Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081212a.jpg" width="353">
This morning the Commerce Department reported that retail sales fell for the fifth consecutive month. The 1.8% November decline followed declines during October and September that were slightly greater than reported initially. Lower vehicle sales and lower gasoline prices accounted for last month&#39;s sales&#39; decline. Elsewhere sales ticked higher, the first rise in the last four months. The latest shortfall in overall sales about matched Consensus expectations. The retail sales data are available in Haver&#39;s USECON database.
Motor vehicle &amp; parts sales dropped 2.8% after declines of roughly 5.5% during both of the prior two months. As a result of these outsized declines, sales last month were down by one quarter from their year-ago level. The decline is less than the 36.7% y/y drop reported in unit sales of motor vehicles.
Lower prices pulled dollar sales at gasoline service stations down by 14.7% month-to-month and by nearly one-quarter from last year as gasoline prices fell 29.6% m/m to an average of $2.15 per gallon. Another downward leg is in store for December sales given that gasoline prices already have fallen 21% from their November average to $1.70.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081212b.jpg" width="353">
Retail sales less autos and gasoline posted their first m/m increase since July. (It wasn&#39;t much of a gain.) They rose 0.3% after declines of roughly 0.7% during each of the prior three months.
Sales at furniture and electronics &amp; appliance stores recouped all of their October drop with a 1.5% gain. However, that still left them down 7.8% y/y. Furniture store sales ticked up 0.2% (-10.9% y/y) after five monthly declines which ranged between 1% and 3% each month. Sales of electronics &amp; appliance stores recovered 2.8% (-4.7% y/y) after a 2.0% October drop.
Apparel store sales ticked up 0.8% (-5.8% y/y) after three monthly declines which ranged between 0.7% and 4.1%. Doing somewhat better were sales at general merchandise stores which rose for the first month in the last five. The 1.2% gain raised them 2.6% from the year ago level.
Folks continued to pare their dining-out budgets. Restaurant &amp; drinking place sales ticked up 0.2% last month, but the y/y gain of 2.8% compares to 5.2% growth last year and 6.0%+ growth during the prior three years. Steady near 10% y/y has been the growth in sales at drinking places while sales growth at both full-service and limited-service restaurants has fallen.
Building materials sales have fallen off a cliff with the downturn in housing. The 1.2% drop (-5.3% y/y) was the fifth decline in the last six.
Sales at nonstore (internet) retailers also have been hit hard. The 1.3% decline last month (-2.7% y/y) was the fifth in a row, a period during which sales have fallen 6.0%.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a> (%)</td>
<td>-1.8</td>
<td>-2.9</td>
<td>-1.6</td>
<td>-7.4</td>
<td>4.1</td>
<td>5.8</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-1.6</td>
<td>-2.4</td>
<td>-0.7</td>
<td>-2.9</td>
<td>4.5</td>
<td>6.8</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>0.3</td>
<td>-0.7</td>
<td>-0.7</td>
<td>0.1</td>
<td>4.2</td>
<td>6.2</td>
<td>6.4</td>
</tr>
</tbody>
</table>
</body>
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This morning the Commerce Department reported that retail sales fell for the fifth consecutive month. The 1.8% November decline followed declines during October and September that were slightly greater than reported initially. Lower [...]

U.S. Retail Sales Fell Again; Less Autos & Gasoline Sales Rose

The mid-December reading of consumer sentiment from the University of Michigan recovered slightly from the the dismal November level. At 59.1 the figure was up 6.9% from November and it was the highest level since September. It still [...]

Michigan Consumer Sentiment Recovered Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211j.jpg" width="353">
After the sharp decline during the second quarter, the U.S. household and business sectors pulled back their borrowing further during 3Q. It was only the Federal government that kept the credit houses in business. Nongovernment liabilities grew just 0.2% last quarter. A record low that pulled the y/y growth back to 4.3%, a rate not seen in fifteen years.
Borrowing by the household sector, like during 2Q, nearly evaporated as it posted a 0.1% uptick. Consumer credit did rise 1.4% (3.5% y/y) but that was offset by a 0.4% decline (+2.4% y/y) in mortgage borrowing. Households&#39; obligations on home mortgages in fact declined by an unheard of $61B, or 0.5% (+1.2% y/y) after the $9B 2Q shortfall. Consumers&#39; other credit liabilities rose $35B (3.5% y/y). Growth in bank loans remained fairly steady at 16% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211i.jpg" width="353">
As economic recession developed and the war in the Middle East continued, the federal government&#39;s debt obligations surged an unprecedented $527B or by 15.3% y/y.
Credit market debt owed by the financial sector remained strong and steady at a 7% growth rate. Liabilities at commercial banks surged 23.4% y/y while savings institutions liabilities fell by 8.1%.
Asset price implosion also was in evidence in the 3Q figures. The value of equity market shares fell by nearly $1 trillion (-27.3% y/y) and mutual fund share values fell $597B or 17.5% y/y. Pension fund reserves additionally were hit to the tune of $600B or 12.5% y/y).
As a result of the implosion in equity market and home prices, the net worth of the U.S. household sector last quarter deteriorated by nearly three trillion dollars from the prior quarter&#39;s level. The dollar level of household sector financial assets fell $2.1 trillion (-9.6% y/y) and tangible asset values fell $0.5 trillion (-6.6% y/y).That pulled the net-wealth lost since the year-ago peak to $7.1 trillion, or 11.1%.

<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/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a> (Y/Y % Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">3Q &#39;08</th>
<th scope="col">2Q&#39;08</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 Credit Market Debt Outstanding</td>
<td>--</td>
<td>6.2</td>
<td>7.6</td>
<td>10.1</td>
<td>9.9</td>
<td>9.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>11%</td>
<td>15.3</td>
<td>7.0</td>
<td>4.9</td>
<td>3.9</td>
<td>7.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>2.2</td>
<td>4.0</td>
<td>6.8</td>
<td>10.2</td>
<td>11.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>13%</td>
<td>6.9</td>
<td>9.4</td>
<td>13.3</td>
<td>8.5</td>
<td>6.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfarm, NonCorporate Business</td>
<td>7%</td>
<td>7.6</td>
<td>11.3</td>
<td>13.1</td>
<td>14.7</td>
<td>13.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>7.3</td>
<td>9.8</td>
<td>13.2</td>
<td>10.0</td>
<td>8.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td>--</td>
<td>$56.540</td>
<td>$59.354</td>
<td>$62.170</td>
<td>$61.591</td>
<td>$57.385</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Tangible Assets: Households</td>
<td>--</td>
<td>$25.842</td>
<td>$26.381</td>
<td>$27.092</td>
<td>$28.061</td>
<td>$27.125</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Financial Assets: Households</td>
<td>--</td>
<td>$45.271</td>
<td>$47.419</td>
<td>$49.457</td>
<td>$46.984</td>
<td>$42.441</td>
</tr>
</tbody>
</table>
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After the sharp decline during the second quarter, the U.S. household and business sectors pulled back their borrowing further during 3Q. It was only the Federal government that kept the credit houses in business. Nongovernment [...]

U.S. Credit Borrowing Fell Further During 3Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211g.jpg" width="353">
Initial claims for unemployment insurance jumped last week. The 58,000 surge to 573,000 brought them to the highest level since November, 1982 when initial filings hit 612,000. This month claims are 8.9% higher than the November average.
Expectations had been for claims last week of 523,000. The four-week moving average of initial claims rose to this cycle&#39;s high of 540,500 (59.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211h.jpg" width="353">
The largest increases in initial claims for the week ending Nov. 29 were in Wisconsin (+16,331), Iowa (+6,240), Arkansas (+1,509), Mississippi (+1,398), and North Dakota (+1,391), while the largest decreases were in California (-20,304), Florida (-8,626), Missouri (-8,347), Michigan (-7,323), and Texas (-7,129).
Continuing claims for unemployment insurance during the week of November 29 surged by 338,000, also to the highest level since 1982. The four-week average of continuing claims rose to 4,133,500. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
The insured rate of unemployment rose to a new cycle high of 3.3%. The Commerce Department indicated the highest insured unemployment rates in the week ending November 22 were in Puerto Rico (5.0 percent), Oregon (4.5), Michigan (4.3), Nevada (4.1), Idaho (3.9), Alaska (3.8), Pennsylvania (3.7), South Carolina (3.7), New Jersey (3.6), and Wisconsin (3.5).

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">12/06/08</th>
<th scope="col">11/29/08</th>
<th scope="col">11/22/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>573</td>
<td>515</td>
<td>531</td>
<td>70.0%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,429</td>
<td>4,091</td>
<td>67.6%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
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</body>
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Initial claims for unemployment insurance jumped last week. The 58,000 surge to 573,000 brought them to the highest level since November, 1982 when initial filings hit 612,000. This month claims are 8.9% higher than the November [...]

U.S. Weekly Claims For Jobless Insurance Highest Since 1982

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211e.jpg" width="353">
Total U.S. import prices declined another 6.7% last month after the revised 5.4% drop during October. Consensus expectations had been for a 4.8% November decline.
Petroleum prices were off sharply again by 25.8% and this month imported crude petroleum prices are down another 20% m/m.
November import prices less petroleum doubled their decline of October and fell 1.8%. During the last three months prices fell at a 13.2% annual rate versus the 12%-to-13% rates of positive growth this past spring.
 Growth in import prices will slow further given the recent rise in the foreign exchange value of the dollar. During the last ten years there has been an 83% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211f.jpg" width="353">
Capital goods import prices fell 0.4%. On a three-month basis prices fell at a 2.5% annual rate after a 5%-to-6% rate of increase earlier this year. Less the lower prices of computers, capital goods prices also fell 0.4% and the three-month growth went to a negative 1.4% after 9.0% growth earlier this year. Prices of computers, peripherals &amp; accessories were down at a 6.8% rate during the last three months.
Prices for nonauto consumer goods fell 0.3%. The rate of increase during the last three months went to a negative 1.1% versus the 5.9% peak earlier this year. Durable goods prices overall rose were unchanged during the last three months versus a 6.2% rate of increase earlier this year.
Total export prices fell 3.2% due to a 7.0% (-2.8% y/y) decline in agricultural prices. Nonagricultural export prices also fell by 2.9% and they were unchanged y/y. It was the fourth consecutive monthly decline.

<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/@E807/@E807.HTM">Import/Export Prices (NSA, %)</a></th>
<th scope="col">November</th>
<th scope="col">October</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">Import - All Commodities</td>
<td>-6.7</td>
<td>-5.4</td>
<td>-4.4</td>
<td>4.2</td>
<td>4.9</td>
<td>7.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-25.8</td>
<td>-19.8</td>
<td>-29.0</td>
<td>11.6</td>
<td>20.6</td>
<td>37.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>-1.8</td>
<td>-0.9</td>
<td>2.4</td>
<td>2.7</td>
<td>1.7</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>-3.2</td>
<td>-2.0</td>
<td>-0.2</td>
<td>4.9</td>
<td>3.6</td>
<td>3.2</td>
</tr>
</tbody>
</table>


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Total U.S. import prices declined another 6.7% last month after the revised 5.4% drop during October. Consensus expectations had been for a 4.8% November decline. Petroleum prices were off sharply again by 25.8% and this month [...]

U.S. Import Prices Down Sharply

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211d.jpg" align="left" border="0" height="265" width="353">
The chart above tells the story for UK manufacturing. The
bottom fell out in Sept, then in Oct and Nov., things got worse and now
negative conditions are remaining in force at levels near the bottom of
their recent range. Orders stand in the 4th
percentile of their range (since 2000); they remain very weak. The
volume index for the outlook is at a raw reading of -42, the lowest
since 2000. On a broader front going back to 1988 the volume outlook
index has been weaker than this only 3% of the time. Stocks are at the
top of their range since 2000 but the same stocks number is in the top
9% of the data going back to 1988 &#8211; inventories by any comparison are
top-heavy.
The orders and export order weakness also look low in broader
comparisons. Orders are weaker than this only 15% of the time and
foreign orders are weaker 26% of the time in data going back to 1988.
To combat weakness The UK has embarked on a stimulus plan.
That plan came under attack today from German Finance Minister
Steinbruck who characterized British stimulus as &#8216;breathtaking&#8217; calling
it &#8216;crass Keynesianism.&#8217; In
France , economy minister Lagarde was urging the EU to do more to
stimulate the region as she warned that the slowdown could get much
more severe. Lagarde says France is working and Germany is thinking,
pointing out that different countries have different approaches while
being much less confrontational than Steinbruck overall. In this
environment it is Germany that is doing so much less and it is Germany
that is the outlier much more than the UK .

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">UK
Industrial volume data CBI Survey </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Reported:</td>
<td>Dec 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>-35</td>
<td>-38</td>
<td>-39</td>
<td>-26</td>
<td>-13</td>
<td>-9</td>
<td>4%</td>
<td>9</td>
<td>-40</td>
<td>49</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>-33</td>
<td>-31</td>
<td>-32</td>
<td>-25</td>
<td>-9</td>
<td>-10</td>
<td>17%</td>
<td>3</td>
<td>-38</td>
<td>41</td>
</tr>
<tr>
<td class="firstcol">Stocks:FinGds</td>
<td>21</td>
<td>25</td>
<td>24</td>
<td>21</td>
<td>18</td>
<td>14</td>
<td>100%</td>
<td>25</td>
<td>-2</td>
<td>27</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">Looking
ahead</td>
</tr>
<tr>
<td class="firstcol">Output Volume:Nxt 3M</td>
<td>-42</td>
<td>-42</td>
<td>-31</td>
<td>-16</td>
<td>-13</td>
<td>-2</td>
<td>0%</td>
<td>28</td>
<td>-42</td>
<td>70</td>
</tr>
<tr>
<td class="firstcol">Avg Prices 4Nxt 3m</td>
<td>0</td>
<td>10</td>
<td>23</td>
<td>31</td>
<td>34</td>
<td>24</td>
<td>55%</td>
<td>34</td>
<td>-19</td>
<td>53</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">From
end 2000</td>
</tr>
</tbody>
</table>
</body></html>

The chart above tells the story for UK manufacturing. The bottom fell out in Sept, then in Oct and Nov., things got worse and now negative conditions are remaining in force at levels near the bottom of their recent range. Orders stand [...]

UK Industrial Sector Still Under Great Pressure

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211a.jpg" width="353">
The October U.S. foreign trade deficit rose unexpectedly. The modest rise to $57.2B from a little revised $56.6B during September contrasted with Consensus expectations for a narrowing to $53.5B. So far this year the monthly trade deficit has averaged $59.1B, slightly deeper than the $58.3B averaged during the first ten months of 2007.
Adjusted for price inflation the trade deficit in goods deepened to $46.4B from a revised September level of $42.0B which was larger than originally reported. Nevertheless, year-to-date the real deficit narrowed more than $10.0B versus 2007 to an average $44.9B as real exports surged 9.0% and real imports fell 2.1%. A narrower trade deficit was estimated to have added 1.1 percentage points to real GDP growth last quarter following a 2.9 point addition during 2Q.
Developing recessions in economies abroad lowered U.S. exports for the third consecutive month. The 2.2% decline followed a 6.4% September drop that was slightly deeper than initially reported. The decline reflected a 2.8% drop in goods exports following the 8.5% September decline. Nevertheless, the increase in the competiveness of U.S.-made products due to past declines in the U.S. dollar lifted exports by 4.4% y/y. Adjusted for prices, chained-dollar goods exports slipped 0.9% (+0.7% y/y) after a slightly revised 8.2% September decline. Real exports of capital goods slipped 0.6% (-3.6% y/y) after a 9.6% plunge during the prior month. Exports of nonauto consumer goods fell 1.4% (+3.8% y/y) for the third consecutive monthly drop. Real exports of automobiles &amp; parts fell 2.7% (-5.2% y/y) and real exports of foods, feeds &amp; beverages slipped 0.4% (+1.5% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211b.jpg" width="353">
Nominal exports of services slipped 0.7% (+7.3% y/y) as travel exports fell. Though they fell hard for the second month, travel exports remained up 7.2% y/y. Passenger fares fell another 1.8% but remained up 15.3% y/y. That y/y gain was, however, half that of several months ago. Exports of &quot;other&quot; private services slipped 0.4% as year-to-year growth fell to 5.4% after an 18.2% gain during all of last year.
Despite the developing U.S. recession, petroleum imports rose 3.0% and they surged a surprising 20.8% in constant dollar terms. The gain was driven by a 22.0% m/m surge in the quantity of petroleum products imported. The quantity of crude petroleum imports jumped 28.0% (2.9% y/y) and that nearly recovered declines during the prior two months. The average price per barrel of crude oil fell to $92.02 (+26.8% y/y) from a high of $124.7 in July. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081211c.jpg" width="353">
Recessionary forces were clearly evident in the 2.3% decline in the value of nonpetroleum imports. Measured in chained 2000 dollars, nonoil imports fell 1.6% (-4.9% y/y), though real imports of nonauto consumer goods rose 1.0% (-1.1% y/y) following a 7.7% decline during September. The chained-dollar value of imports of automotive vehicles &amp; parts fell another 5.2% (-22.8% y/y) and real imports of nonauto capital goods fell 3.7% (-2.4% y/y).
Services imports were unchanged (+6.0% y/y) after the 3.5% September drop. Travel imports ticked up 0.2% (0.4% y/y) after the 4.6% September drop. Passenger fares rose 2.3% (11.8% y/y). That annual gain is half what it was earlier this year.
The U.S. trade deficit in goods with China deepened slightly to another record $28.0B. Exports to China made up for the prior month&#39;s shortfall and rose 14.1% (6.8% y/y) after 18.2% growth during all of last year. Imports rose 2.8% (7.8% y/y). That y/y growth is down sharply, with the weakening U.S. economy, from 20% to 30% rates of growth during the prior ten years. The trade deficit with Japan deepened again m/m to $6.0B but during the first ten months of this year it is down to average of $6.2B from an average $6.9B during the first ten months of last year. The trade deficit with Japan ranged between $5 and $8 billion between 2003 and 2007.

<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/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></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">U.S. Trade Deficit</td>
<td>$57.2B</td>
<td>$56.6B</td>
<td>$56.3B (10/07)</td>
<td>$700.3</td>
<td>$753.3</td>
<td>$711.6B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>-2.2%</td>
<td>-6.4%</td>
<td>5.3%</td>
<td>13.0%</td>
<td>13.5%</td>
<td>10.6%</td>
</tr>
<tr>
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>-1.3%</td>
<td>-5.7%</td>
<td>4.2%</td>
<td>6.1%</td>
<td>10.8%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>3.0%</td>
<td>-16.7%</td>
<td>25.7%</td>
<td>9.4%</td>
<td>20.1%</td>
<td>39.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>-2.3%</td>
<td>-3.5%</td>
<td>-0.8%</td>
<td>4.8%</td>
<td>9.1%</td>
<td>10.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

The October U.S. foreign trade deficit rose unexpectedly. The modest rise to $57.2B from a little revised $56.6B during September contrasted with Consensus expectations for a narrowing to $53.5B. So far this year the monthly trade [...]

U.S. Trade Deficit Rose As Exports Fell

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

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

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

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

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

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

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

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

France

French Industry and Services Confidence Diverge in June

Andrew Cates

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

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

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

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

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

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

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

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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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