
The average time it takes to sell a house has also been
falling since January of this year when it took 12.3 weeks to complete
a sale. In May it took 9.9 weeks. Again this is a relatively long time
when viewed over the past nine years. From 2001 through 2007, the
number of weeks it took to complete a sale varied from 2.8 in May and
June of 2002 to 8.3 in December, 2007.
Finally, the number of viewings per sale has been slowly
trending down since July 2008 when it reached 14.9. By May the number
of viewings was 12.2, down from 12.5 in April. The second chart shows
the average time taken to sell a house and the number of viewings per
sale.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">UK
Hometrack Housing Survey</th>
<th scope="col">May 09</th>
<th scope="col">Apr&nbsp; 09</th>
<th scope="col">May 08</th>
<th scope="col">M/M&nbsp; Chg</th>
<th scope="col">Y/Y Chg</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007&nbsp;</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">House Price (000 GBP)&nbsp;</td>
<td>155.6</td>
<td>155.6</td>
<td>172.2</td>
<td>0.0</td>
<td>-16.6</td>
<td>168.7</td>
<td>174.4</td>
<td>165.7</td>
</tr>
<tr>
<td class="firstcol">Sale Price/ Asking Price (%)</td>
<td>90.3</td>
<td>89.6</td>
<td>92.3</td>
<td>0.7</td>
<td>-2.0</td>
<td>91.3</td>
<td>96.0</td>
<td>94.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Time Taken to Sell (No.
of Weeks)</td>
<td>9.9</td>
<td>10.4</td>
<td>9.8</td>
<td>-0.5</td>
<td>0.1</td>
<td>10.4</td>
<td>6.7</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">Average Number of Viewings per
Sale</td>
<td>12.2</td>
<td>12.5</td>
<td>14.0</td>
<td>-0.3</td>
<td>-1.8</td>
<td>13.7</td>
<td>11.0</td>
<td>10.9</td>
</tr>
</tbody>
</table>
</body></html>

This May, the Hometrack Housing Survey, which processes information gathered by real estate agents in England and Wales, suggests that the decline in the property market may be reaching bottom. Three of the indicators that Hometrack [...]

Encouraging News From UK's Hometrack Housing Survey

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

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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.

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Asia

Economic Letter from Asia: Oil Down, Emerging Risks

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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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Europe

EU Indexes Show European Improvement in June

Winnie Tapasanun

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The U.S. international trade deficit in goods ballooned to a larger-than-expected $105.75 billion in May after narrowing to $83.01 billion in April, according to the advance estimate from the U.S. Census Bureau. The May reading marked the third widening in the goods trade deficit in four months, exceeding a $91.55 billion shortfall in May 2025. A deficit of $84.0 billion for May had been expected by the Action Economics Forecast Survey. The deficit reached a low of $61.44 billion in October 2025 (the smallest since February 2020) and a record high of $158.73 billion in March 2025. On a quarterly basis, the deficit averaged $94.38 billion so far in Q2'26 versus $81.96 billion in Q1'26.

Total goods exports fell 5.4% m/m (+14.7% y/y) to $207.67 billion in May, the first monthly fall since December and a three-month low, following a 3.8% rise to a record-high $219.52 billion in April. Exports were up 27.7% from a June 2023 low. The m/m fall in exports in May reflected declines of 9.2% (-5.0% y/y) in nonfood consumer goods excluding autos, 7.0% (+23.2% y/y) in industrial supplies & materials, 6.8% (+19.5% y/y) in other goods, and 5.0% (+14.8% y/y) in capital goods excluding autos. To the upside, exports of foods, feeds & beverages (+3.9%; +19.1% y/y) and automotive vehicles & parts (+0.5%; -3.6% y/y) rebounded m/m in May.

Total goods imports, up for the fourth consecutive month, rose 3.6% m/m (15.0% y/y) to $313.43 billion in May, after a 2.0% increase to $302.53 billion in April, marking the highest level since the March 2025 record high of $340.11 billion. Imports were up 25.0% from a March 2023 low. The m/m rise in imports in May was broad-based across all end-use categories, led by an 11.5% gain (22.0% y/y) in other goods, followed by increases of 6.3% (1.4% y/y) in automotive vehicles & parts, 5.7% (-9.1% y/y) in nonfood consumer goods excluding autos, 4.8% (11.7% y/y) in industrial supplies & materials, 4.3% (-0.2% y/y) in foods, feeds & beverages, and 0.4% (41.9% y/y) in capital goods excluding autos. 

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Deficit: $105.75 bil. in May, up $22.75 bil. (+27.4%) from April’s $83.01 bil.
- Exports -5.4%, first m/m decline since Dec., led by a 9.2% drop in nonauto consumer goods exports.
- Imports +3.6%, fourth straight m/m rise to highest level since Mar. ’25, driven by an 11.5% gain in imports of other goods.

U.S. Goods Trade Deficit Balloons in May, Largest Since March ’25

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In June, there's a slight divergence in the performance of industry climate and service sector climate, although broadly the two sectors have seen their composite indexes moving in more or less the same direction. Since 2024, the industry survey has moved up slightly after falling faster than the services gauge. The services survey has been locked in a slow trend of deterioration, largely since it reached a peak in 2021 in the wake of COVID.

The industry climate gauge has a 30.8 percentile standing, but the recent production trend, while declining, logs a more substantial 42.8 percentile standing. Contributing survey members find their own industry ‘likely trend’ much weaker, at a 21.2 percentile standing. Demand overall, however, has standings above the 50th percentile, putting overall and foreign orders & demand each above their respective medians for this period of ranking back to 2001. Inventories have a strong 81-percentile ranking. Prices are extremely strong, with 87-percentile and 86-percentile standings for respondents for their personal industry trend for prices as well as for the overarching manufacturing sector estimate of prices. Higher prices seem to be the one thing that everyone can agree on by a large margin.

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As for services, the service climate index improved slightly to 93.4 in June from 92.6 in May. The three-month moving average was weaker in June than in May as well; the 12-month moving average has been stuck at its current level for a number of months. The outlook in June improved slightly to a reading of -12 from -15 in May, but the outlook ranking is still a weak 26.8 percentile standing. The three-month expectations and observations of past sales trends haven't changed much in the last two months, but there has been a slight improvement for sales expectations. However, both sales metrics have low 20th percentile standings. Sales prices have deteriorated slightly in June compared to May for both the observed and the expected trends, but prices have standings above their 50th percentiles, logging above-median performance. Employment over the last three months has weakened noticeably, and expected employment is weaker by a small amount.

In terms of rankings, all of the sector rankings are below the 50th percentile on all of these observations, including the climate headline except for sales prices where both the past three-month observed trend and the expected trend have readings above their respective 50th percentiles, indicating past and expected price pressures in excess of normal.

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**Assessment**
On balance, the readings for the French industry, manufacturing sector and services are not encouraging. In addition, concerns about prices linger. The services sector, those concerns seem moderate compared to the concerns in manufacturing.

The hot war continues between Ukraine and Russia, while in the Middle East there was talk of some improvement and a potential peace deal between the United States and Iran, but every time there is some talk of a breakthrough, there appears to be a breakdown. In the most recent development, Iran has asserted its right to control traffic through the Strait of Hormuz, and it's not clear how that demand would ever be consistent with the U.S. allowing a ceasefire. It appears that Iran may have traded its irreconcilable demand for nuclear weapons for a more pragmatic and real-world argument—that it will control the traffic through the Strait of Hormuz simply because it can—and it still is doing exactly that, even after all the destruction it suffered.

Stopping Iran from controlling the Strait would take a commitment to restart the war. All this makes me personally more pessimistic. I think Iran sees the need for Trump to cut a deal and stop the war before the U.S. mid-term elections, and it is pressing that need to its advantage. Trading its nuclear ambitions for real world control of the Strait would elevate Iran’s power from being dangerous but ethereal to a real world event with constant consequences.

France

French Industry and Services Confidence Diverge in June

Andrew Cates

**Equity Momentum and Global Surprises — Still Moving Together**
One of the more telling features of global equity markets in 2026 has been the persistence of the correlation between non-US equity momentum and global growth and inflation surprise indices. Equity markets outside the United States have generally prospered when economic data have beaten consensus expectations and when inflation surprises have been negative  — a combination that has historically been associated with stronger corporate earnings and a more benign policy backdrop in economies other than the US. That correlation has held reasonably well through the turbulence of the past few months, even as the Middle East conflict introduced significant noise into both the economic data and the financial market signal. What the chart reveals this week is a picture of moderate but not alarming deterioration: global growth surprises have softened at the margin, consistent with the energy cost headwinds that have weighed on European and Asian activity, but the relationship between equity momentum and the broader data pulse remains intact. It is a signal that market participants continue to track economic fundamentals rather than purely geopolitical newsflow — a modestly reassuring sign that the underlying framework for assessing the global cycle has not broken down.

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**The Fed Decouples: Why Oil and US Two-Year Yields Have Parted Ways**
For much of 2026, oil prices and US two-year Treasury yields moved in close alignment. The logic was straightforward: higher oil prices raised inflation expectations, which in turn pushed market participants to anticipate a more hawkish Federal Reserve, lifting short-dated yields in the process. That relationship held with notable consistency through the March escalation and the months that followed, as energy market shocks and monetary policy expectations fed off each other. What this week’s chart captures is a striking breakdown in that correlation. As oil prices have fallen on the back of the US-Iran memorandum of understanding and the associated unwinding of the geopolitical risk premium, US two-year yields have not followed them lower. The reason is last week’s Federal Reserve meeting. Under new chair Kevin Warsh, the Fed delivered a hawkish dot plot that shifted the median year-end projection to a hike, making clear that the easing cycle previously priced by some market participants is no longer the central scenario. The message is important: the deflationary impulse from lower oil prices is being offset — at least in the Fed’s framing — by persistent underlying inflation pressures and a commitment to keeping policy tight.

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**Flash PMIs Signal Easing Supply Chain Stress and Softer Price Pressures**
June’s flash PMI surveys, released this week across the major advanced economies, provide a timely read on how the global manufacturing and services sectors are absorbing the shifting macro backdrop. Two findings stand out. First, supplier delivery times have improved (or not lengthened as much as they had in the prior two months). This finding coheres naturally with the broader narrative: lower oil prices reduce transport and energy input costs, while the resumption of Strait of Hormuz shipping flows — examined in more detail in chart 4 — is beginning to reduce the freight disruption and re-routing costs that had been building since the conflict escalated. Second, output price inflation in manufacturing has softened, suggesting that some of the pipeline pressure from earlier energy cost spikes is beginning to fade.

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**Hormuz Traffic and Oil: A Coherent Story of Tentative Normalisation**
The recent US-Iran memorandum of understanding to work towards a final deal, though not without subsequent flare-ups, has already brought relief to markets, most visibly in crude oil prices. This should go a long way towards unwinding the inflation-related concerns that previously elevated oil prices had stoked. While the pullback has owed much to anticipation of the glut of pent-up supply expected to follow, certain trackers of shipping volume through the Strait of Hormuz, such as the IMF’s, already point to a marked pickup in traffic, even if it remains well below pre-conflict levels. Should this normalisation of shipping flows persist, it would lend continued justification to a corresponding easing in oil prices, energy-related inflation and, by extension, headline inflation — a welcome development for central banks grappling with the delicate balancing act of reining in price pressures without dampening growth too sharply.

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**South Korea’s Trade Data Flag a Modest Softening in Global Demand**
South Korea’s trade data serve as one of the global economy’s most useful early warning systems. As one of the world’s most open economies, with exports spanning semiconductors, petrochemicals, steel, automobiles and consumer electronics, South Korea’s monthly trade figures provide a timely and broad-based read on the state of global demand. This week’s data show a slightly softer picture than the strong prints that characterised much of the first quarter. Headline export growth has moderated at the margin, and crucially, semiconductor exports — which had been the most dynamic component of the trade data, propelled by AI-related chip demand — have also come in a touch below the exceptional run rates seen earlier in the year. This is not, in itself, alarming: some moderation from peak rates was always to be expected, and the semiconductor cycle remains structurally supported by the scale of AI infrastructure investment globally.

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**A Super El Niño on the Horizon — The Next Inflation Risk**
With that said, while one driver of price pressures seems to be ebbing for now — albeit not without the risk of future flare-ups — another potential inflationary risk looms on the horizon. The chart illustrates the transmission mechanism. It plots Thailand’s milled rice production (left axis) against Australia’s Southern Oscillation Index (right axis), a well-established barometer of El Niño and La Niña conditions. The convention is straightforward: SOI readings persistently above +8 indicate La Niña, associated with above-average rainfall across Southeast Asia and broadly supportive crop conditions; readings persistently below -8 signal El Niño, which brings drought stress and reduced water availability across the region. The historical relationship is striking. The sharp negative SOI troughs around 2002–03, 2009–10 and most dramatically around 2015 all coincide with visible falls in Thai milled rice output. The severe El Niño of 2014–16 produced both the deepest SOI trough in the series and the sharpest single drop in rice production, to below 24,000 thousand tonnes. As meteorological authorities have been warning for some time, the world appears to be facing an imminent Super El Niño event, with the SOI already drifting back towards negative territory in recent months. Were a significant El Niño to materialise in the second half of this year, the implications for Thai rice output — and by extension for Asian food price inflation — could be substantial. Central bankers, in other words, may find themselves having to wrestle with a new inflationary impulse just as they had begun to hope the worst was behind them.

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The mood in global financial markets this week is more settled, though “settled” should not be confused with resolved. The US-Iran memorandum of understanding, signed last week, has continued to do its work: oil prices have fallen further, Strait of Hormuz shipping traffic has picked up measurably, and the risk premium that had been embedded in energy markets since the conflict escalated in March is now visibly unwinding. That is a material development for the inflation outlook, and central bankers will be watching carefully. Yet the picture is not without its complications. Technology stocks — the most conspicuous beneficiary of the prevailing low-rate, high-growth narrative — have been subject to renewed jitters this week, as investors grow more attentive to stretched valuations and the implications of a Federal Reserve that, under new chair Kevin Warsh, is no longer signalling the easing cycle previously priced into markets. Against this backdrop, this week’s charts draw on the latest data to assess where the global economic cycle stands. Equity momentum outside the United States has tracked closely with global growth and inflation surprises, a correlation that tells us something important about how activity is being perceived (chart 1). Meanwhile, the breakdown of the previously tight relationship between oil prices and US two-year yields is arguably one of the more telling market signals of recent weeks (chart 2). June’s flash PMI surveys point to easing supply chain stress and softer output price inflation in manufacturing — a finding that chimes naturally with lower crude prices and the resumption of Hormuz flows (chart 3). The Strait of Hormuz itself deserves a closer look: traffic data and the mechanics of the oil price pullback are telling a coherent story that supports the PMI picture (chart 4). South Korea’s trade data, including semiconductors, offer a slightly softer read on global demand momentum at the margin (chart 5). And looming on the horizon, one new risk is drawing the attention of meteorological authorities: a Super El Niño event whose probability has been rising, with potentially significant implications for food commodity prices and Asian agriculture (chart 6).

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