Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216j.jpg" width="353">
The Federal Open Market Committee today cut the Federal funds rate more than expected to a &quot;range from 0 to 1/4 percent.&quot; The discount also was cut to 0.50%. The latest Fed funds rate was its lowest ever. While the latest action was a greater cut than generally anticipated by economists, it had been mostly discounted by markets. During December the effective Fed funds rate traded between 0.15% and 0.52%.
Regarding economic growth, the Fed indicated that &quot;Since the Committee&#39;s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216l.jpg" width="353">
Regarding inflation it was indicated that &quot;inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.&quot;
Moreover, the Fed highlighted its concern about the recent turmoil in the credit markets. &quot;The focus of the Committee&#39;s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve&#39;s balance sheet at a high level ... The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.&quot;
The decision was unanimous amongst FOMC voters.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216k.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm">link</a>.
In addition to lowering the cost of credit in the effort to prompt economic growth, the Fed indeed has worked to promote faster growth in financial liquidity. Growth in the money stock measure M2 rose to 17.6% over the last three months, up from a 5% growth rate earlier this year. Growth in demand deposits alone jumped to 40% y/y. Direct injection of liquidity to the financial system is evident in the monetary base which is up by three-quarters versus last year. Also promoting U.S. economic growth these liquidity injections have started to impact the foreign exchange value of the U.S. dollar which is down 6% from its mid-November peak.
The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong is a new paper by John B. Taylor, Professor of Economics, Stanford University and Senior Fellow, Hoover Institution. It is available <a href="http://www.stanford.edu/~johntayl/FCPR.pdf"> here</a>.
Globalization and the Changing Nature of the U.S. Economy&#146;s Influence in the World from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2008/el0811.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">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">September</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>1.00</td>
<td>2.00</td>
<td>5.05</td>
<td>4.96</td>
<td>3.19</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>1.25</td>
<td>2.25</td>
<td>5.86</td>
<td>5.96</td>
<td>4.19</td>
</tr>
</tbody>
</table>
</body>
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The Federal Open Market Committee today cut the Federal funds rate more than expected to a "range from 0 to 1/4 percent." The discount also was cut to 0.50%. The latest Fed funds rate was its lowest ever. While the latest action was a [...]

FOMC Cut Funds Rate to Near 0%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216g.jpg" width="353">
Regular gasoline prices continued lower, according to the U.S. Department of Energy survey. The latest price of $1.66 per gallon was down four cents per gallon from the prior week and was down from $4.11 per gallon early this past July. The latest decline was accompanied by a drop in the average price for all grades of gasoline to $1.72 per gallon.
Yesterday, the spot market price for a gallon of regular gasoline was up slightly from last week at $1.01 per gallon.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
Though gasoline prices are down, that has done little to drive up product demand. The U.S. Department of Energy reported that the demand for gasoline fell by 3.9% y/y, nearly the fastest since late-1995 (the latest four weeks versus the same four weeks last year). The demand for all petroleum products also fell 6.1% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216f.jpg" width="353">
These DOE figures are available in Haver&#39;s OILWKLY database.
The price for a barrel of West Texas Intermediate crude oil fell last week by roughly one dollar from the prior week&#39;s average to $44.71 per barrel, down by two-thirds since the peak in July of $145.66. In futures trading yesterday, the one-month price for crude oil was $44.51.
Last week, prices for natural gas moved even lower to $5.70 per mmbtu (-20.4% y/y). The latest average price was 50% below natural gas prices 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">12/15/08</th>
<th scope="col">12/08/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>1.66</td>
<td>1.70</td>
<td>-44.7%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>44.71</td>
<td>45.50</td>
<td>-51.0%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
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Regular gasoline prices continued lower, according to the U.S. Department of Energy survey. The latest price of $1.66 per gallon was down four cents per gallon from the prior week and was down from $4.11 per gallon early this past [...]

U.S. Gasoline Prices Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216d.jpg" width="353">
The consumer price index (CPI-U) fell by a record 1.7% during November versus October, according to the Bureau of Labor Statistics. Indeed, the decline was the greatest in the series&#39; history which dates back to 1947. The latest fall nearly doubled the October drop of 1.0% and it compared to Consensus expectations for a 1.3% decline. The latest reading lowered the three-month rate of change to -10.2% (AR).
There has been an about-face in fuels&#39; prices since earlier this year and lower energy prices account for most of the recent decline in the total CPI. After rising sharply through July, they&#39;ve fallen each month by a total of 27.9%. In November alone, energy prices fell 17.0% from October and the drop was led by a record 29.5% fall in gasoline prices (-29.5% y/y) to an average of $2.15 per gallon. Gas prices have moved even lower this month to $1.66. Fuel oil prices fell 13.6% (-3.4% y/y) for the fourth consecutive monthly drop and prices for natural gas &amp; electricity fell 1.0% m/m (+8.1% y/y).
Last month, food &amp; beverage prices continued to buck that downtrend with a 0.2% increase. Perhaps the good news is that the gain was the weakest since February and the running 3-month rate of increase fell to 4.1%, down from a high of 9.1% this past August. Nevertheless, the three-month rate of increase in prices of cereals &amp; bakery products was 7.8% versus a recent high of 19.5% and prices of meats, poultry &amp; fish rose at a 3.5% rate versus the high of 10.9%.
Recent weakness in consumer prices has been reinforced by a decline in core pricing power. The CPI less food &amp; energy was unchanged last month versus Consensus expectations for a 0.1% uptick. The three-month annual rate of increase fell to 1.1% from its July high of 3.5%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216e.jpg" width="353">
Core goods prices, down 0.2%, fell for the third straight month and the three-month rate of decline amounted to 2.9% which was the weakest since late-2003. The latest decline was led again by lower prices for new &amp; used motor vehicles which were down another 0.9% (-3.1% y/y). Apparel prices ticked up 0.3% (0.0% y/y) after their sharp 1.0% October decline. Prices for household furnishings &amp; operations reflected the weakness in the housing sector and fell 0.2% (+1.8% y/y). Tobacco prices were unchanged for the second month in the last three but they still rose 6.7% y/y.
Core services prices ticked up 0.1%. The three-month growth rate of 2.1% matched the lowest since 2005 which was the least since 2001. Medical care services prices rose just 0.1% (3.1% y/y) but education costs remained firm. They increased 0.4% for the third straight month (5.7% y/y). Shelter prices rose 0.2% (2.1% y/y). As the housing market remained deeply depressed the y/y increase was miniscule. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.3% (2.3% y/y) while rents rose 0.3% (3.6% y/y). Public transportation prices fell for the third consecutive month and the 4.1% year-to-year rate of increase was down from 15.2% this past August. Recreation prices were unchanged (2.0% y/y).
The chained CPI, which adjusts for shifts in consumption patterns, fell 2.0%. Less food and energy, chained prices fell 0.3%.

<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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> (%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>-1.7</td>
<td>-1.0</td>
<td>1.0</td>
<td>2.9</td>
<td>3.2</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>-0.1</td>
<td>2.0</td>
<td>2.3</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.2</td>
<td>-0.4</td>
<td>-0.2</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.1</td>
<td>0.0</td>
<td>2.9</td>
<td>3.4</td>
<td>3.4</td>
<td>2.8</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>-17.0</td>
<td>-8.6</td>
<td>-13.4</td>
<td>5.6</td>
<td>11.0</td>
<td>17.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.2</td>
<td>0.3</td>
<td>5.9</td>
<td>3.9</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>-2.0</td>
<td>-0.8</td>
<td>0.7 </td>
<td>2.5</td>
<td>2.9 </td>
<td>2.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>-0.3</td>
<td>0.1</td>
<td>1.6</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The consumer price index (CPI-U) fell by a record 1.7% during November versus October, according to the Bureau of Labor Statistics. Indeed, the decline was the greatest in the series' history which dates back to 1947. The latest fall [...]

U.S. CPI Fell By A Record 1.7%

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216c.jpg" align="left" border="0" height="265" width="353">
The Markit PMI FLASH indices for the MFG and Services sectors
show that deterioration continues. Both are on lows for the period that
the services index has been available. 
 

The drop this month was much smaller than last month&#8217;s drop.
Still the result tells us that month-to-month conditions that already
are weak are getting worse. That&#8217;s a bad sign. Still the ECB&#8217;s Trichet
says the decision for the next meeting is no foregone conclusion. How
bad are things? 
 

The manufacturing index began in June 1997, the Services
series began in July 1998. Both are on all time lows for their
respective periods. 
 

The EMU indices are available for a shorter period than the US
measure at least for MFG. And since the US MFG measure is already
extremely low in its longer term range we might surmise that the level
of distress indicated by this shorter lived EMU index is in fact
comparable to some of the extremely weak periods of its past using its
tracking with the US index as a reason for the conclusion. Already many
EMU measure are extremely weak. The US MFG PMI that goes back to 1950
finds the current (Nov) US index is weaker only 1.6% of the time. Is
Europe that bad off too? If so is this anyplace for the ECB to halt
cutting rates? Just a thought. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="3" scope="col"> FLASH Readings</th>
</tr>
<tr class="grey4">
<th colspan="3">Markit PMIs for the
E-Zone-13</th>
</tr>
</thead>
<tbody>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>MFG</td>
<td>Services</td>
</tr>
<tr class="grey2">
<td class="firstcol">Dec-08</td>
<td>34.47</td>
<td>42.05</td>
</tr>
<tr class="grey2">
<td class="firstcol">Nov-08</td>
<td>35.58</td>
<td>42.47</td>
</tr>
<tr class="grey2">
<td class="firstcol">Oct-08</td>
<td>41.10</td>
<td>45.76</td>
</tr>
<tr class="grey2">
<td class="firstcol">Sep-08</td>
<td>44.97</td>
<td>48.44</td>
</tr>
<tr class="grey1">
<td colspan="3" class="firstcol">Averages</td>
</tr>
<tr class="grey2">
<td class="firstcol">3-Mo</td>
<td>40.55</td>
<td>44.10</td>
</tr>
<tr class="grey2">
<td class="firstcol">6-Mo</td>
<td>44.29</td>
<td>46.16</td>
</tr>
<tr class="grey2">
<td class="firstcol">12-Mo</td>
<td>48.07</td>
<td>48.73</td>
</tr>
<tr class="grey1">
<td colspan="3" class="firstcol">125-Mo Range</td>
</tr>
<tr class="grey2">
<td class="firstcol">High</td>
<td>60.47</td>
<td>62.36</td>
</tr>
<tr class="grey2">
<td class="firstcol">Low</td>
<td>34.47</td>
<td>42.05</td>
</tr>
<tr class="grey2">
<td class="firstcol">% Range</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

The Markit PMI FLASH indices for the MFG and Services sectors show that deterioration continues. Both are on lows for the period that the services index has been available. The drop this month was much smaller than last month’s drop. [...]

MFG and Services Indices Drop to New Lows

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216a.jpg" width="353">
Housing starts fell even further last month. The level of 625,000 units (SAAR) was the lowest in the series&#39; history which dates back to 1959. It followed a downwardly revised October figure of 771,000. Consensus expectations had been for November starts of 735,000.
Perhaps more indicative of the bleeding in the housing sector was that the speed of the decline in starts during the last three months accelerated to a 71.3% annual rate. That is nearly double the rates of earlier this year and it is nearly triple the rate of 2007.
Starts of single-family homes fell a whopping 16.9% m/m to 441,000 from an unrevised October level. The latest level also was a record low and it is down by three-quarters since the peak in early 2006. The latest was the lowest level since the 1981-82 recession. During the last three months, the rate of decline picked up to -73.6%, also twice as fast as earlier in 2008 and triple 2007. Permits to build single-family homes also were quite weak and fell by roughly the same 12.3% (-46.3% y/y) as during October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216b.jpg" width="353">
During 4Q starts are down 19.4% from the 3Q average and in 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.
October multi-family starts fell 26.3% from October and they are down by one-half from last year.
By region, November starts of single-family units in the Northeast fell 42.1% m/m and by 59.8% y/y. In the Midwest, starts fell 12.9% (-41.7% y/y) and in the South single-family starts fell 13.6% (-45.7% y/y). Finally, starts in the West starts fell 15.5% (-43.4% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts (000s, SAAR)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>625</td>
<td>771</td>
<td>824</td>
<td>-47.0%</td>
<td>1,341</td>
<td>1,812</td>
<td>2,073</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>441</td>
<td>531</td>
<td>551</td>
<td>-46.0</td>
<td>1,034</td>
<td>1,474</td>
<td>1,719</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>184</td>
<td>240</td>
<td>273</td>
<td>-49.3</td>
<td>307</td>
<td>338</td>
<td>354</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>616</td>
<td>730</td>
<td>805</td>
<td>-48.1</td>
<td>1,389</td>
<td>1,844</td>
<td>2,160</td>
</tr>
</tbody>
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Housing starts fell even further last month. The level of 625,000 units (SAAR) was the lowest in the series' history which dates back to 1959. It followed a downwardly revised October figure of 771,000. Consensus expectations had been [...]

U.S. Housing Downdraft Intensifies

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081215k.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s Tankan for 2008 Q4 shows dramatic weakening. The
headline pace for large enterprises in manufacturing has dropped to -24
from -3 in 2008-Q4. Non MFG has turned negative to -9 in Q4 from +1 in
Q3. The all industries index is at -16 in 2008-Q4 down from flat in
2008-Q3. Of the main sectors, Construction. Real estate, Wholesaling,
Retailing, Transportation, Services for businesses, Personal services
and Restaurants and hotels all are on their weakest respective readings
since 2003-Q3 except Construction. That sector reading lies in the
bottom quarter of its range. 
 

Even construction is weak as its average has been a reading of
-3.0 while its actual reading in 2008 Q4 is -10. Manufacturing&#8217;s
average score has been -13.5 and that is now at -24.0. 
 

The manufacturing outlook has also deteriorated. The Q1
outlook if for a reading of -36 compared to an outlook for -4 for
2008-Q4. Similarly for Nonmanufacturing the outlook has slipped to -14
in 2009-Q1 from what was -1 for 2008-Q4. 
 

The outlook and current assessments for small and medium-sized
firms is just as bad or worse. In Japan the large enterprise survey is
the bellwether. 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Tankan Results Large Enterprises</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Readings</td>
<td colspan="2">Averages</td>
<td>PERCENTILES</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>Q1-08</td>
<td>1-Y Avg</td>
<td>Since Q3'03</td>
<td>Since Q1'04</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-24.0</td>
<td>-3.0</td>
<td>5.0</td>
<td>11.0</td>
<td>-13.5</td>
<td>16.3</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Nonmanufacturing</td>
<td>-9.0</td>
<td>1.0</td>
<td>10.0</td>
<td>12.0</td>
<td>-4.0</td>
<td>13.8</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>-16.0</td>
<td>0.0</td>
<td>7.0</td>
<td>12.0</td>
<td>-8.0</td>
<td>15.1</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-10.0</td>
<td>-7.0</td>
<td>-1.0</td>
<td>-9.0</td>
<td>-8.5</td>
<td>-3.8</td>
<td>22.2%</td>
</tr>
<tr>
<td class="firstcol">Real Estate</td>
<td>-7.0</td>
<td>5.0</td>
<td>22.0</td>
<td>21.0</td>
<td>-1.0</td>
<td>29.2</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>-7.0</td>
<td>11.0</td>
<td>12.0</td>
<td>14.0</td>
<td>2.0</td>
<td>17.5</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-18.0</td>
<td>-5.0</td>
<td>0.0</td>
<td>0.0</td>
<td>-11.5</td>
<td>4.5</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Transportation</td>
<td>-7.0</td>
<td>6.0</td>
<td>16.0</td>
<td>17.0</td>
<td>-0.5</td>
<td>13.9</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Services for Business</td>
<td>-1.0</td>
<td>4.0</td>
<td>20.0</td>
<td>22.0</td>
<td>1.5</td>
<td>22.2</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Personal Services</td>
<td>-11.0</td>
<td>6.0</td>
<td>10.0</td>
<td>13.0</td>
<td>-2.5</td>
<td>9.6</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Restaurants &amp; Hotels</td>
<td>-32.0</td>
<td>-13.0</td>
<td>-14.0</td>
<td>-3.0</td>
<td>-22.5</td>
<td>4.5</td>
<td>0.0%</td>
</tr>
<tr class="even">
<td colspan="8">Forecast</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>1-Y Avg</td>
<td>Since Q3'03</td>
<td>Since Q1'04</td>
</tr>
<tr>
<td class="firstcol">Manufacturing - Outlook</td>
<td>-36.0</td>
<td>-4.0</td>
<td>4.0</td>
<td>7.0</td>
<td>-7.3</td>
<td>13.6</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Nonmanufacturing - Outlook</td>
<td>-14.0</td>
<td>-1.0</td>
<td>8.0</td>
<td>13.0</td>
<td>1.5</td>
<td>13.2</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">All Industry-Outlook</td>
<td>-25.0</td>
<td>-2.0</td>
<td>6.0</td>
<td>10.0</td>
<td>-2.8</td>
<td>13.3</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s Tankan for 2008 Q4 shows dramatic weakening. The headline pace for large enterprises in manufacturing has dropped to -24 from -3 in 2008-Q4. Non MFG has turned negative to -9 in Q4 from +1 in Q3. The all industries index is at [...]

Japan Tankan Survey Drops Sharply

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081215i.jpg" align="left" border="0" height="265" width="353">
Chinese industrial production increased 5.4% in November, the
smallest increase since 2002. Growth in industrial production declined
intermittently for a year after reaching a monthly year to year peak of
19.5% in June, 2007, but in the last five months it has been in a free
fall, from 16.0% to 5.4%. The year to year changes in the growth of
industrial production are shown in the first chart.
Some of the components of industrial production are showing
declines of more than a month for first time. Production of electricity
has been down for the last two months, that of steel for the last three
months and the of pig iron for the last four months as shown in the
second chart.
China's National Bureau of Statistics measures industrial
production in terms of gross value added in 1990 prices. It is
therefore a much broader measure than the indexes of industrial
production of most other countries and is a good proxy for Real Gross
Domestic Product. The similarity between the trends of the GDP and GVA
, shown in the third chart, is apparent. The slow down in industrial
production growth in October and November, suggest that the growth in
the fourth quarter of GDP will be well below the 9% of the third
quarter.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081215h.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081215j.jpg" border="0" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">CHINA
INDUSTRIAL PRODUCTION (GROSS VALUE ADDED) 
&nbsp;Y/Y PERCENT CHANGE&nbsp;</th>
<th scope="col">Nov 08</th>
<th scope="col">Oct 08&nbsp;</th>
<th scope="col">Sep 08&nbsp;</th>
<th scope="col">Aug 08&nbsp;</th>
<th scope="col">Jul&nbsp; 08&nbsp;
&nbsp;</th>
<th scope="col">Jun&nbsp; 08</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>5.4</td>
<td>8.2</td>
<td>11.4</td>
<td>12.8</td>
<td>14.7</td>
<td>16.0</td>
</tr>
<tr>
<td class="firstcol">Output of Selected
Products</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Electricity</td>
<td>-7.79</td>
<td>-3.04</td>
<td>4.80</td>
<td>5.71</td>
<td>9.59</td>
<td>8.06</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Steel</td>
<td>-11.34</td>
<td>-16.36</td>
<td>-7.25</td>
<td>2.37</td>
<td>8.81</td>
<td>11.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Pig Iron</td>
<td>-16.00</td>
<td>-16.36</td>
<td>-4.97</td>
<td>-1.86</td>
<td>-5.80</td>
<td>-8.38</td>
</tr>
</tbody>
</table>
</body></html>

Chinese industrial production increased 5.4% in November, the smallest increase since 2002. Growth in industrial production declined intermittently for a year after reaching a monthly year to year peak of 19.5% in June, 2007, but in [...]

Growth in Chinese Industrial Production Slows: A Proxy for GDP Growth

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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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

260626E.jpg

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.

260626.jpg

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.

260626 2.jpg

**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.

260625Z2.jpg

**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.

260625Z3.jpg

**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.

260625Z4.jpg

**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.

260625Z5.jpg

**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.

260625Z6.jpg

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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Charts of the Week: Calmer Waters, New Currents

Michael J. Moran

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The price index for personal consumption expenditures rose 0.4% in May, although the measure almost rounded up to 0.5% (0.4498%). May marked the sixth consecutive month with headline prices increasing 0.3% or more. This series of changes has pulled the year-over-year inflation rate to 4.1%, up from 2.3% just over one year ago (April 2025). Energy prices, of course, have been the most important factor behind the acceleration in inflation, and they remained an issue in May, increasing 4.0% after advances of 3.9% and 11.6% in the prior two months. Food prices have moved erratically in the past year, with jumps and lulls leaving an average monthly increase of 0.2%. The noise was evident in recent months, with food prices increasing only 0.1% in May after a jump of 0.5% in April.

Core prices also have contributed to the pickup in inflation. After averaging monthly increases of 0.24% during 2025, core prices have increased at an average rate of 0.34% so far this year. The year-over-year increase in core inflation totaled 3.4% in May, up from a recent low of 2.6% in April of last year. Both the headline and core inflation rates are uncomfortably above the Federal Reserve’s target of 2.0%.

Total personal income rose briskly in May (0.7%). A surge in farm income played an important role (up 125% month-to-month, most likely reflecting government support payments), but nominal results also were firm elsewhere (up 0.5% ex farm income). Inflation reduced the purchasing power of this income gain, but aggregate income still advanced slightly in real terms (0.2%).

Given the recent surge in energy-driven inflation, May marked only the second monthly increase in real income so far this year. Tight budgets have dampened consumer spending, but individuals have not pulled to the sidelines. Real consumption expenditures rose 0.5% (annual rate) in the first quarter, and results for April and May suggest that real PCE is on track to increase 1.5% to 2.0% in the second quarter.

Households have managed to remain moderately active in their spending by limiting their saving. The saving rate has drifted lower since early 2024 moving to 3.0% in May (chart, below right). The erosion in saving perhaps seems reckless, but some of the reduction could be a response to the strength in the equity market, where wealth gains have possibly limited the incentive to save. Also, larger-than-normal tax refunds this year because of tax cuts in the One Big Beautiful Budget Act have allowed many households to spend actively despite modest increases in real income.

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

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- Energy prices rose sharply for the third consecutive month; core prices were unsettling as well.
- A jump in nominal income translated to a modest advance in real terms, allowing consumers to remain reasonably active.

Personal Income, Consumption, and Prices in May

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New orders for durable goods fell 4.5% m/m in May, the first monthly fall in three months, following an upwardly revised 8.5% gain in April (+7.9% initially reported on May 28) and a 1.3% increase in March (unrevised), according to today’s advance report by the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 4.4% m/m May decrease. The year-on-year rate decelerated to -3.5% in May from +17.7% in April (+20.0% in May 2025), marking the first negative reading since December 2024 (-4.5%). Excluding transportation, durable goods orders rose 1.3% (10.2% y/y) in May, the 13th consecutive m/m rise, after a 1.4% increase in April. Meanwhile, durable goods orders excluding defense dropped 4.6% (-5.0% y/y), down for the third time in four months, following an 8.4% April rebound.

The m/m fall in May durable goods orders was driven by a 51.8% m/m plunge in orders for nondefense aircraft & parts, following a 167.4% surge in April and a 23.0% slump in March. Orders for defense aircraft & parts rose 7.9% (63.5% y/y), the fourth successive m/m increase, after gains of 2.5% in April and 23.7% in March. Orders excluding aircraft climbed 1.0% (9.8% y/y), the six straight m/m rise and the 10th in 11 months, after a 1.3% April increase.

Durable goods orders for transportation dropped 14.0% (-22.1% y/y) in May, the first m/m decline since February, following a 22.4% gain in April. In addition to May’s m/m plunge in nondefense aircraft orders and increase in defense aircraft orders, motor vehicles & parts orders rose 1.1% (12.4% y/y), the sixth straight m/m rise, after a 0.7% April increase. Orders for primary metals advanced 3.0% (15.9% y/y), the largest of six successive m/m gains, after a 2.6% April rise. Machinery orders climbed 1.9% (14.0% y/y), up for the 13th straight month, on top of a 1.3% April rise. Orders for fabricated metal products grew 1.5% (11.2% y/y), the third m/m increase in four months, following a 4.1% April gain. Orders for all other durable goods rose 0.8% (3.2% y/y), the strongest of nine consecutive m/m increases, after a 0.1% April uptick. Orders for computers & electronic products rebounded 0.3% (13.3% y/y), the eighth m/m gain in nine months, following a 0.4% April decrease. Orders for electrical equipment, appliances & components recovered 0.3% (5.8% y/y), the second increase in three months, after a 0.2% April decline.

Capital goods orders fell 13.6% (-21.1% y/y) in May, the first m/m fall in three months and the deepest since June 2025, following a 22.2% jump in April. Nondefense capital goods orders dropped 15.7% (-26.4% y/y), the fifth m/m decrease in six months, after a 24.9% April rebound. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) rose 1.6% (10.5% y/y), the third m/m gain in four months, reversing a 0.7% April decline. Defense capital goods orders slid 3.4% (+14.4% y/y), the first m/m slide since January, after a 10.4% April gain. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 0.3% (7.6% y/y), the eighth m/m rise in nine months, after a 0.5% April increase.

Shipments of all manufactured goods climbed 1.6% (8.9% y/y) in May following a 1.3% gain in April. Durable goods shipments rose 1.0% (8.9% y/y) after a 0.7% April increase. Nondurable goods shipments advanced 2.2% (9.0% y/y), building on a 1.9% April gain. All three series posted the sixth consecutive m/m increase.

Unfilled orders of durable goods rose 0.6% (8.5% y/y) in May, the 10th straight m/m rise, after a 1.8% gain in April. Excluding transportation, unfilled orders increased 0.9% (4.3% y/y), also up for the 10th consecutive month, following a 0.7% April rise.

Manufacturing inventories edged up 0.2% (1.9% y/y) in May, the seventh successive m/m gain, after a 0.3% rise in April. Durable goods inventories grew 0.2% (2.1% y/y), the eighth straight m/m increase, after rising 0.3% in April and March. Nondurable goods inventories, up for the fourth consecutive month, rose 0.3% (1.6% y/y), matching April's pace.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- May headline orders -4.5% m/m, first fall in three mths.; -3.5% y/y, first negative reading since Dec. ’24.
- Nondefense aircraft & parts -51.8% m/m vs. April’s +167.4%.
- Transportation orders -14.0%, first m/m drop since Feb.; orders ex transp. +1.3%, 13th straight m/m rise.
- Core capital goods shipments +0.3%, eighth gain in nine mths., pointing to a moderate contribution to Q2’26 GDP from business equipt. spending.
- Durable goods shipments +1.0%; unfilled orders +0.6%; inventories +0.2%.

Economy in Brief

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