Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081121a.jpg" align="left" border="0" height="265" width="353">
The Markit/NTC readings on conditions in services and MFG in
the Euro Area show another chilling story. The indices are down to all
time lows that covers 11-Years for the Manufacturing PMI and 10-years
for services. 
 

The MFG index stands at a level of 36.16 well below the
neutral mark of 50. The services PMI stands at 43.32 a very low reading
for a less volatile sector. The services PMI is only slightly less
volatile than the MFG readings on m/mo levels basis. But the MFG PMI
has a range of variation that is 20% larger. Even so in terms of m/m
changes in the indices services is slightly more volatile. 
 

Compared to the US where the PMIs (ISM) measure MFG and Non
MFG, the MFG and Services sectors in Europe are far more closely
correlated. Their simple correlation is 0.89 compared to 0.78 for the
tow US measures. This suggest the US economy has room for more
independent activity in each sector possibly a better ability to avert
sector contagion, whereas in Europe when one sector does something, the
other is quick to follow. That is bad news when economic growth is
slipping. The US MFG sector is about 25% more volatile than its
European counterpart whereas the US Nonmanufacturing sector is about 4
percent less volatile than its European counterpart. Right now all PMIs
are sinking and are very weak. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="3" scope="col"> FLASH Readings:&nbsp; Market PMIs for the Euro Area 13</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td> Manufacturing</td>
<td> Services</td>
</tr>
<tr>
<td class="firstcol"> Nov-08</td>
<td> 36.16</td>
<td> 43.32</td>
</tr>
<tr>
<td class="firstcol"> Oct-08</td>
<td>41.10</td>
<td>45.76</td>
</tr>
<tr>
<td class="firstcol"> Sep-08</td>
<td>44.97</td>
<td>48.44</td>
</tr>
<tr>
<td class="firstcol"> Aug-08</td>
<td>47.55</td>
<td>48.46</td>
</tr>
<tr class="odd">
<td colspan="3" class="firstcol"> Averages</td>
</tr>
<tr>
<td class="firstcol"> 3-Month</td>
<td>44.54</td>
<td>46.13</td>
</tr>
<tr>
<td class="firstcol"> 6-Month</td>
<td>46.79</td>
<td>47.39</td>
</tr>
<tr>
<td class="firstcol"> 12-Month</td>
<td>49.50</td>
<td>49.66</td>
</tr>
<tr class="odd">
<td colspan="3" class="firstcol"> 125-Mo Range</td>
</tr>
<tr>
<td class="firstcol"> High</td>
<td>60.47</td>
<td>62.36</td>
</tr>
<tr>
<td class="firstcol"> Low</td>
<td>36.16</td>
<td>43.32</td>
</tr>
<tr>
<td class="firstcol"> % Range</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

The Markit/NTC readings on conditions in services and MFG in the Euro Area show another chilling story. The indices are down to all time lows that covers 11-Years for the Manufacturing PMI and 10-years for services. The MFG index [...]

Euro Area PMIs

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081121a.jpg" align="left" border="0" height="265" width="353">
The Markit/NTC readings on conditions in services and MFG in
the Euro Area show another chilling story. The indices are down to all
time lows that covers 11-Years for the Manufacturing PMI and 10-years
for services. 
 

The MFG index stands at a level of 36.16 well below the
neutral mark of 50. The services PMI stands at 43.32 a very low reading
for a less volatile sector. The services PMI is only slightly less
volatile than the MFG readings on m/mo levels basis. But the MFG PMI
has a range of variation that is 20% larger. Even so in terms of m/m
changes in the indices services is slightly more volatile. 
 

Compared to the US where the PMIs (ISM) measure MFG and Non
MFG, the MFG and Services sectors in Europe are far more closely
correlated. Their simple correlation is 0.89 compared to 0.78 for the
tow US measures. This suggest the US economy has room for more
independent activity in each sector possibly a better ability to avert
sector contagion, whereas in Europe when one sector does something, the
other is quick to follow. That is bad news when economic growth is
slipping. The US MFG sector is about 25% more volatile than its
European counterpart whereas the US Nonmanufacturing sector is about 4
percent less volatile than its European counterpart. Right now all PMIs
are sinking and are very weak. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr> <th colspan="3" scope="col"> FLASH
Readings:&nbsp; Market PMIs for the Euro Area 13</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td> Manufacturing</td>
<td> Services</td>
</tr>
<tr>
<td class="firstcol"> Nov-08</td>
<td> 36.16</td>
<td> 43.32</td>
</tr>
<tr>
<td class="firstcol"> Oct-08</td>
<td>41.10</td>
<td>45.76</td>
</tr>
<tr>
<td class="firstcol"> Sep-08</td>
<td>44.97</td>
<td>48.44</td>
</tr>
<tr>
<td class="firstcol"> Aug-08</td>
<td>47.55</td>
<td>48.46</td>
</tr>
<tr class="odd">
<td colspan="3" class="firstcol"> Averages</td>
</tr>
<tr>
<td class="firstcol"> 3-Month</td>
<td>44.54</td>
<td>46.13</td>
</tr>
<tr>
<td class="firstcol"> 6-Month</td>
<td>46.79</td>
<td>47.39</td>
</tr>
<tr>
<td class="firstcol"> 12-Month</td>
<td>49.50</td>
<td>49.66</td>
</tr>
<tr class="odd">
<td colspan="3" class="firstcol"> 125-Mo Range</td>
</tr>
<tr>
<td class="firstcol"> High</td>
<td>60.47</td>
<td>62.36</td>
</tr>
<tr>
<td class="firstcol"> Low</td>
<td>36.16</td>
<td>43.32</td>
</tr>
<tr>
<td class="firstcol"> % Range</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120g.jpg" width="353">
For France and Italy new industrial orders continue to sink. France is right now seeing the greater weakness. Foreign orders show consistent weakness across time horizons for both Italy and for France. For France the recent deterioration in foreign orders is a bit worse than for Italy. But one remaining difference between these two countries is that in Italy domestic orders have shown some resiliency. Over three six and twelve months Italian orders have mostly showed increases. Meanwhile for France total and foreign order are down by almost the same percentage amounts over three months, hinting at weakening domestic orders. Italy may just be a step behind however. While Italy&#146;s domestic orders have been resilient, in September they have dropped by a sharp 2.6%. Also Italy&#146;s overall sales trends are deteriorating very rapidly. Both Italy and France seem to be well on their way to a deepening weakness in manufacturing. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Italy Orders
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-1.5%</td>
<td>-0.9%</td>
<td>2.2%</td>
<td>-1.0%</td>
<td>-5.1%</td>
<td>-3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>0.8%</td>
<td>-3.4%</td>
<td>-0.8%</td>
<td>-13.1%</td>
<td>-11.6%</td>
<td>-11.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic</td>
<td>-2.6%</td>
<td>0.3%</td>
<td>3.8%</td>
<td>5.7%</td>
<td>-1.4%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Memo</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">Sales</td>
<td>1.7%</td>
<td>-3.1%</td>
<td>-2.6%</td>
<td>-15.1%</td>
<td>-1.6%</td>
<td>-0.6%</td>
</tr>
<tr class="even">
<td colspan="7">French Orders</td>
</tr>
<tr>
<td class="firstcol">Saar except m/m</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.7%</td>
<td>-7.6%</td>
<td>4.7%</td>
<td>-10.1%</td>
<td>-3.0%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>2.2%</td>
<td>-8.3%</td>
<td>3.4%</td>
<td>-11.9%</td>
<td>-7.2%</td>
<td>-8.5%</td>
</tr>
</tbody>
</table>
</body>
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For France and Italy new industrial orders continue to sink. France is right now seeing the greater weakness. Foreign orders show consistent weakness across time horizons for both Italy and for France. For France the recent [...]

New Orders for Italy and France Sink

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120e.jpg" width="353">
The Conference Board indicated that the October composite index of leading economic indicators fell by 0.8% after rising a downwardly revised 0.1% during September. The peak for the index was in July of last year and the six-month percent change fell to -4.7%, the largest rate of decline in nearly one year.
Six of the ten components of the leading index fell last month notably consumer expectations, vendor performance, stock prices and building permits.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120f.jpg" width="353">
The breadth of one-month increase amongst the leaders&#39; 10 components fell back to 35% and over a six-month period the breadth of gain amongst the components picked slightly to 30%.
The leading index is based on actual reports for eight economic data series. The Conference Board initially estimates two series, orders for consumer goods and orders for capital goods.
The coincident indicators rose 0.2% following five consecutive months of decline. Three quarters of the index components rose m/m but over six months none rose. Over the last ten years there has been an 86% correlation between the y/y changes in the coincident indicators and real GDP.
The lagging index ticked up 0.1%, the smallest increase in four months. The ratio of coincident to lagging indicators (a measure of economic excess) also ticked up slightly but remained near its lowest level since 1982.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM">Business Cycle Indicators</a> (%)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July, 6 Month % (AR)</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">Leading</td>
<td>-0.8</td>
<td>0.1</td>
<td>-0.9</td>
<td>-4.7</td>
<td>-0.4%</td>
<td>1.3%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2</td>
<td>-0.7</td>
<td>-0.4</td>
<td>-2.4</td>
<td>1.7%</td>
<td>2.4%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1</td>
<td>0.3</td>
<td>0.4</td>
<td>2.5</td>
<td>2.9%</td>
<td>3.1%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>


</html>

The Conference Board indicated that the October composite index of leading economic indicators fell by 0.8% after rising a downwardly revised 0.1% during September. The peak for the index was in July of last year and the six-month [...]

U.S. Leading Indicators Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120c.jpg" width="353">
The latest report from the Philadelphia Federal Reserve Bank continued to paint a bleak picture of the U.S. economy. The bank reported that its November Index of General Business conditions in the manufacturing sector was even more negative at -39.3 than it was last month at -37.5. The latest was lowest level since the recession of 1990. A reading of -35 had been expected for this month.
During the last ten years there has been a 61% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 43% correlation with q/q growth in real GDP.
The Philadelphia Fed constructs a diffusion index for total business activity and each of the sub-indexes. The business conditions index reflects a separate survey question.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120d.jpg" width="353">
Amongst the sub-indexes, the new orders index again led this month&#39;s weakness with a reading of -31.4, the lowest level since the recession of 1990. The shipments index was unchanged m/m following its 21.4 point October decline.
The employment index fell another 7.2 points to the lowest level since the recession year of 2001. Thirty eight percent of respondents expected to reduce employment levels, the highest since 1981, while only 12.6% expected to raise them. During the last ten years there has been a 79% correlation between the index level and the m/m change in manufacturing sector payrolls.
The prices paid index fell to a record low with a 37.9 point drop month-to-month to 30.7. During the last ten years there has been a 67% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 82% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months also fell further to near its lowest level since 2001. The expectations index for new orders fell further into negative territory. The expectations index for employment fell to near its record low while the expected prices paid figure fell to its record low.
The latest Business Outlook Survey from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2008/bos1108.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Philadelphia Fed (%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November&nbsp; &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-39.3</td>
<td>-37.5</td>
<td>7.5</td>
<td>5.1</td>
<td>8.1</td>
<td>11.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>-30.7</td>
<td>&nbsp;7.2</td>
<td>&nbsp;34.4</td>
<td>26.4</td>
<td>36.6</td>
<td>40.1</td>
</tr>
</tbody>
</table>
</body>
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The latest report from the Philadelphia Federal Reserve Bank continued to paint a bleak picture of the U.S. economy. The bank reported that its November Index of General Business conditions in the manufacturing sector was even more [...]

Philadelphia Fed Index Lowest Since 1990

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120a.jpg" width="353">
Rising unemployment caused initial claims for jobless insurance to rise further above 500,000. At 542,000 claims reached their highest level since 1992. But even that comparison, as bad as it is, understates the current degree of labor market weakness. The 1992 level above 500,00 was reached for only one week during the short-lived, early-1990&#39;s recession. Quickly claims fell back below 400,000. The higher level of claims now is especially troubling since it likely will be sustained for a longer period.
The higher level of claims now is especially disturbing for two reasons. One is that it likely will be sustained for a longer period than one week. The second is that changes to the unemployment insurance program have made it more difficult to be eligible for a claim. Even a lower level of claims now is comparable to a weaker labor market.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120b.jpg" width="353">
Expectations had been for claims last week of 500,000. The four-week moving average of initial claims rose to this cycle&#39;s high of 506,500 (52.7% y/y).
The latest level of initial claims for unemployment insurance is for the week which covers the survey period for November nonfarm payrolls. Claims rose 63,000, or 13.2%, from the October period. During the last ten years there has been a 78% (inverse) correlation between the level of initial jobless insurance claims and the monthly change in nonfarm payrolls.
The largest increases in initial claims for the week ending Nov. 8 were in California (+15,532), North Carolina (+6,453), Tennessee (+5,067), New Jersey (+4,706), and New York (+3,680), while the largest decreases were in Kentucky (-1,562), Puerto Rico (-875), Delaware (-751), Maine (-349), and Rhode Island (-335).
Continuing claims for unemployment insurance during the week of November 8 rose by 109,000, about the same as during the prior week during which the level was upwardly revised. The four-week average of continuing claims rose to 3,867,000, this cycle&#39;s high and the highest since 1982. 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 3.0%. The Commerce Department indicated that the highest insured unemployment rates were in Puerto Rico (5.3 percent), Oregon (3.9), California (3.7), Nevada (3.7), Michigan (3.5), Alaska (3.4), Pennsylvania (3.4), South Carolina (3.4), New Jersey (3.3), Arkansas (3.2), and North Carolina (3.2).
The minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081119a.htm"> here</a>.

<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">11/15/08</th>
<th scope="col">11/08/08</th>
<th scope="col">10/31/08</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>542</td>
<td>&nbsp;515</td>
<td>484</td>
<td>62.8%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,012</td>
<td>3,903</td>
<td>55.5%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
</html>

Rising unemployment caused initial claims for jobless insurance to rise further above 500,000. At 542,000 claims reached their highest level since 1992. But even that comparison, as bad as it is, understates the current degree of [...]

U.S. Claims For Jobless Insurance Highest Since 1992

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120a.jpg" width="353">
Rising unemployment caused initial claims for jobless insurance to rise further above 500,000. At 542,000 claims reached their highest level since 1992. But even that comparison, as bad as it is, understates the current degree of labor market weakness. The 1992 level above 500,00 was reached for only one week during the short-lived, early-1990&#39;s recession. Quickly claims fell back below 400,000. The higher level of claims now is especially troubling since it likely will be sustained for a longer period.
The higher level of claims now is especially disturbing for two reasons. One is that it likely will be sustained for a longer period than one week. The second is that changes to the unemployment insurance program have made it more difficult to be eligible for a claim. Even a lower level of claims now is comparable to a weaker labor market.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120b.jpg" width="353">
Expectations had been for claims last week of 500,000. The four-week moving average of initial claims rose to this cycle&#39;s high of 506,500 (52.7% y/y).
The latest level of initial claims for unemployment insurance is for the week which covers the survey period for November nonfarm payrolls. Claims rose 63,000, or 13.2%, from the October period. During the last ten years there has been a 78% (inverse) correlation between the level of initial jobless insurance claims and the monthly change in nonfarm payrolls.
The largest increases in initial claims for the week ending Nov. 8 were in California (+15,532), North Carolina (+6,453), Tennessee (+5,067), New Jersey (+4,706), and New York (+3,680), while the largest decreases were in Kentucky (-1,562), Puerto Rico (-875), Delaware (-751), Maine (-349), and Rhode Island (-335).
Continuing claims for unemployment insurance during the week of November 8 rose by 109,000, about the same as during the prior week during which the level was upwardly revised. The four-week average of continuing claims rose to 3,867,000, this cycle&#39;s high and the highest since 1982. 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 3.0%. The Commerce Department indicated that the highest insured unemployment rates were in Puerto Rico (5.3 percent), Oregon (3.9), California (3.7), Nevada (3.7), Michigan (3.5), Alaska (3.4), Pennsylvania (3.4), South Carolina (3.4), New Jersey (3.3), Arkansas (3.2), and North Carolina (3.2).
The minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081119a.htm"> here</a>.

<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">11/15/08</th>
<th scope="col">11/08/08</th>
<th scope="col">10/31/08</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>542</td>
<td>&nbsp;515</td>
<td>484</td>
<td>62.8%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,012</td>
<td>3,903</td>
<td>55.5%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Lowest Since 1990 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 20, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120c.jpg" width="353">
The latest report from the Philadelphia Federal Reserve Bank continued to paint a bleak picture of the U.S. economy. The bank reported that its November Index of General Business conditions in the manufacturing sector was even more negative at -39.3 than it was last month at -37.5. The latest was lowest level since the recession of 1990. A reading of -35 had been expected for this month.
During the last ten years there has been a 61% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 43% correlation with q/q growth in real GDP.
The Philadelphia Fed constructs a diffusion index for total business activity and each of the sub-indexes. The business conditions index reflects a separate survey question.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120d.jpg" width="353">
Amongst the sub-indexes, the new orders index again led this month&#39;s weakness with a reading of -31.4, the lowest level since the recession of 1990. The shipments index was unchanged m/m following its 21.4 point October decline.
The employment index fell another 7.2 points to the lowest level since the recession year of 2001. Thirty eight percent of respondents expected to reduce employment levels, the highest since 1981, while only 12.6% expected to raise them. During the last ten years there has been a 79% correlation between the index level and the m/m change in manufacturing sector payrolls.
The prices paid index fell to a record low with a 37.9 point drop month-to-month to 30.7. During the last ten years there has been a 67% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 82% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months also fell further to near its lowest level since 2001. The expectations index for new orders fell further into negative territory. The expectations index for employment fell to near its record low while the expected prices paid figure fell to its record low.
The latest Business Outlook Survey from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2008/bos1108.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Philadelphia Fed (%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November&nbsp; &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-39.3</td>
<td>-37.5</td>
<td>7.5</td>
<td>5.1</td>
<td>8.1</td>
<td>11.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>-30.7</td>
<td>&nbsp;7.2</td>
<td>&nbsp;34.4</td>
<td>26.4</td>
<td>36.6</td>
<td>40.1</td>
</tr>
</tbody>
</table>
U.S. Leading Indicators Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 20, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120e.jpg" width="353">
The Conference Board indicated that the October composite index of leading economic indicators fell by 0.8% after rising a downwardly revised 0.1% during September. The peak for the index was in July of last year and the six-month percent change fell to -4.7%, the largest rate of decline in nearly one year.
Six of the ten components of the leading index fell last month notably consumer expectations, vendor performance, stock prices and building permits.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120f.jpg" width="353">
The breadth of one-month increase amongst the leaders&#39; 10 components fell back to 35% and over a six-month period the breadth of gain amongst the components picked slightly to 30%.
The leading index is based on actual reports for eight economic data series. The Conference Board initially estimates two series, orders for consumer goods and orders for capital goods.
The coincident indicators rose 0.2% following five consecutive months of decline. Three quarters of the index components rose m/m but over six months none rose. Over the last ten years there has been an 86% correlation between the y/y changes in the coincident indicators and real GDP.
The lagging index ticked up 0.1%, the smallest increase in four months. The ratio of coincident to lagging indicators (a measure of economic excess) also ticked up slightly but remained near its lowest level since 1982.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM">Business Cycle Indicators</a> (%)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July, 6 Month % (AR)</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">Leading</td>
<td>-0.8</td>
<td>0.1</td>
<td>-0.9</td>
<td>-4.7</td>
<td>-0.4%</td>
<td>1.3%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2</td>
<td>-0.7</td>
<td>-0.4</td>
<td>-2.4</td>
<td>1.7%</td>
<td>2.4%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1</td>
<td>0.3</td>
<td>0.4</td>
<td>2.5</td>
<td>2.9%</td>
<td>3.1%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
New Orders for Italy and France Sink 
by <a href="/comment/Brusca.html">Robert Brusca</a> November 20, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081120g.jpg" width="353">
For France and Italy new industrial orders continue to sink. France is right now seeing the greater weakness. Foreign orders show consistent weakness across time horizons for both Italy and for France. For France the recent deterioration in foreign orders is a bit worse than for Italy. But one remaining difference between these two countries is that in Italy domestic orders have shown some resiliency. Over three six and twelve months Italian orders have mostly showed increases. Meanwhile for France total and foreign order are down by almost the same percentage amounts over three months, hinting at weakening domestic orders. Italy may just be a step behind however. While Italy&#146;s domestic orders have been resilient, in September they have dropped by a sharp 2.6%. Also Italy&#146;s overall sales trends are deteriorating very rapidly. Both Italy and France seem to be well on their way to a deepening weakness in manufacturing. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Italy Orders
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-1.5%</td>
<td>-0.9%</td>
<td>2.2%</td>
<td>-1.0%</td>
<td>-5.1%</td>
<td>-3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>0.8%</td>
<td>-3.4%</td>
<td>-0.8%</td>
<td>-13.1%</td>
<td>-11.6%</td>
<td>-11.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic</td>
<td>-2.6%</td>
<td>0.3%</td>
<td>3.8%</td>
<td>5.7%</td>
<td>-1.4%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Memo</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">Sales</td>
<td>1.7%</td>
<td>-3.1%</td>
<td>-2.6%</td>
<td>-15.1%</td>
<td>-1.6%</td>
<td>-0.6%</td>
</tr>
<tr class="even">
<td colspan="7">French Orders</td>
</tr>
<tr>
<td class="firstcol">Saar exept m/m</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.7%</td>
<td>-7.6%</td>
<td>4.7%</td>
<td>-10.1%</td>
<td>-3.0%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>2.2%</td>
<td>-8.3%</td>
<td>3.4%</td>
<td>-11.9%</td>
<td>-7.2%</td>
<td>-8.5%</td>
</tr>
</tbody>
</table>


</html>

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081119d.jpg" align="left" border="0" height="265" width="353">
UK orders rebounded ever so slightly from last month&#8217;s extreme
weakness and still reside in the bottom 2% of their range since about
2000. Export orders have had the same response, making a token bounce
in November. Stocks of finished goods are rated as at their highest
levels indicating a problem build up with orders falling so fast. 
 

Not surprisingly output volume for the next 3-months is rated
at a net of -42 the weakest reading on record. Prices are still posted
to make gains with a net +10 reading that is still in the top 21% of
its range. So inflation pressures are proving sticky in the face of
horrific weakness. The NTC (Markit) diffusion survey for Nov is not
quite ready but its low readings essentially confirms the deteriorating
picture from the CBI. 


<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="grey4">
<td class="firstcol">Reported:</td>
<td>Nov 08</td>
<td>Oct 08</td>
<td>Sep 08</td>
<td>Aug 08</td>
<td>Jul 08</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total Orders</td>
<td>-38</td>
<td>-39</td>
<td>-26</td>
<td>-13</td>
<td>-8</td>
<td>-4</td>
<td>2%</td>
<td>9</td>
<td>-40</td>
<td>49</td>
</tr>
<tr class="grey3">
<td class="firstcol">Export Orders</td>
<td>-31</td>
<td>-32</td>
<td>-25</td>
<td>-9</td>
<td>-7</td>
<td>-7</td>
<td>17%</td>
<td>3</td>
<td>-39</td>
<td>42</td>
</tr>
<tr class="grey3">
<td class="firstcol">Stocks: FinGds</td>
<td>25</td>
<td>24</td>
<td>21</td>
<td>18</td>
<td>13</td>
<td>13</td>
<td>100%</td>
<td>24</td>
<td>-2</td>
<td>26</td>
</tr>
<tr class="grey2">
<td colspan="11" class="firstcol">Looking ahead</td>
</tr>
<tr class="grey3">
<td class="firstcol">Output Volume: Nxt 3M</td>
<td>-42</td>
<td>-31</td>
<td>-16</td>
<td>-13</td>
<td>-7</td>
<td>1</td>
<td>0%</td>
<td>28</td>
<td>-31</td>
<td>59</td>
</tr>
<tr class="grey3">
<td class="firstcol">Avg Prices 4Nxt 3m</td>
<td>10</td>
<td>23</td>
<td>31</td>
<td>34</td>
<td>28</td>
<td>25</td>
<td>79%</td>
<td>34</td>
<td>-19</td>
<td>53</td>
</tr>
<tr class="grey2">
<td colspan="11" class="firstcol">From end 2000</td>
</tr>
<tr class="grey1">
<td colspan="11" class="firstcol">Compare to CIPS MFG</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>Oct 08</td>
<td>Sep 08</td>
<td>Aug 08</td>
<td>Jul 08</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK MFG</td>
<td>&nbsp;</td>
<td>41.49</td>
<td>41.15</td>
<td>45.28</td>
<td>44.37</td>
<td>48.05</td>
<td>2%</td>
<td>56.3</td>
<td>41.15</td>
<td>15</td>
</tr>
</tbody>
</table>
</body></html>

UK orders rebounded ever so slightly from last month’s extreme weakness and still reside in the bottom 2% of their range since about 2000. Export orders have had the same response, making a token bounce in November. Stocks of finished [...]

UK's CBI Survey of Industry

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

Accelerating positive economic surprises in the G10 are boosting the global economy

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Sandy Batten

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Q1 2026 real GDP growth was revised up to 2.1% q/q saar in the third estimate from 1.6% in the second estimate, slightly eclipsing the 2.0% advance estimate, according to figures released by the Bureau of Economic Analysis today. The Action Economics Forecast Survey looked for a slight upward revision to 1.7%. The major factor behind the upward revision was a large downward revision to import growth to 11.8% from 21.1% in the second estimate. The downward revision in imports was accompanied by a much smaller downward revision in export growth (10.9% versus 13.1%), leading to a meaningful downward revision to the trade deficit. Accordingly, net exports subtracted 0.4%-point from overall GDP growth in Q1, down markedly from -1.3%-point in both the second and advance estimates. The BEA stated that the downward revision to imports was widely spread—in goods (led by imports of consumer goods ex food and autos) and services (led by international travel).

The other revision of note was to personal consumption expenditures where the Q1 growth was revised down to 0.4% q/q saar from 1.4% in the second estimate and 1.6% in the advance report. The downward revision was entirely in consumption of services with small upward revisions to consumption of goods. The growth of services consumption was lowered markedly to 0.5% from 1.8% in the second estimate and 2.1% in the advance report. The BEA stated that the revision primarily reflected downward revisions to financial services and insurance (led by portfolio management and investment advice), based on newly available and updated data from the U.S. Census Bureau’s Quarterly Services Survey.

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Growth of total fixed investment was little revised to 6.5% q/q saar from 6.4%. This reflected an upward revision to nonresidential fixed investment growth to 10.6% from 10.1% in the second estimate and a downward revision in residential investment growth to -7.8% from -6.3%. Growth of government spending was unrevised at 4.4%. The decline in inventories was revised slightly smaller with inventories adding 0.2%-point to overall growth versus 0.1%-point in the second estimate.

With growth in both imports and personal consumption expenditures being revised down, private domestic demand growth (final sales to private domestic purchasers, a favored gauge of demand by the Federal Reserve) was revised down meaningfully to a still-solid 1.7% q/q saar from 2.4% in the second estimate and 2.5% in the advance report.

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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- Q1 GDP growth was unexpectedly revised up to 2.1% q/q saar in the third estimate, up from 1.6% in the second estimate and inching past the 2.0% advance estimate.
- A meaningful downward revision to imports was the primary factor behind the upward revision, leading to a much smaller subtraction from net exports.
- Personal consumption expenditures growth was revised down to 0.5% q/q saar, the slowest pace since Q1 2022, due mostly to a downward revision to household spending on financial services and insurance.
- With the downward revision to import demand and PCE, domestic demand growth was revised down meaningfully to 1.7% q/q from 2.4%.

Unusually Large Upward Revision in Third Estimate of U.S. Q1 2026 Real GDP Growth

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

Winnie Tapasanun

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New single-family home sales unexpectedly fell 7.3% m/m (-6.8% y/y) to a seasonally adjusted annual rate of 580,000 units in May following an upwardly revised 5.7% decline to 626,000 in April (initially -6.2%, 622,000) and an upwardly revised 5.4% increase to 664,000 in March (previously +3.4%, 663,000), according to data from the U.S. Census Bureau. The Action Economics Forecast Survey had expected May sales of 640,000. May marked the lowest level since January, down 23.4% from a high of 757,000 in November 2025 but up 8.4% from a low of 535,000 in July 2022. The May decline coincided with a rise in the average 30-year fixed mortgage rate to 6.44%, the highest since August 2025, from 6.33% in April, according to Freddie Mac.

Regionally, May new home sales showed a mixed performance. Sales in the West plummeted 26.9% (-17.0% y/y) to 117,000 in May, a seven-month low, reversing a 19.4% rebound to 160,000 in April. Sales in the South fell 4.1% (-5.4% y/y) to 350,000, the lowest level since January, on top of an 11.4% April drop to 365,000. In contrast, sales in the Midwest recovered 16.2% (-3.7% y/y) to 79,000, the third m/m gain in four months, after a 20.0% April plunge to 68,000. Sales in the Northeast increased 3.0% (17.2% y/y) to 34,000, the highest level since December, following a flat reading in April and a 73.7% surge in March. Notably, the South remained the dominant region, accounting for 60.3% of total U.S. new home sales.

The median sales price of a new home rose 2.0% (0.0% y/y) to $424,900 in May, the highest since December, following a 6.0% rise to $416,500 in April and three consecutive m/m decreases. The median sales price was 6.9% above a low of $397,600 in November 2024 but 7.7% below its record high of $460,300 in October 2022. The average sales price of a new home climbed 7.8% (5.0% y/y) to $540,600, the first m/m increase in three months and the highest level since July 2022, following a 1.3% April decline to $501,400. The average price was 13.7% above a low of $475,600 in August 2024 and just 0.1% below a peak of $541,200 in July 2022. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market grew 2.3% (-1.4% y/y) to 496,000 in May, the third m/m rise in four months and the highest level since July 2025, after a 0.8% rebound to 485,000 in April. The latest figure was 17.0% above a low of 424,000 in May 2023. The seasonally adjusted months' supply of new homes for sale rose to 10.3 months in May from 9.3 months in April, remaining above a low of 6.9 months in May 2023 and matching a high last seen in July 2022.

The median number of months a new home stayed on the market increased to 3.7 months in May, the highest since July 2021, from 3.6 months in April. The latest reading was above its record low of 1.5 months in September and October 2022 but well below a peak of 5.1 months in March 2021. These figures date back to January 1975.

New home sales are recorded when the sales contract is signed. New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- Sales -7.3% m/m (-6.8% y/y) to 580,000 in May; down 23.4% from a November high.
- Sales m/m down in the West (-26.9%) and South (-4.1%); up in the Midwest (+16.2%) and Northeast (+3.0%).
- Sales y/y down in all regions except the Northeast (+17.2%).
- Median sales price +2.0% m/m to $424,900, a 5-month high; avg. price +7.8% m/m to $540,600, highest since July ’22.
- Months' supply up to 10.3 mths., highest since July ’22.

U.S. New Home Sales Unexpectedly Hit a Four-Month Low in May

Michael J. Moran

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The US current account balance, which consists of international trade and income flows, deteriorated slightly in the first quarter, moving to a deficit of $226.8 billion versus a shortfall of $221.1 billion in the fourth quarter of last year (chart, upper left). Trade flows moved slightly in favor of the US, as the deficit narrowed by $11.6 billion to $165.8 billion, with trade in both goods and services contributing to the improvement. The latest reading on the trade deficit was among the best of the post-pandemic period (chart, upper right).

The improvement in trade was more than offset by softening in both primary income and secondary income. Primary income consists of net receipts of both investment income and employee compensation, with net flows defined as receipts of US residents from abroad less US payments to residents in foreign countries. Net investment income is by far the larger of the two components of primary income, and it accounted for nearly all the slippage in primary income, dropping $17.0 billion to -$7.8 billion. The shift pushed net investment income back into negative territory after a quarter in the plus column (chart, lower left). Employee compensation moved in favor of the US by 4.0%, but given the small size of employee compensation, the improvement represented an insignificant offset to the slippage in investment income.

Secondary income consists of transfer payments (payments made without receiving something of economic value in return); examples include personal remittances (foreign workers sending funds to families in their home countries), charitable donations, taxes, fines, and penalties. Payments made by US residents have always exceeded payments received, leaving a regular deficit in secondary income. This component of the current account slipped 1.3% in Q1, but it remained within the range of observations over the past year.

Annual revisions to the current account were notable, as both the trade balance and the balance on primary income were revised to show deeper deficits. The quarterly average trade deficit for 2025 now totals $233.0 billion versus a previous estimate of $227.9 billion. Primary income now shows a quarterly average deficit of $11.9 billion for 2025 versus a surplus of $3.2 billion.

The shift to a deficit position in primary income in 2025 is not shocking, as previously estimated positive readings on average in 2025 (and prior years) were surprising in light of the international investment position of the US. Foreign investors hold far larger amounts of US assets than US investors hold of foreign assets (chart, lower right). That is, the US has a deficit in investment holdings. However, despite the differential in asset holdings, US investors typically earned higher rates of return on their foreign investments than foreigners earned on their US investments. Although the gap in asset holdings has been large, the higher returns earned by US investors left net investment income positive. Revised data now suggest that the net international investment position of the US has slipped to such a degree that higher rates of return will no longer offset the differential in asset holdings. Positive quarterly readings on net investment income might be apparent at times (such as 2025-Q4), but net investment income (and primary income in total) will probably be negative in most coming quarters.

Balance of Payments data are in Haver’s **USINT** database, with summaries available in **USECON**. The expectations figure is in the **AS1REPNA** database.

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- Improvement in the trade balance offset by weaker net investment income.
- Annual revision showed wider deficit in 2025.


Q1 Current Account: Modest Slippage in Early 2026

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**PMIs in June mark some progress**
The PMI report from S&P shows modest firming in conditions in June, even with the Middle East situation unresolved.

**Monthly:** The median reading for the 8 reporting countries or regions rose to 50.8 in June from 50.1 in May. Manufacturing improved to 52.7 from 52.4, while the services reading rose to 50.3 from 49.6, leaving a month of mild contraction behind.

**Most show June improvement:** Most countries or regions improved in June; the exceptions were Germany, the United Kingdom, and India, which were weaker. India was dragged down by a weaker service sector reading in June; the U.K. and Germany showed weakening conditions across the board for the composite index, the manufacturing sector, and services. On the other side of the coin, France, Japan, Australia, and the U.S. all showed improvement in each of three sectors: the composite, manufacturing, and services, in June compared to May.

**Sequentially still mixed:** The broader sequential readings show ongoing weakness, but these are derived from hard data and lag the monthly observations in the table that include preliminary flash estimates. All the composite readings weakened based on three-month averages except for India. However, seven of eight reporting areas showed improvement in manufacturing over three months compared to six months; the exception was Australia. Over six months, conditions are mixed, with four composite readings weaker compared to 12 months and with four stronger. However, over six months, all eight manufacturing sectors improved compared to 12 months. The 12-month readings are consistently stronger than their readings of 12 months ago. The only composite that's weaker is the U.S., while the services sectors in the monetary union, Germany, France, and the U.S. are weaker than they were 12 months ago.

**Standings are weak:** The queue percentile standings evaluate the current diffusion index in June compared to where it has been since January 2022, a period of about 4½ years. The queue standings show weakness up and down the line, with the exception of the manufacturing sector; that has the standing above its historic median in the monetary union, Germany, France, the U.K., the U.S., and Japan. Only Australia and India show manufacturing sectors whose current monthly standings are below their medians of the last 4½ years. In addition, Japan has a strong composite reading at its 81st percentile. Overall, the services sectors are weak and below their 50% standing every place, and below that mark by a large margin, except for Japan, where the services sector has a 47th percentile standing, only a few ticks below its median.

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**Summing up: A glimmer of hope but still a lot of weakness**
Manufacturing is stronger sequentially over three months, six months, and 12 months for every reporter except for Australia over three months. The rest of the report is not very impressive. There is some rebound in June, but here we're talking about volatile monthly data. The services sectors still show sequential weakness over 12 months, six months, and three months in the European Monetary Union, Germany, France, and the U.S. The U.K. and Japan showed three-month and six-month weakness as well. That’s too much weakness in the key job creation sector to think that this report is a positive signal.

Economy in Brief

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Euro Area PMIs

Euro Area PMIs

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U.S. Leading Indicators Fell Again

Philadelphia Fed Index Lowest Since 1990

U.S. Claims For Jobless Insurance Highest Since 1992

U.S. Claims For Jobless Insurance Highest Since 1992

UK's CBI Survey of Industry