Economy in Brief: May 2024

• Even with the May decline, the index remains in positive territory, pointing to expansion
• However, both shipments and orders subindexes fell markedly and more worryingly into contraction territory
• The employment subindex rose slightly but remained negative
• Expectations decline slightly but remain elevated

• Initial claims come back toward recent tight range
• Continued weeks claimed rise somewhat in May 4 week
• But insured unemployment rate holds at 1.2% into a 14th month

Despite a sharp 4.5% month-to-month jump in Japan’s industrial production, a gain much larger than expected, Japan’s production index is still lower on balance over three-months six-months and twelve-months. It is still 5.8% below its level in January 2020 before Covid struck and it is only 87% of its past cycle peak. The March jump by itself is impressive and welcome, but Japan still has so far to go to repair the disruption it has had in manufacturing and across industry.

A Fed easing narrative has been re-energized over the past few days largely thanks to a slightly weaker than expected US CPI report this week but, more generally, because of a battery of weaker-than-expected US data over the past couple of weeks. In our charts this week we examine the latest Blue Chip survey of economic forecasters and the corresponding signals suggesting that the light is now shining a little less brightly on the US economy (see chart 1). The same survey suggests the outlook is shining a bit more brightly on Europe’s economies, albeit from a position of relative darkness, and as equally indicated by the GDP growth outcomes for Q1 2024 (Chart 2). Germany, however, continues to be a notable underperformer, which prompts us to examine the latest data on industrial production across several major euro area economies and the persistent evidence of underperformance (Chart 3). Next, we turn our attention to this week's UK labour market data, which increasingly suggest that this market is loosening (Chart 4). We then shift focus back to the US economy, highlighting one of the reasons for its relative strength in recent months —namely, higher levels of immigration (Chart 5). Finally, we address inflation issues, and specifically the relatively rapid pace of global food price inflation in recent years (Chart 6).

• Transportation costs surge, while shelter prices increase steadily.
• Goods price pressure weakens further.
• Energy prices move higher but food prices hold steady.

• Current & future readings fall meaningfully.
• Prospective home buyer traffic is depressed.
• Regional declines are broad-based.

• +0.02% (+3.0% y/y) in Apr.; downward revisions for Mar. and Feb.
• Ex-auto sales up for the fourth month in five.
• Auto sales down for the third month in four.
• Gasoline sales post the largest of three straight m/m increases.
• Nonstore retail sales fall for the third time in four months.

• Mortgage applications edged up in the latest week.
• Purchase applications fell while refinancing applications rose.
• The effective interest rate on 30-year fixed-rate loans eased.