Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060731c.jpg" width="353">
As Carol Stone noted last Friday, economic conditions remain positive in Japan in spite of some easing in the labor market in June. METI (The Ministry of Economics, Trade and Industry) released preliminary data today on industrial production, shipments and inventories--all showing increases in June. Industrial production increased 1.9%. shipments, 0.7% and inventories, 0.5%.
The largest contributors to the rise in industrial production were: Transport Equipment, General Machinery and Electrical Machinery. The largest contributors to the rise in Shipments were: General Machinery, Iron and Steel and Electronic Parts and Devices. Shipments of Transport Equipment, in contrast to production declined 1.06%. Total Industrial production and shipments are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060731d.jpg" width="353">
Even more encouraging than the data for June are the forecasts of the changes in industrial production for the current month and the month following. Currently the forecasts are for a 2.2% increase in July and a 3.7% increase for August. As the second chart illustrates, the forecasts rarely seem to see any declines in the months ahead and generally overstate any increases. Nevertheless, they do well in forecasting direction. The correlation between the two series .78..

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J7/@J7.HTM">Japan</a></th>
<th scope="col">Jun&nbsp; 06</th>
<th scope="col">May 06</th>
<th scope="col">Jun 05</th>
<th scope="col">M/M</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production (2000=100)&nbsp;</td>
<td>105.7</td>
<td>103.7</td>
<td>100.8</td>
<td>1.93</td>
<td>4.86</td>
<td>101.6</td>
<td>100.0</td>
<td>95.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Transport Equipment</td>
<td>126.5</td>
<td>119.4</td>
<td>1230.3</td>
<td>5.95</td>
<td>5.15</td>
<td>121.0</td>
<td>114.8</td>
<td>107.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments (2000=100)</td>
<td>108.6</td>
<td>107.8</td>
<td>103.6</td>
<td>0.74</td>
<td>4.83</td>
<td>104.1</td>
<td>102.3</td>
<td>97.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Transport Equipment</td>
<td>121.9</td>
<td>123.23</td>
<td>118.0</td>
<td>-1.06</td>
<td>3.31</td>
<td>117.3</td>
<td>113.5</td>
<td>108.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Inventories (2000=100)</td>
<td>93.9</td>
<td>93.4</td>
<td>92.3</td>
<td>0.54</td>
<td>1.73</td>
<td>92.8</td>
<td>90.0</td>
<td>91.1</td>
</tr>
</tbody>
</table>
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As Carol Stone noted last Friday, economic conditions remain positive in Japan in spite of some easing in the labor market in June. METI (The Ministry of Economics, Trade and Industry) released preliminary data today on industrial [...]

More Positive Indicators for Japan: Production, Shipments and Inventories

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060731a.jpg" width="353">
An acceleration in the &quot;core&quot; PCE chain price index within the 2Q GDP report rankled markets on Friday. At 2.9%, the q/q increase was a marked acceleration from the 2.0% average of the prior four quarters
Indeed, the price index for durable personal consumption indicated deflation at a slower rate and the y/y gain in service prices accelerated to 3.6% from a low of 3.1% late last year. That acceleration reflected a 5.0% surge during 4Q05.
The price index for clothing &amp; shoes was, however, the main bugger as it posted a 3.5% gain (AR) last quarter after several years of price deflation.
Several price indexes showed slower rates of growth including most business investment categories, residential investment and federal government.
Also moving moderately to the upside were the gains in the price indexes for state &amp; local government as well as exports. Continuing strong were the gains in the nonresidential investment chain price index for structures, up 10.7% (AR) last quarter and 13.3% y/y after an 11.3% surge last year.

<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/@E7/@E701/@E701.HTM">Chain Price Indexes</a></th>
<th scope="col">2Q &#39;06</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Personal Consumption</td>
<td>4.1%</td>
<td>2.0%</td>
<td>3.3%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Less Food &amp; Energy</td>
<td>2.9%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Durables</td>
<td>-0.8%</td>
<td>-1.0%</td>
<td>-1.5%</td>
<td>-0.7%</td>
<td>-1.6%</td>
<td>-3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Nondurables</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Clothing &amp; Shoes</td>
<td>3.5%</td>
<td>-1.0%</td>
<td>-0.4%</td>
<td>-1.0%</td>
<td>-0.4%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Services</td>
<td>3.1%</td>
<td>3.1%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>3.2%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Investment: Equipment &amp; Software</td>
<td>0.0%</td>
<td>0.6%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>-1.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Investment: Residential</td>
<td>2.0%</td>
<td>3.8%</td>
<td>4.8%</td>
<td>5.1%</td>
<td>7.3%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

An acceleration in the "core" PCE chain price index within the 2Q GDP report rankled markets on Friday. At 2.9%, the q/q increase was a marked acceleration from the 2.0% average of the prior four quarters Indeed, the price index for [...]

Chicago Surveys of Factory Activity Mixed

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<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060731b.jpg" width="353">
The Chicago Federal Reserve Bank&#39;s Midwest manufacturing index jumped 0.8% during June following a revised 0.1% dip in May. Improvement in the auto sector dominated the June rise. The three month growth rate remained firm at 5.8% though growth in the index peaked late last year at 9.4%.
During the last ten years there has been a 95% correlation between the y/y change in Chicago&#39;s Midwest Mfg. index and the change in US factory sector industrial production. The June Chicago Fed Midwest Manufacturing Index can be found <a href="http://www.chicagofed.org/economic_research_and_data/files/cfmmi_june2006.pdf">here</a>.
During July, the Chicago Purchasing Managers Association reported that its Business Barometer improved moderately to 57.9 from 56.5 in June. These readings are down from an average 60.4 last year and reflect weaker figures for orders and employment.
During the last ten years there has been a 65% correlation between the level of the Chicago PMI Business Barometer and y/y change in US factory sector industrial production. The July report from the Chicago Purchasing Managers Association can be found <a href="http://www.napm-chicago.org/current.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S5.htm">Federal Reserve Surveys</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05 </th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Chicago Fed Midwest Mfg. Index (2002 = 100)</td>
<td>107.0</td>
<td>106.2</td>
<td>101.2</td>
<td>102.1</td>
<td>100.4</td>
<td>97.1</td>
</tr>
</tbody>
</table>
More Readings of 2Q Price Inflation 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060731a.jpg" width="353">
An acceleration in the &quot;core&quot; PCE chain price index within the 2Q GDP report rankled markets on Friday. At 2.9%, the q/q increase was a marked acceleration from the 2.0% average of the prior four quarters
Indeed, the price index for durable personal consumption indicated deflation at a slower rate and the y/y gain in service prices accelerated to 3.6% from a low of 3.1% late last year. That acceleration reflected a 5.0% surge during 4Q05.
The price index for clothing &amp; shoes was, however, the main bugger as it posted a 3.5% gain (AR) last quarter after several years of price deflation.
Several price indexes showed slower rates of growth including most business investment categories, residential investment and federal government.
Also moving moderately to the upside were the gains in the price indexes for state &amp; local government as well as exports. Continuing strong were the gains in the nonresidential investment chain price index for structures, up 10.7% (AR) last quarter and 13.3% y/y after an 11.3% surge last year.

<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/@E7/@E701/@E701.HTM">Chain Price Indexes</a></th>
<th scope="col">2Q &#39;06</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Personal Consumption</td>
<td>4.1%</td>
<td>2.0%</td>
<td>3.3%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Less Food &amp; Energy</td>
<td>2.9%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Durables</td>
<td>-0.8%</td>
<td>-1.0%</td>
<td>-1.5%</td>
<td>-0.7%</td>
<td>-1.6%</td>
<td>-3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Nondurables</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Clothing &amp; Shoes</td>
<td>3.5%</td>
<td>-1.0%</td>
<td>-0.4%</td>
<td>-1.0%</td>
<td>-0.4%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Services</td>
<td>3.1%</td>
<td>3.1%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>3.2%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Investment: Equipment &amp; Software</td>
<td>0.0%</td>
<td>0.6%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>-1.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Investment: Residential</td>
<td>2.0%</td>
<td>3.8%</td>
<td>4.8%</td>
<td>5.1%</td>
<td>7.3%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
 More Positive Indicators for Japan:  Production, Shipments and Inventories  
by <a href="/comment/Curley.html">Louise Curley</a> July 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060731c.jpg" width="353">
As Carol Stone noted last Friday, economic conditions remain positive in Japan in spite of some easing in the labor market in June. METI (The Ministry of Economics, Trade and Industry) released preliminary data today on industrial production, shipments and inventories--all showing increases in June. Industrial production increased 1.9%. shipments, 0.7% and inventories, 0.5%.
The largest contributors to the rise in industrial production were: Transport Equipment, General Machinery and Electrical Machinery. The largest contributors to the rise in Shipments were: General Machinery, Iron and Steel and Electronic Parts and Devices. Shipments of Transport Equipment, in contrast to production declined 1.06%. Total Industrial production and shipments are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060731d.jpg" width="353">
Even more encouraging than the data for June are the forecasts of the changes in industrial production for the current month and the month following. Currently the forecasts are for a 2.2% increase in July and a 3.7% increase for August. As the second chart illustrates, the forecasts rarely seem to see any declines in the months ahead and generally overstate any increases. Nevertheless, they do well in forecasting direction. The correlation between the two series .78..

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J7/@J7.HTM">Japan</a></th>
<th scope="col">Jun&nbsp; 06</th>
<th scope="col">May 06</th>
<th scope="col">Jun 05</th>
<th scope="col">M/M</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production (2000=100)&nbsp;</td>
<td>105.7</td>
<td>103.7</td>
<td>100.8</td>
<td>1.93</td>
<td>4.86</td>
<td>101.6</td>
<td>100.0</td>
<td>95.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Transport Equipment</td>
<td>126.5</td>
<td>119.4</td>
<td>1230.3</td>
<td>5.95</td>
<td>5.15</td>
<td>121.0</td>
<td>114.8</td>
<td>107.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments (2000=100)</td>
<td>108.6</td>
<td>107.8</td>
<td>103.6</td>
<td>0.74</td>
<td>4.83</td>
<td>104.1</td>
<td>102.3</td>
<td>97.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Transport Equipment</td>
<td>121.9</td>
<td>123.23</td>
<td>118.0</td>
<td>-1.06</td>
<td>3.31</td>
<td>117.3</td>
<td>113.5</td>
<td>108.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Inventories (2000=100)</td>
<td>93.9</td>
<td>93.4</td>
<td>92.3</td>
<td>0.54</td>
<td>1.73</td>
<td>92.8</td>
<td>90.0</td>
<td>91.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060728e.jpg" width="353">
Japanese stocks rose and bonds fell after a plethora of economic data that traders deemed favorable today. June consumer prices showed an eighth straight month of year-on-year increase in the most popular measure, the total less fresh food, which was up 0.6%. Retail sales rose 0.4% from a year ago. The labor market, which we feature here, moderated somewhat, but perhaps analysts saw this as a pause in an otherwise increasingly robust picture.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060728f.jpg" width="353">
Employment fell 160,000 after advancing 270,000 in May. However, the June figure was up 0.3% from a year ago, a bit more growth than the 0.2% of May and April. The unemployment rate rose to 4.2% from May&#39;s 4.0%. The latter rate was the lowest in a little over eight years.
One of the Japanese news services, Mainichi, called our attention to the set of interesting data on job openings and placements from the Ministry of Health, Labor and Welfare. [The aggregate labor force survey is published by the Ministry of Internal Affairs and Communications.] In June, the number of people registered as needing work was 2.15 million, the smallest since late 1997; during the recent long period of economic stress in Japan, this number peaked at 2.805 million in January 2002. The other side of this coin is job openings, which totaled 2.327 million in June, compared with a cycle low of 1.174 million in May 1999. The number of openings was smaller than the number of applicants until just this past December.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060728g.jpg" width="353">
The ratio of these &quot;active&quot; openings to &quot;active&quot; applicants was 1.08 in June, suggesting that conditions are positive for employment to continue growing. Remarkably, this is the highest such value since July 1992, almost 14 years. At its worst, the relationship between applicants and openings saw at least 2 applicants for every opening; this prevailed from autumn 1998 throughout 1999. Presently, additional data on marginal changes in the labor market show how much conditions have changed: new job openings are far larger than the number of new job applicants. Their June ratio was 1.62, following May&#39;s 1.65. The last time this indicator of marginal changes in labor market conditions was this high was May of 1992. Its low was 0.80, also in May 1999.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J6/@J6.HTM">Japan: SA</a></th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">June 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (millions)</td>
<td>63.75</td>
<td>63.91</td>
<td>63.64</td>
<td>63.55</td>
<td>63.57</td>
<td>63.29</td>
<td>63.15</td>
</tr>
<tr>
<td class="firstcol">Change (thous.) / Yr-to-Yr % Change*</td>
<td>-160</td>
<td>+270</td>
<td>-50</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.2%</td>
<td>4.0%</td>
<td>4.1%</td>
<td>4.2%</td>
<td>4.4%</td>
<td>4.7%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Active Applications (thous.)</td>
<td>2,150</td>
<td>2,156</td>
<td>2,181</td>
<td>2,294</td>
<td>2,272</td>
<td>2,367</td>
<td>2,595</td>
</tr>
<tr class="odd">
<td class="firstcol">New Applications (thous.)</td>
<td>547</td>
<td>538</td>
<td>545</td>
<td>570</td>
<td>567</td>
<td>589</td>
<td>626</td>
</tr>
<tr>
<td class="firstcol">Active Openings (thous.)</td>
<td>2,327</td>
<td>2,309</td>
<td>2,266</td>
<td>2,191</td>
<td>2,167</td>
<td>1,958</td>
<td>1,672</td>
</tr>
<tr class="odd">
<td class="firstcol">New Openings (thous.)</td>
<td>884</td>
<td>889</td>
<td>839</td>
<td>863</td>
<td>831</td>
<td>761</td>
<td>673</td>
</tr>
<tr>
<td class="firstcol">Ratio: Active Openings to Applications</td>
<td>1.08</td>
<td>1.07</td>
<td>1.04</td>
<td>0.96</td>
<td>0.95</td>
<td>0.83</td>
<td>0.64</td>
</tr>
<tr class="odd">
<td class="firstcol">Ratio: New Openings to Applications</td>
<td>1.62</td>
<td>1.65</td>
<td>1.54</td>
<td>1.51</td>
<td>1.47</td>
<td>1.29</td>
<td>1.08</td>
</tr>
</tbody>
</table>
</body>
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Japanese stocks rose and bonds fell after a plethora of economic data that traders deemed favorable today. June consumer prices showed an eighth straight month of year-on-year increase in the most popular measure, the total less fresh [...]

Japan Labor Data Ease in June, But Conditions Remain Positive

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060728h.jpg" width="353">
Consumer sentiment late this month recovered from the decline early in July. For the full month the volatility left sentiment off just 0.2% from June at 84.7, according to the University of Michigan. Consensus expectations had been for a full month reading of 83.0.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The reading of current economic conditions eased just 1.4% following a 9.3% rise during June. The index of current personal finances fell 2.7% (-9.8% y/y) and perceived buying conditions for large household goods slipped 0.6% (-8.1% y/y).
Expectations for the economy rose 0.7% led by a 1.7% (-8.3% y/y) rise in expected personal finances. Expected 12 month business conditions fell 1.1% (-22.3% y/y) but 5 year expected conditions improved.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060728i.jpg" width="353">
Consumers&#39; opinion about gov&#39;t economic policy improved a sharp 10.8% m/m (-10.9% y/y), the first monthly increase since March while expected inflation during the next year fell sharply to 3.8%, its lowest since February. The five to ten year expected rate of inflation also fell to 3.2%, its lowest in over a year.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">July</th>
<th scope="col">July (Prelim.)</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>84.7</td>
<td>83.0</td>
<td>84.9</td>
<td>-14.0%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>103.5</td>
<td>100.8</td>
<td>105.0</td>
<td>-11.2%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>72.5</td>
<td>71.6</td>
<td>72.0</td>
<td>-16.3%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
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Consumer sentiment late this month recovered from the decline early in July. For the full month the volatility left sentiment off just 0.2% from June at 84.7, according to the University of Michigan. Consensus expectations had been [...]

U.S. Consumer Sentiment Improved in Late July

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The employment cost index for private industry workers increased 0.8% during 2Q, about as expected, after an unrevised 0.6% 1Q increase.
The 2Q increase was the fastest in over a year.
Wages &amp; salaries grew at the quickest pace (0.9%) since late 2003 as factory sector wages grew 0.8% (NSA, 2.7% y/y). That was the best quarterly gain since 3Q04. Service-producing industries&#39; wage also grew a firm 0.8% (2.7% y/y) which was stable with 1Q.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060728d.jpg" width="353">
Benefit costs grew 0.7% after a depressed 1Q increase.
The 12-month gain in health insurance benefits picked up slightly to 5.2%.
To view the latest release with all the industry detail visit BLS <a href="http://www.bls.gov/news.release/eci.nr0.htm">site</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/@EB/@EB08/@EB08.HTM">ECI- Private Industry Workers</a></th>
<th scope="col">2Q &#39;06</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.8%</td>
<td>0.6%</td>
<td>2.8%</td>
<td>3.0%</td>
<td>3.7%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.9%</td>
<td>0.7%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.7%</td>
<td>0.4%</td>
<td>2.7%</td>
<td>4.0%</td>
<td>6.6%</td>
<td>6.5%</td>
</tr>
</tbody>
</table>
</body>
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The employment cost index for private industry workers increased 0.8% during 2Q, about as expected, after an unrevised 0.6% 1Q increase. The 2Q increase was the fastest in over a year. Wages & salaries grew at the quickest pace (0.9%) [...]

Gain in the Employment Cost Index Accelerated

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060728b.jpg" width="353">
U.S. real GDP growth last quarter slowed to 2.5% (AR) from 3.7% during the prior four quarters and the figure fell short of Consensus expectations for a 3.0% advance.
Much of the disappointment stemmed from a meager 2.7% advance in business investment. It reflected a 1.0% (+6.9% y/y) decline in spending on equipment &amp; software as well as a 21.6% (-1.0% y/y) drop in spending on transportation equipment.
Growth in real personal consumption expenditures also slowed to 2.5% from 3.4% during the prior four quarters. Durables spending growth fell 0.5% (3.3% y/y) due to a 3.1% (-4.6% y/y) drop in motor vehicles &amp; parts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060728a.jpg" width="353">
Residential investment fell for the third straight quarter. The 6.3% decline (-0.2% y/y) knocked 0.4 percentage points out of 2Q growth in real GDP.
Final sales to domestic purchasers overall grew just 1.6% (3.0% y/y) following four quarters of 3.7% growth. Earlier growth rates were revised down but the effect on GDP was limited by upward revisions to inventories.
Last quarter, inventories added 0.4 percentage points to GDP growth.In addition, improvement in net exports added 0.3 percentage points to growth as exports grew 3.3% (7.4% y/y) and imports inched up 0.2% (6.1% y/y).
The GDP chain price index grew 3.3%, the same as during 1Q. Less final sales of computers, the chain price index grew 3.5% (3.5% y/y).

<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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">2Q &#39;06</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>2.5%</td>
<td>5.6%</td>
<td>3.5%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.4%</td>
<td>-0.0%</td>
<td>0.6%</td>
<td>-0.3%</td>
<td>0.4%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>2.1%</td>
<td>5.6%</td>
<td>2.9%</td>
<td>3.5%</td>
<td>3.5%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>&nbsp;0.3%</td>
<td>-0.0%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>1.6%</td>
<td>5.4%</td>
<td>3.0%</td>
<td>3.6%</td>
<td>4.0%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>


</html>

U.S. real GDP growth last quarter slowed to 2.5% (AR) from 3.7% during the prior four quarters and the figure fell short of Consensus expectations for a 3.0% advance. Much of the disappointment stemmed from a meager 2.7% advance in [...]

US GDP Growth Slowed

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

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Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

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

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- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

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High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

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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- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

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The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

U.S. Pending Home Sales Surge in March

Sandy Batten

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The employment cost index (ECI) for civilian workers, arguably the most accurate measure of labor compensation in the United States, rose 0.9% q/q (3.6% y/y) in Q1, the same quarterly increase as in last year’s Q4, according to the Bureau of Labor Statistics. The quarterly gains have fluctuated between 0.8% and 1.0% for the past six quarters. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 3.5% y/y gain.

Wages and salaries for civilian workers rose 0.8% q/q (3.5% y/y) in Q1, down from 1.0% q/q in Q4. This tied the Q3 2024 quarterly rise as the smallest increase since Q2 2021. It was also the smallest y/y increase since Q2 2021. Benefits increased by an outsized 1.2% q/q (3.9% y/y) in Q1 versus 0.8% q/q in Q4. This is the largest quarterly gain since Q2 2022. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing gradually.

Private industry workers’ compensation rose 0.8% q/q (3.4% y/y) in Q1, down from 0.9% q/q (3.6% y/y) in Q4. Wages and salaries for private industry workers increased 0.8% q/q (3.4% y/y) in Q1 versus 0.8% q/q (3.7% y/y) in Q4. The quarterly gain in Q1 tied that in Q3 2024 as the smallest increase since Q4 2020. Benefits for private industry workers jumped 1.2% q/q (3.6% y/y). the largest quarterly gain since Q2 2022. The acceleration in benefits in Q1 was primarily in service-producing industries.

Compensation in private goods-producing industries increased 1.0% q/q (3.2% y/y) in Q1, the largest quarterly gain in five quarters, versus a 0.7% q/q increase in Q4. Compensation in construction jumped 1.3% q/q, its largest quarterly increase since Q2 2022, up from a 0.6% q/q gain in Q4. Manufacturing compensation growth slowed to 0.7% q/q, its slowest quarterly advance since Q4 2020, from 0.8% q/q in Q4. Compensation in private service-producing industries increased 0.8% q/q (3.5% y/y), down slightly from a 0.9% q/q gain in Q4. Compensation in education and health services jumped 1.3% q/q, its largest quarterly gain since Q3 2023. In contrast, compensation in other services edged up 0.1% q/q in Q1, its smallest quarterly advance since before the pandemic.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- Compensation grew 0.9 q/q in Q1, the same pace as in Q4.
- Wage growth slowed to 0.8% q/q while benefits surged 1.2% q/q, their largest quarterly increase since Q2 2022.

Employment Cost Growth Steady in Q1 2025

Kathleen Stephansen, CBE

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 62,000 (1.4% y/y) during April after increasing 147,000 (1.4% y/y) during March, revised from 155,000. A 124,000 April rise in ADP employment had been expected in the Action Economics Forecast Survey.

Growth in median annual pay for "job stayers" eased to 4.5% y/y during April, from 4.6% y/y in March and from 4.7% y/y in the prior two months. Manufacturing sector pay grew 4.6% y/y during April, down from 4.8% y/y in March. Construction sector pay was unchanged at 4.7% y/y. Natural resource & mining sector pay grew 4.4% y/y. Financial sector pay rose 5.1% y/y, while education & health services pay rose 4.7% y/y. Leisure & hospitality pay also increased 4.7% y/y. Professional & business service sector pay increased 4.3% y/y as did trade, transportation & utilities pay. Information pay rose 4.1% y/y. Median annual pay for “job changers” rose 6.9% y/y after 6.7% y/y in March.

Small business hiring (less than 50 employees) rose 11,000 (0.6% y/y) after rising 18,000 (0.6% y/y) in March, revised down from 52,000. Employment at medium-sized firms (50-499,000 employees) rose 40,000 (1.1% y/y) after rising 43,000 (1.1% y/y). Large business hiring (500+ employees) rose 12,000 (3.4% y/y) in April, after rising 61,000 (3.6% y/y) in March, revised from 59,000.

Goods-producing employment rose 26,000 (1.3% y/y) in April, after rising 16,000 (1.3% y/y) during March, revised from 24,000. Manufacturing jobs rose 4,000 (-0.2% y/y) after rising 17,000 (-0.3% y/y) in March. The number of construction sector jobs rose 16,000 (3.4% y/y) in April, following a 2,000 (3.6% y/y) March increase, revised from 6,000. Natural resources & mining jobs rose 6,000 (2.8% y/y) in April after falling 3,000 (+1.9% y/y) in March.

The number of service-producing jobs rose 34,000 (1.4% y/y) during April, following a rise of 131,000 (1.4% y/y) in March. Professional & business services employment fell 2,000 (0.6% y/y) after rising 46,000 (0.7% y/y) in the prior month, revised from 57,000. Employment in the financial industry rose 20,000 (2.1% y/y) in April, after rising 38,000 (2.0% y/y) in March. Leisure and hospitality employment increased 27,000 (3.0% y/y), following a 23,000 (2.9% y/y) March increase, revised from 17,000. The number of education & health care jobs fell 23,000 (1.6% y/y) in April, following a 15,000 (1.8% y/y) rise in March, revised from 12,000. Information sector employment fell 8,000 (-0.1% y/y) after a rise of 3,000 (0.2% y/y) in March. The number of jobs in trade, transportation & utilities rose 21,000 (0.4% y/y) in April, after falling 4,000 (+0.4% y/y) in March, revised from a 6,000 fall. Employment in “other” services rose fell 1,000 (+3.2% y/y) following a 10,000 (3.4% y/y) rise in March, revised from 11,000.

By region, employment in the Northeast increased 10,000 (1.9% y/y) in April, following an increase of 95,000 (2.0% y/y) in March, revised from 89,000. Employment in the Midwest rose 42,000 (1.5% y/y) after a gain of 84,000 (1.4% y/y) in March, revised from 81,000. In the South, employment rose 3,000 (1.3% y/y) during April, after rising 10,000 (1.4% y/y) in March, revised from 27,000. In the West, employment rose 9,000 (0.6% y/y) after declining 43,000 (+0.6% y/y), revised from a 41,000 decline in March.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Employment increase is modest in both services & factory sectors.
- Wage growth for “job stayers” moderates.
- Small and medium-sized business employment slows.

Economy in Brief: July 2006

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