Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117i.jpg" align="left" border="0" height="265" width="353">
The Bank of France Industry Sentiment Index is pointing much
lower. At 77.14 it has fallen in October from 86.08 the month before.
This compares to its 12-month average of 97. The index is weaker than
this level only about 2 percent of the time. The latest production and
production outlook indices are at bottom-scraping levels. Foreign
orders and new industry orders are both at their
lowest level since 1987. The hiring outlook is worse only about 20% of
the time.
It is no wonder that, armed with this survey result, French
Finance Minister Christine Lagarde warned on the outlook. All of Europe
is crumbling under the strain.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Bank of France Monthly INDUSTRY Survey: SUMMARY </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>12 MO</td>
<td>Since Jan-87</td>
<td>Percentile</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Oct-08</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Production-Latest Month</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-23.53</td>
<td>-20.09</td>
<td>8.2</td>
<td>-2</td>
<td>7</td>
<td>0.06</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Production Outlook</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-18</td>
<td>-9</td>
<td>0</td>
<td>4</td>
<td>15</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Demand</td>
</tr>
<tr class="grey2">
<td class="firstcol">Overall Order Books</td>
<td>-22.61</td>
<td>-6.61</td>
<td>-2.17</td>
<td>10</td>
<td>4</td>
<td>22.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Foreign Orders</td>
<td>-33.2</td>
<td>-28.65</td>
<td>-5.85</td>
<td>-3</td>
<td>8</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">New Orders</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-35.36</td>
<td>-32.17</td>
<td>-1.49</td>
<td>-3</td>
<td>8</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Stocks: Finished Goods</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>3.62</td>
<td>0.35</td>
<td>1.26</td>
<td>0</td>
<td>-2</td>
<td>80.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capacity Utilization</td>
<td>77.87</td>
<td>79.9</td>
<td>80.47</td>
<td>82</td>
<td>83</td>
<td>3.4%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Hiring</td>
</tr>
<tr class="grey2">
<td class="firstcol">Latest Month</td>
<td>-12.12</td>
<td>-6.62</td>
<td>-2.27</td>
<td>-3</td>
<td>-1</td>
<td>20.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Outlook</td>
<td>-16.19</td>
<td>-9.93</td>
<td>-4.2</td>
<td>-5</td>
<td>-4</td>
<td>22.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Industry Sentiment
Index</td>
<td>77.14</td>
<td>86.07</td>
<td>92.92</td>
<td>97</td>
<td>102</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
</body></html>

The Bank of France Industry Sentiment Index is pointing much lower. At 77.14 it has fallen in October from 86.08 the month before. This compares to its 12-month average of 97. The index is weaker than this level only about 2 percent [...]

French Prospects Drop Sharply

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117e.jpg" align="right" border="0" height="265" width="353">
The Euro Areatrade balance in September was -5,742 million
euros virtually unchanged fromthe -5,705 million euros in August. It
was, however, 8,549 million euros below the trade surplus of 2,807
million euros in September 2007. Since December 2007, the trade balance
in the Euro Area has, more often than not, been negative. The largest
deficit of 6,387 million euros was recorded in July of this year, as
can be seen in the first chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117f.jpg" align="right" border="0" height="265" width="353">
Both high oil prices and a rising euro led to the
deterioration in the trade balance. High oil prices accounted for much
of the increasing trade deficits with Russia and OPEC earlier this
year. With the recent decline in the price of oil, the trade balance
with OPEC has become less negative. The trade balances with Russia and
OPEC are shown in the second chart.
The rising euro has dampened exports to and encouraged imports
from trading partners, leading to smaller surpluses or larger deficits.
For example, the Euro Area's trade surplus with the United States has
fallen sharply over the last year and a half, as shown in the third
chart. 
 

The price of oil and the value of the euro declined
dramatically in recent months as the global financial crisis spread to
more countries and intensified. The daily price of oil and the daily
value of the euro are shown in the fourth chart. While the decline in
the price of oil should reduce the Euro Area's imports, the effect of
the decline in the euro is less predictable. Although it should be good
for exports, falling world demand could outweigh the positive effects
of the lower euro. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117g.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117h.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">EURO
AREA 15 &nbsp;TRADE BALANCES</th>
<th scope="col">Sep 08</th>
<th scope="col">Aug&nbsp; 08&nbsp;</th>
<th scope="col">Sep&nbsp; 07</th>
<th scope="col">M/M&nbsp; chg&nbsp;</th>
<th scope="col">Y/Y&nbsp; chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">TOTAL</td>
<td>-5742</td>
<td>-5705</td>
<td>2807</td>
<td>-36</td>
<td>-8549</td>
<td>20384</td>
<td>-13049</td>
<td>10744</td>
</tr>
<tr>
<td class="firstcol">With United States</td>
<td>4197</td>
<td>4160</td>
<td>5098</td>
<td>37</td>
<td>-901</td>
<td>63525</td>
<td>73914</td>
<td>65239</td>
</tr>
<tr class="odd">
<td class="firstcol">With Russia</td>
<td>-3729</td>
<td>-3429</td>
<td>-1891</td>
<td>-299</td>
<td>-1837</td>
<td>-30843</td>
<td>-40429</td>
<td>-32676</td>
</tr>
<tr>
<td class="firstcol">With OPEC</td>
<td>-5235</td>
<td>-6226</td>
<td>-2286</td>
<td>981</td>
<td>-2949</td>
<td>-33532</td>
<td>-48010</td>
<td>-36611</td>
</tr>
</tbody>
</table>

</body></html>

The Euro Areatrade balance in September was -5,742 million euros virtually unchanged fromthe -5,705 million euros in August. It was, however, 8,549 million euros below the trade surplus of 2,807 million euros in September 2007. Since [...]

Euro Area's September Trade Deficit of 5.7 Billion Euros Shows Little Change from August

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117c.jpg" width="353">
The November Empire State Index of manufacturing actor activity as reported by the Federal Reserve Bank of New York fell to -25.43 which, for the series&#39; short eight year history, was a record low. The decline was just modest versus the October level but it was down sharply from an average of -3.19 during the third quarter. A November reading of -26.1 for had been the Consensus expectation.
The figure is a diffusion index. Since the series&#39; inception in 2001 there has been a 58% correlation between its&#39; level and the three-month change in U.S. factory sector industrial production.
The index of pricing pressure also fell fell sharply to 20.48. The ten point decline from October was to the lowest level since December of 2003. Since inception in 2001 there has been an 81% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117d.jpg" width="353">
The indexes for new orders, shipments and unfilled orders each fell but the delivery times component ticked higher.
The employment index also fell during November dropping sharply to its lowest level since late 2001, negative for the fifth consecutive month. In the history of the NY employment index, there has been an 86% correlation between it and the three-month growth in overall factory sector employment.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The Empire State index of expected business conditions in six months fell to 13.02 which was its lowest since 2001. The subseries for shipments and employment jumped and the pricing series fell to its lowest level in twelve months.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November &#39;07&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>-25.43</td>
<td>-24.62</td>
<td>24.05</td>
<td>17.23</td>
<td>20.24</td>
<td>15.53</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>20.48</td>
<td>31.71</td>
<td>47.37</td>
<td>35.64</td>
<td>41.88</td>
<td>44.74</td>
</tr>
</tbody>
</table>


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The November Empire State Index of manufacturing actor activity as reported by the Federal Reserve Bank of New York fell to -25.43 which, for the series' short eight year history, was a record low. The decline was just modest versus [...]

U.S. Empire State Index Negative Again; Prices Paid The Weakest Since 2003

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117a.jpg" width="353">
Industrial production recovered 1.3% last month after its 3.8% plummet during September when production was depressed by Hurricanes Gustav &amp; Ike. September output was also held down by a strike at Boeing. Consensus expectations had been for no change in output last month.
During each of the last two months, the Fed indicated that industrial output fell 0.7%, excluding the hurricanes (which reduced mining output by 6.1%) and the strike.
Factory output recovered a modest 0.6% after falling 3.7% during September. Output of consumer goods recovered all of its 1.2% September drop but it was still off 2.8% y/y. Production of motor vehicles &amp; parts dropped 3.5% (-18.4% y/y) but, excluding autos, output was still depressed. It recovered a modest 0.8% following the 4.0% plunge during September. Nonetheless, a 4.3% decline in factory output year-to-year compares to 2.0% growth during all of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117b.jpg" width="353">
Industrial production in the high-tech sector is in a retrenchment mode. Output there fell 0.9% during October and that was the third consecutive monthly decline. And production was up just 9.9% y/y, the weakest gain since early 2005. Less both autos and high-tech, output inched up 0.2% last month following the 3.7% September plunge (-5.6% y/y).
The industry detail further reflected recession in the factory sector. Output of furniture &amp; related products fell 2.9% last month for a 16.3% y/y decline. That was the largest y/y drop since the recession of 1975. Machinery production also reflected recession and it was down 1.7% (-6.9% y/y). A somewhat brighter spot was the 0.6% increase in electrical equipment production which left it down just 0.9% year-to-year. Apparel output, in the &quot;recession-resistant&quot; nondurables sector fell just 1.8% (-2.5% y/y. Production of chemicals recovered 5.1% after the 8.3% plunge due to the hurricanes. Reflecting the aftermath of the hurricanes was a 9.9% jump in output of petroleum &amp; coal which recovered an 8.5% plummet.
Capacity utilization recovered to 76.4% which was still near its lowest level since 2003. Utilization in the factory sector of 73.8% also was near the lowest since 2003.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDUSTRIAL PRODUCTION (SA, %)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>1.3</td>
<td>-3.8</td>
<td>1.3</td>
<td>1.7</td>
<td>2.2</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.6</td>
<td>-3.7</td>
<td>0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Consumer Goods</td>
<td>1.4</td>
<td>-1.2</td>
<td>-2.8</td>
<td>1.7</td>
<td>0.3</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Business Equipment</td>
<td>-2.2</td>
<td>-7.1</td>
<td>-8.8</td>
<td>3.3</td>
<td>10.4</td>
<td>7.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Construction Supplies</td>
<td>-1.1</td>
<td>-1.9</td>
<td>-6.9</td>
<td>-2.5</td>
<td>2.2</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>0.4</td>
<td>2.5</td>
<td>-0.6</td>
<td>3.3</td>
<td>-0.6</td>
<td>2.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>76.4</td>
<td>75.5</td>
<td>80.8</td>
<td>81.0</td>
<td>80.9</td>
<td>80.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production recovered 1.3% last month after its 3.8% plummet during September when production was depressed by Hurricanes Gustav & Ike. September output was also held down by a strike at Boeing. Consensus expectations had [...]

U.S. Industrial Production Rebounds Modestly After Hurricanes

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117a.jpg" align="left" border="0" height="265" width="353">
Industrial production recovered 1.3% last month after its 3.8%
plummet during September when production was depressed by Hurricanes
Gustav &amp; Ike. September output was also held down by a strike
at Boeing. Consensus expectations had been for no change in output last
month.
During each of the last two months, the Fed indicated that
industrial output fell 0.7%, excluding the hurricanes (which reduced
mining output by 6.1%) and the strike.
Factory output recovered a modest 0.6% after falling 3.7%
during September. Output of consumer goods recovered all of its 1.2%
September drop but it was still off 2.8% y/y. Production of motor
vehicles &amp; parts dropped 3.5% (-18.4% y/y) but, excluding
autos, output was still depressed. It recovered a modest 0.8% following
the 4.0% plunge during September. Nonetheless, a 4.3% decline in
factory output year-to-year compares to 2.0% growth during all of last
year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117b.jpg" align="right" border="0" height="265" width="353">
Industrial production in the high-tech sector is in a
retrenchment mode. Output there fell 0.9% during October and that was
the third consecutive monthly decline. And production was up just 9.9%
y/y, the weakest gain since early 2005. Less both autos and high-tech,
output inched up 0.2% last month following the 3.7% September plunge
(-5.6% y/y).
The industry detail further reflected recession in the factory
sector. Output of furniture &amp; related products fell 2.9% last
month for a 16.3% y/y decline. That was the largest y/y drop since the
recession of 1975. Machinery production also reflected recession and it
was down 1.7% (-6.9% y/y). A somewhat brighter spot was the 0.6%
increase in electrical equipment production which left it down just
0.9% year-to-year. Apparel output, in the "recession-resistant"
nondurables sector fell just 1.8% (-2.5% y/y. Production of chemicals
recovered 5.1% after the 8.3% plunge due to the hurricanes. Reflecting
the aftermath of the hurricanes was a 9.9% jump in output of petroleum
&amp; coal which recovered an 8.5% plummet.
Capacity utilization recovered to 76.4% which was still near
its lowest level since 2003. Utilization in the factory sector of 73.8%
also was near the lowest since 2003.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>1.3</td>
<td>-3.8</td>
<td>1.3</td>
<td>1.7</td>
<td>2.2</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.6</td>
<td>-3.7</td>
<td>0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>1.4</td>
<td>-1.2</td>
<td>-2.8</td>
<td>1.7</td>
<td>0.3</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>-2.2</td>
<td>-7.1</td>
<td>-8.8</td>
<td>3.3</td>
<td>10.4</td>
<td>7.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-1.1</td>
<td>-1.9</td>
<td>-6.9</td>
<td>-2.5</td>
<td>2.2</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>0.4</td>
<td>2.5</td>
<td>-0.6</td>
<td>3.3</td>
<td>-0.6</td>
<td>2.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>76.4</td>
<td>75.5</td>
<td>80.8</td>
<td>81.0</td>
<td>80.9</td>
<td>80.2</td>
</tr>
</tbody>
</table>
U.S. Empire State Index Negative
Again; Prices Paid The Weakest Since 2003 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117c.jpg" align="left" border="0" height="265" width="353">
The November Empire State Index of manufacturing actor
activity as reported by the Federal Reserve Bank of New York fell to
-25.43 which, for the series' short eight year history, was a record
low. The decline was just modest versus the October level but it was
down sharply from an average of -3.19 during the third quarter. A
November reading of -26.1 for had been the Consensus expectation.
The figure is a diffusion index. Since the series' inception
in 2001 there has been a 58% correlation between its' level and the
three-month change in U.S. factory sector industrial production.
The index of pricing pressure also fell fell sharply to 20.48.
The ten point decline from October was to the lowest level since
December of 2003. Since inception in 2001 there has been an 81%
correlation between the index of prices paid and the three-month change
in the core intermediate materials PPI.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117d.jpg" align="right" border="0" height="265" width="353">
The indexes for new orders, shipments and unfilled orders each
fell but the delivery times component ticked higher.
The employment index also fell during November dropping
sharply to its lowest level since late 2001, negative for the fifth
consecutive month. In the history of the NY employment index, there has
been an 86% correlation between it and the three-month growth in
overall factory sector employment.
Like the Philadelphia Fed Index of General Business
Conditions, the Empire State Business Conditions Index reflects answers
to an independent survey question; it is not a weighted combination of
the components.
The Empire State index of expected business
conditions in six months fell to 13.02 which was its lowest
since 2001. The subseries for shipments and employment jumped and the
pricing series fell to its lowest level in twelve months.
The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State conducted by the Federal Reserve Bank
of New York. Participants from across the state in a variety of
industries respond to a questionnaire and report the change in a
variety of indicators from the previous month. Respondents also state
the likely direction of these same indicators six months ahead.
For more on the Empire State Manufacturing Survey, including
methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire
State Manufacturing Survey</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November '07&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>-25.43</td>
<td>-24.62</td>
<td>24.05</td>
<td>17.23</td>
<td>20.24</td>
<td>15.53</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>20.48</td>
<td>31.71</td>
<td>47.37</td>
<td>35.64</td>
<td>41.88</td>
<td>44.74</td>
</tr>
</tbody>
</table>
Euro Area's September TradeDeficit
of 5.7 Billion Euros Shows Little Change from August 
by <a href="/comment/Curley.html">Louise
Curley</a> November 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117e.jpg" align="right" border="0" height="265" width="353">
The Euro Areatrade balance in September was -5,742 million
euros virtually unchanged fromthe -5,705 million euros in August. It
was, however, 8,549 million euros below the trade surplus of 2,807
million euros in September 2007. Since December 2007, the trade balance
in the Euro Area has, more often than not, been negative. The largest
deficit of 6,387 million euros was recorded in July of this year, as
can be seen in the first chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117f.jpg" align="right" border="0" height="265" width="353">
Both high oil prices and a rising euro led to the
deterioration in the trade balance. High oil prices accounted for much
of the increasing trade deficits with Russia and OPEC earlier this
year. With the recent decline in the price of oil, the trade balance
with OPEC has become less negative. The trade balances with Russia and
OPEC are shown in the second chart.
The rising euro has dampened exports to and encouraged imports
from trading partners, leading to smaller surpluses or larger deficits.
For example, the Euro Area's trade surplus with the United States has
fallen sharply over the last year and a half, as shown in the third
chart. 
 

The price of oil and the value of the euro declined
dramatically in recent months as the global financial crisis spread to
more countries and intensified. The daily price of oil and the daily
value of the euro are shown in the fourth chart. While the decline in
the price of oil should reduce the Euro Area's imports, the effect of
the decline in the euro is less predictable. Although it should be good
for exports, falling world demand could outweigh the positive effects
of the lower euro. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117g.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117h.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">EURO
AREA 15 &nbsp;TRADE BALANCES</th>
<th scope="col">Sep 08</th>
<th scope="col">Aug&nbsp; 08&nbsp;</th>
<th scope="col">Sep&nbsp; 07</th>
<th scope="col">M/M&nbsp; chg&nbsp;</th>
<th scope="col">Y/Y&nbsp; chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">TOTAL</td>
<td>-5742</td>
<td>-5705</td>
<td>2807</td>
<td>-36</td>
<td>-8549</td>
<td>20384</td>
<td>-13049</td>
<td>10744</td>
</tr>
<tr>
<td class="firstcol">With United States</td>
<td>4197</td>
<td>4160</td>
<td>5098</td>
<td>37</td>
<td>-901</td>
<td>63525</td>
<td>73914</td>
<td>65239</td>
</tr>
<tr class="odd">
<td class="firstcol">With Russia</td>
<td>-3729</td>
<td>-3429</td>
<td>-1891</td>
<td>-299</td>
<td>-1837</td>
<td>-30843</td>
<td>-40429</td>
<td>-32676</td>
</tr>
<tr>
<td class="firstcol">With OPEC</td>
<td>-5235</td>
<td>-6226</td>
<td>-2286</td>
<td>981</td>
<td>-2949</td>
<td>-33532</td>
<td>-48010</td>
<td>-36611</td>
</tr>
</tbody>
</table>

French Prospects Drop Sharply 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117i.jpg" align="left" border="0" height="265" width="353">
The Bank of France Industry Sentiment Index is pointing much
lower. At 77.14 it has fallen in October from 86.08 the month before.
This compares to its 12-month average of 97. The index is weaker than
this level only about 2 percent of the time. The latest production and
production outlook indices are at bottom-scraping levels. Foreign
orders and new industry orders are both at their
lowest level since 1987. The hiring outlook is worse only about 20% of
the time.
It is no wonder that, armed with this survey result, French
Finance Minister Christine Lagarde warned on the outlook. All of Europe
is crumbling under the strain.

<table border="0" cellspacing="0" width="100%"> <colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Bank of
France Monthly INDUSTRY Survey: SUMMARY </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>12 MO</td>
<td>Since Jan-87</td>
<td>Percentile</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Oct-08</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Production-Latest
Month</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-23.53</td>
<td>-20.09</td>
<td>8.2</td>
<td>-2</td>
<td>7</td>
<td>0.06</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Production
Outlook</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-18</td>
<td>-9</td>
<td>0</td>
<td>4</td>
<td>15</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Demand</td>
</tr>
<tr class="grey2">
<td class="firstcol">Overall Order Books</td>
<td>-22.61</td>
<td>-6.61</td>
<td>-2.17</td>
<td>10</td>
<td>4</td>
<td>22.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Foreign Orders</td>
<td>-33.2</td>
<td>-28.65</td>
<td>-5.85</td>
<td>-3</td>
<td>8</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">New
Orders</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-35.36</td>
<td>-32.17</td>
<td>-1.49</td>
<td>-3</td>
<td>8</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Stocks:
Finished Goods</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>3.62</td>
<td>0.35</td>
<td>1.26</td>
<td>0</td>
<td>-2</td>
<td>80.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capacity Utilization</td>
<td>77.87</td>
<td>79.9</td>
<td>80.47</td>
<td>82</td>
<td>83</td>
<td>3.4%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Hiring</td>
</tr>
<tr class="grey2">
<td class="firstcol">Latest Month</td>
<td>-12.12</td>
<td>-6.62</td>
<td>-2.27</td>
<td>-3</td>
<td>-1</td>
<td>20.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Outlook</td>
<td>-16.19</td>
<td>-9.93</td>
<td>-4.2</td>
<td>-5</td>
<td>-4</td>
<td>22.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Industry Sentiment
Index</td>
<td>77.14</td>
<td>86.07</td>
<td>92.92</td>
<td>97</td>
<td>102</td>
<td>2.3%</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/081114i.jpg" width="353">
During September, total business inventories reversed all of their August rise and fell 0.2%. The decline was weaker than Consensus expectations for no change. More importantly, however, it could suggest that the addition to 3Q GDP growth of 0.6 percentage points from faster inventory accumulation waned as the quarter progressed. As of September the three-month growth in inventories fell to 4.4% (AR) from roughly 6.5% during the prior two quarters.
Normally, the suggestion of less of a contribution would be a sure thing. But these are not normal times given the drop in oil prices. Lower oil prices have dramatically reduced the value of inventories held by retailers, wholesalers and manufacturers.
Retail inventories rose 0.2% in September after a 0.7% August decline. The three-month growth rate of retail inventories picked up to 3.4% from 0.1% during 2Q. Accumulation of automobiles accounted for that increase rising at a 3.5% rate last quarter versus a decline of 5.7% during 2Q. Outside of autos, retail inventories rose 0.4% during September after a 0.2% August decline. The 3.3 rate of accumulation last quarter was roughly the same as during 2Q.
The industry detail in the retail sector indicated that higher apparel inventories contributed with a 3.1% rise last quarter versus 0.2% decumulation during 2Q. Furniture inventories rose at a 7.4% rate last quarter, about the same as during 2Q, and general merchandise inventories showed virtually zero growth after a 2.0% gain during 2Q. The fastest rate of accumulation came from building materials which ran up last quarter at a 13.1% rate after slight 2Q decumulation.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081114j.jpg" width="353">
Factory inventories declined 0.7% during September and the three-month rate of accumulation fell sharply to 2.2% from a 7.4% rate during 2Q.
Wholesale inventories slipped 0.1%, largely reflecting a 3.5% decline in petroleum inventories. For the quarter wholesale inventories rose at an 8.6% rate after a 13.4% 2Q increase.
Total business sales fell 2.0% during September, about as they did in August, led lower by the drop in oil prices.
Today&#39;s speech by Fed President Ben S. Bernanke titled Policy Coordination Among Central Banks can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20081214a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">usiness Inventories</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>5.5%</td>
<td>3.8%</td>
<td>5.9%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.2%</td>
<td>-0.7%</td>
<td>0.5%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Auto</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>2.2%</td>
<td>2.7%</td>
<td>4.9%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.1%</td>
<td>0.6%</td>
<td>9.7%</td>
<td>5.5%</td>
<td>8.3%</td>
<td>7.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.7%</td>
<td>0.7%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>6.4%</td>
<td>8.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

During September, total business inventories reversed all of their August rise and fell 0.2%. The decline was weaker than Consensus expectations for no change. More importantly, however, it could suggest that the addition to 3Q GDP [...]

U.S. Business Inventory Accumulation Waned

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081114g.jpg" width="353">
The University of Michigan&#39;s reading of consumer sentiment for the middle of this month remained near the low posted during October. The index ticked up to 57.9 from 57.6. The latest level was near the lowest for the series since this past June which in turn was the lowest since early-1980. The latest figure was higher than Consensus expectations for a reading of 56.0.
During the last ten years there has been a 55% correlation between the level of sentiment and the three-month change in real consumer spending.
The mid-month current conditions index improved modestly to 61.4 but it remained down by one-third from last year. The view of current personal finances ticked up m/m but remained down by more than one-third from last year. The index of buying conditions for large household goods recouped about one-third of the October decline but remained off 30.9% y/y and near the lowest since 1980.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081114h.jpg" width="353">
The expectations component of consumer sentiment was down. A 2.3% m/m decline this month came on top of the 15.2% October drop. The figures were, however, slightly above the lows reached this past Spring. Expectations for business conditions during the next years fell slightly as did expectations for conditions during the next year, but they both remained up from their recent lows. The expected change in personal finances ticked higher by 0.9% m/m and the reading was up 10% from the Spring low.
The opinion of government policy, which apparently influences economic expectations, also ticked up from October (-35.4% y/y). Only a slightly improved seven percent of respondents thought that a good job was being done by government while 54% thought a poor job was being done. That was near the highest percentage on record.
Recent economic weakness and lower oil prices caused inflation expectations to fall. The mean expected rate of inflation during the next year plummeted to 2.9% from 4.3% last month. It was as high as 7.0% in May. The expected inflation rate during the next five years ticked up to 3.3%, near the lowest level since 2003.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Mid-November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">November 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">Consumer Sentiment</td>
<td>57.9</td>
<td>57.6</td>
<td>70.3</td>
<td>-23.9%</td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>61.4</td>
<td>58.4</td>
<td>75.0</td>
<td>-32.9</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>55.7</td>
<td>57.0</td>
<td>67.2</td>
<td>-15.9</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
</body>
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The University of Michigan's reading of consumer sentiment for the middle of this month remained near the low posted during October. The index ticked up to 57.9 from 57.6. The latest level was near the lowest for the series since this [...]

Michigan Reading of Consumer Sentiment Remained Glum

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081114e.jpg" width="353">
Total U.S. import prices fell another 4.7% last month following the little-revised 3.3% September drop. Consensus expectations had been for a 4.4% drop during October.
Petroleum prices cratered another 16.7% and this month imported crude petroleum prices are down another 19% m/m.
During October import prices less petroleum fell 0.9%, the same as during September. During the last three months prices fell at an 8.4% 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 a 66% (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. The correlation is a reduced 47% against a broader basket of currencies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081114e.jpg" width="353">
Capital goods import prices fell 0.2% after two months of no change. On a three-month basis prices fell at a 0.9% annual rate after a 5% to 6% rate of increase earlier this year. Less the lower prices of computers, capital goods prices ticked 0.1% lower but three month growth was just 1.1% after 9% growth earlier this year. Prices of computers, peripherals &amp; accessories were down at a 6.8% rate during the last three months.
Finally, prices for nonauto consumer goods ticked up 0.1% and the 0.4% rate of increase during the last three months is down from the 5.9% peak earlier this year. Durable goods prices overall rose at a 1.2% rate during the last three months versus a 6.2% rate of increase earlier this year.
Total export prices fell another 1.9% due to an 8.7% (+5.7% y/y) decline in agricultural prices which followed a 0.1% September uptick. Nonagricultural export prices slumped another 1.2% (+4.0% y/y), the third 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">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">Import - All Commodities</td>
<td>-4.7</td>
<td>-3.3</td>
<td>6.7</td>
<td>4.2</td>
<td>4.9</td>
<td>7.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-16.7</td>
<td>-10.2</td>
<td>13.1</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>-0.9</td>
<td>-0.9</td>
<td>5.0</td>
<td>2.7</td>
<td>1.7</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>-1.9</td>
<td>-0.8</td>
<td>4.2</td>
<td>4.9</td>
<td>3.6</td>
<td>3.2</td>
</tr>
</tbody>
</table>


</html>

Total U.S. import prices fell another 4.7% last month following the little-revised 3.3% September drop. Consensus expectations had been for a 4.4% drop during October. Petroleum prices cratered another 16.7% and this month imported [...]

U.S. Import Prices Fell Again; Oil & Nonoil Prices Lower

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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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.

260625Z4.jpg

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

260625Z5.jpg

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

260625Z6.jpg

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

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Charts of the Week: Calmer Waters, New Currents

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.

260623.jpg

**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.

S&P PMIs in June Firm

260622E.jpg

Danish consumer confidence rose to -14 in June from -19.8 in May, a small pickup for a still-negative net reading. In June, the reading has a standing at its 7.9 percentile on data back to 1995. So, this confidence headline still has a lower 8% reading overall.

On the month, all seven component readings improved compared to May, although the environmental assessments were little changed across four components. As for the environment, the most changed reading is the improved favorability of the time to save, a metric that is not always a positive category.

As for the seven categories, the readings on the financial situation, general economy and the unemployment rate all improved month-to-month, while the inflation metrics both backed down sharply.

These changes show the financial situation and general economy gauges all at rankings in the lower 20th percentiles, with the outlook for the next 12 months having a standing in their lower 10th percentiles and lower for both the financial situation and the general economy.

Consumer prices, despite a strong monthly step-back, have a 90.2 percentile standing for prices over the past 12 months and a 94.3 percentile standing for the CPI over the next 12 months. Despite some let-up in concerns about unemployment, the unemployment gauge has an 85.1 percentile standing, still substantially elevated.

The environmental readings are less negative, starting with the ‘favorability of the time to purchase,’ a bit weaker month-to-month but improved on balance over two months. The June reading is slightly better than its 12-month average but still has a ranking only in its 21st percentile. The favorability of the time to purchase over the next 12 months is a tick weaker month-to-month and about a point worse than its 12-month average. Its June ranking is in its lower 10th percentile of its historic queue. The favorability of the time to save has a stronger ranking, but this is a more equivocal category. It is improved month-to-month and only slightly stronger over two months The June reading is stronger than its 12-month average, with a ranking in its 47.6 percentile—improved compared to previous categories but still worse than its historic median since 1995 (the median occurs at a ranking of 50%). The ‘general financial situation of households now’ ticked lower in June from May but is stronger on balance over two months. The June reading is above its 12-month average and has a 59.2 percentile standing—above its median.

On balance, Denmark shows improving confidence, progressing slowly but on the right path. There is a sharp downward adjustment in inflation, especially over the next 12 months, despite global conditions. Still, the ranking of the confidence metrics are uniformly weak.

Economy in Brief

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French Prospects Drop Sharply

Euro Area's September Trade Deficit of 5.7 Billion Euros Shows Little Change from August

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U.S. Import Prices Fell Again; Oil & Nonoil Prices Lower