Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081114d.jpg" align="left" border="0" height="265" width="353">
The decline in US, UK and EMU GDP growth is all occurring at
once. Yr/Yr GDP growth is in a slowing down mode with the slowing at a
rather severe pace. We can see that the degree of slowdown and the low
pace of growth are both comparable to the decelerations in 2000-2001.
At that time the decelerating came from a higher pace of growth to
start with. 
 

While the US is being made the &#8216;poster boy of the downturn&#8217; in
terms of being the cause of this recession, the data show us that the
persisting sharp slowing in growth began in EMU as its currency rose
above level that growth in that region could tolerate.. The decline in
the UK growth rate came later and has been synchronous with the decline
in the US growth but UK growth has fallen harder- from a higher initial
pace. 
 

The US suffered worse in the earlier cycle, around the year
2000, as its growth dropped from an above European pace to a below
European pace at the trough. But the US economy subsequently had a
recovery phase that was quite robust pushing US growth above the growth
rates in EMU and the UK from 2003 &#8211; 2006. Then US growth began to get
erratic. But the ongoing cyclical weakness in the US did not start
again until nearly four quarters after EMU&#8217;s GDP began to make its
ongoing turn for the worse at the of 2006. EMU Yr/Yr growth peaked late
in 2006 at 3.3% and has since then been steadily eroding. 
 

Right now the UK, EMU and the US (Japan, and many others, too)
are engulfed n a synchronous downturn. And it has begun to create
tensions. 
 

In the US, the automakers are in trouble as unit auto sales
slipped to just above a 10mu unit rate last month an extremely low pace
that implies crushing overhead costs from fixed business charges. .
With a huge number of jobs linked to the auto sector, the US is
concerned that GM, Ford and Chrysler are in such straights. And with a
bailout plan that has been used to help financial firms there is now a
clamoring in the US to help the auto makers. But in Europe auto sales
are weak too; there sales have fallen for six months running. The
European Commission warned it would contest any U.S. bailout for the
sector that broke state aid rules. Insurers in Europe have withdrawn
credit protection for auto suppliers that protected them in the event
of bankruptcies of the US auto makers. Asian and European automakers
are feeling the pinch but still are not in the desperate circumstances
that US car makers face. 
 
The EU Threat 

"We are in the process of analyzing the &lt;US&gt;
plan. The plan has not yet been presented yet. Of course, if it is
illegal state aid, we will act at a WTO level," Commission President
Jose Manuel Barroso has said. So the lines are drawn. The risk is
protectionism and its ability to create a deep downward spiral since it
is hard to imagine that the US would let a European protest stand in
the way of supporting the automakers. And if the US did that the
Europeans surely would gain some WTO sanctioned recourse to retaliate
and that is how the mess gets out of hand. 
 

So yes, economies are weak. Financial sectors are strained.
Central banks are cutting rates. There have been some assistance plans.
In the US where import penetration is the most freely allowed, the US
automakers are feeling the pinch. As US lawmakers argue about remedies
for the &#8216;Big Three&#8217; European&#8217;s plan a surprise attack of their own
through WTO. If you think the only risk here is the economic downturn
and the financial sector, you are fooling yourself. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Euro-Area
and main G-10 country GDP Results</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Quarter over quarter-Saar</td>
<td colspan="4">Year/Year</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>Q1-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>Q1-08</td>
<td>Q4-07</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-15</td>
<td>-0.8%</td>
<td>-0.7%</td>
<td>2.7%</td>
<td>0.7%</td>
<td>1.4%</td>
<td>2.1%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.6%</td>
<td>-1.1%</td>
<td>1.6%</td>
<td>0.6%</td>
<td>1.2%</td>
<td>2.0%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-2.1%</td>
<td>-1.7%</td>
<td>5.7%</td>
<td>0.8%</td>
<td>1.9%</td>
<td>2.7%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-2.0%</td>
<td>-1.8%</td>
<td>2.1%</td>
<td>-0.9%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">The Netherlands</td>
<td>0.1%</td>
<td>0.0%</td>
<td>1.3%</td>
<td>1.6%</td>
<td>2.9%</td>
<td>3.7%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>-2.1%</td>
<td>0.0%</td>
<td>1.1%</td>
<td>0.3%</td>
<td>1.5%</td>
<td>2.4%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">US</td>
<td>-0.3%</td>
<td>2.8%</td>
<td>0.9%</td>
<td>0.8%</td>
<td>2.1%</td>
<td>2.5%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
</body></html>

The decline in US, UK and EMU GDP growth is all occurring at once. Yr/Yr GDP growth is in a slowing down mode with the slowing at a rather severe pace. We can see that the degree of slowdown and the low pace of growth are both [...]

Europe's GDP and the Auto Sector Woes

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081114a.jpg" width="353">
The Commerce Department reported this morning that retail sales dropped 2.8% last month after little revised declines during September and August. The decline exceeded Consensus expectations for a 2.0% drop. Lower vehicle sales, and lower prices for the fuel used to power them, accounted for most of last month&#39;s sales&#39; decline. But there was notable weakness elsewhere. The retail sales data are contained in Haver&#39;s USECON database.
Motor vehicle &amp; parts sales dropped 5.5% after the 4.8% plunge during September. As a result of these outsized declines, sales last month were roughly one quarter the year-ago level. The drop mirrors the 34.2% y/y drop reported last week in unit sales of motor vehicles.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081114b.jpg" width="353">
Sales at gasoline service stations dropped 12.7% month-to-month (+0.4% y/y) as gasoline prices fell 17.6% m/m to an average of $3.05 per gallon. Another downward leg is in store for November retail sales given that gasoline prices already have fallen 27% from their October average to $2.22.
Retail sales less autos and gasoline are on a steep downward trend as well. These sales fell 0.5% which marked the third consecutive monthly decline. For nonauto sales alone, the 3.8% three-month decline is the largest in the series&#39; history which extends back to the 1960s.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081114c.jpg" width="353">
Sales at furniture and electronics &amp; appliance stores fared the worst over the latest three months. They dropped 2.4% during October (-9.7% y/y) and were off 7.2% over the last three months alone. Furniture store sales fell 2.5% during October (-13.5% y/y), for their fourth consecutive monthly drop, and sales of electronics &amp; appliance stores were off by 2.3% (-5.6% y/y). They&#39;re down by 6.6% over the last three months.
Apparel store sales hardly did much better, down 1.4% last month (-4.0% y/y) and they were off 5.7% during the last three. Sales at general merchandise stores have done little better. With their 0.4% decline last month (+2.3% y/y) they posted a 1.7% three-month drop.
And people aren&#39;t dining out much either. Restaurant &amp; drinking place sales did rise 0.3% last month, but the y/y gain of 3.9% compares to 5.2% growth last year and 6.0%+ growth during the prior three years. They&#39;re curtailing spending even as they eat at home. Grocery store sales during the last three months rose just 0.4% after a 4.8% gain during all of last year. Finally, consumers restrained their on-line shopping. Sales of nonstore retailers (mostly electronic shopping) fell 1.8% last month +1.4% y/y) and sales were off 4.2% during the last three months.
Sales of building materials and garden equipment fell 0.4% (-1.5% y/y), their fourth down month in the last five.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">October</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a> (%)</td>
<td>-2.8</td>
<td>-1.3</td>
<td>-0.7</td>
<td>-4.1</td>
<td>4.1</td>
<td>5.8</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-2.2</td>
<td>-0.5</td>
<td>-1.1</td>
<td>1.0</td>
<td>4.5</td>
<td>6.8</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>-0.5</td>
<td>-0.6</td>
<td>-0.8</td>
<td>1.0</td>
<td>4.1</td>
<td>6.2</td>
<td>6.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The Commerce Department reported this morning that retail sales dropped 2.8% last month after little revised declines during September and August. The decline exceeded Consensus expectations for a 2.0% drop. Lower vehicle sales, and [...]

U.S. Retail Sales Drop With Gasoline Prices, Vehicle & Most Other Sales

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113g.jpg" align="left" border="0" height="265" width="353">
German GDP drops -German GDP drops by 2.1%
saar in 2008-Q3. As has been the case in Germany for sometime, the
Bundesbank continues to blame the thrust of events on outside forces.
Germany's Bundesbank said that the global growth slowdown was to blame
for Germany slipping into recession this year, after gross domestic
product data on Thursday showed that its economy shrank by 0.5 percent
in the third quarter of the year. 

Germany as Victim: "National production in
Germany has significantly fallen in the summer ... compared to the
previous quarter. The broad global economic slowdown is now
increasingly making its presence felt," the German central bank said in
a statement. 

Germany as free rider - There is no
disputing these facts but the Bundesbank does not point out that
Germany has an economy geared to exporting and one that therefore is
set to do better when the world economy does better and to do worse
when the world economy does worse. Blaming the world economy in this
circumstance is like the caboose blaming the engine for going too slow.
This arrangement is one that Germany has sought and has prospered under
in the past. Now that it is not working, it is not Germany&#8217;s fault.
Right. 

Germany as braggart laggard - In the
chart at the top of this report notice that the RED German GDP line
usually exceeds the blue line. The red line is for all of GDP. The blue
line is for German domestic demand alone. Germany has been pulled ahead
by the global economy consistently since 2003. I don&#8217;t understand all
this complaining and the ongoing assertion of German superiority we
have been hearing from the Bundesbank, from the German finance ministry
and others. It has been about growth, the euro and German banks -
everything. 

Giving or taking? No one forced German
banks to buy and hold the bad assets they have accumulated. Yet they
did that and suffered after the Bundesbank assured us that German banks
had no such problem. Germany is an intrinsically slow growing economy
with a high rate of unemployment. Its choice has been to accept that
and to seek growth through exports instead of though domestic means. At
a time that the US has had a big payments imbalance, and developing
countries were pursuing strategies of export-led growth, Germany would
have contributed to the world economy more by putting its unemployed to
work and by exporting less. 

Global summit and blame: We are preparing for a global summit
where countries will sit across the table from one another and listen
to the pot calling the kettle black. Be sure that there will be a lot
of blaming and evading of blame at this G-20 meeting. But be clear that
as the center country in a currency system like this, if countries
choose a lower rate VS the dollar, they get it, and the US gets the
resulting deficit from trade. 

What to fix: The currency monetary system is not set up to
encourage currencies to trade at their proper parities or to remedy
balance of payments imbalances when they arise. Breton Woods collapsed
because of disputes arising over payments imbalances and the US
tendency to grow faster than its trading partners (&#8230;and amass deficits
and lose gold reserves). And now some 35 years later these same root
differences are the nemesis of the Bretton Woods&#8217; successor system of
fluctuating exchange rates. It&#8217;s not a matter of &#8216;is Germany better&#8217;
but rather &#8216;is it doing its share?&#8217; Is it contributing to the world
order or is it adding to the burden or the excess? That is the real
question. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">German GDP
</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Consumption</td>
<td colspan="2">Capital Formation</td>
<td>&nbsp;</td>
<td></td>
<td>Domestic</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Total</td>
<td>Housing</td>
<td>Exports</td>
<td>Imports</td>
<td>Demand</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">%
change Q/Q; X-M is Q/Q
change in Blns of euros</td>
</tr>
<tr class="even">
<td class="firstcol">Q3-08</td>
<td>-2.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
</tr>
<tr>
<td class="firstcol">Q2-08</td>
<td>-1.7%</td>
<td>-2.6%</td>
<td>1.2%</td>
<td>-2.0%</td>
<td>-13.5%</td>
<td>-0.6%</td>
<td>-5.3%</td>
<td>-4.1%</td>
</tr>
<tr>
<td class="firstcol">Q1-08</td>
<td>5.7%</td>
<td>-1.4%</td>
<td>4.6%</td>
<td>6.7%</td>
<td>24.6%</td>
<td>8.9%</td>
<td>13.2%</td>
<td>6.7%</td>
</tr>
<tr>
<td class="firstcol">Q4-07</td>
<td>1.4%</td>
<td>-0.8%</td>
<td>0.2%</td>
<td>16.0%</td>
<td>1.6%</td>
<td>5.2%</td>
<td>-1.2%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">%
change Yr/Yr; X-M is
Yr/Yr change in Gap in Blns of euros</td>
</tr>
<tr class="even">
<td class="firstcol">Q3-08</td>
<td>0.8%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
</tr>
<tr>
<td class="firstcol">Q2-08</td>
<td>1.9%</td>
<td>-0.9%</td>
<td>1.9%</td>
<td>6.5%</td>
<td>3.0%</td>
<td>5.1%</td>
<td>4.2%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Q1-08</td>
<td>2.7%</td>
<td>0.5%</td>
<td>1.6%</td>
<td>8.8%</td>
<td>3.0%</td>
<td>6.7%</td>
<td>5.1%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Q4-07</td>
<td>1.7%</td>
<td>-1.3%</td>
<td>2.0%</td>
<td>8.3%</td>
<td>-2.7%</td>
<td>3.2%</td>
<td>2.7%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
</body></html>

German GDP drops -German GDP drops by 2.1% saar in 2008-Q3. As has been the case in Germany for sometime, the Bundesbank continues to blame the thrust of events on outside forces. Germany's Bundesbank said that the global growth [...]

German GDP Drops in Q3

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113e.jpg" width="353">
To start Fiscal Year 2009, the U.S. government&#39;s budget deficit for October reflected the duel of effects from a U.S. recession and the War in Iraq.The monthly deficit jumped to $237.2B, more than four times last year&#39;s deficit of $56.8B. October&#39;s figure also was more than double Consensus projections for a deficit of $99.2B.
Many forecasts for the budget deficit during all of this fiscal year are near $700B. If realized, that would swell the deficit to about 5% of GDP following last year&#39;s roughly 3.2% and FY07&#39;s marginal 1.2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113f.jpg" width="353">
Net revenues during October suffered greatly and fell 7.5% from last year. Higher unemployment took the steam out of individual income tax receipts and they fell 9.7% from last October. Lingering payouts of the Government&#39;s &quot;stimulus&quot; checks reduced revenues somewhat. However the big negative factor would have been that payroll employment, and thus tax receipts, fell roughly 1.0% y/y. Suffering even more were corporate tax receipts which nearly evaporated with huge stated losses. Growth in unemployment and social insurance taxes grew a reduced 3.7%, the least since 2004.
U.S. government outlays nearly doubled versus last November lifted mostly by a jump in the &quot;commerce &amp; housing credit&quot;. Defense spending (19% of total outlays) rose an accelerated 17.9%. The gain does not reflect the full cost of the resources devoted to Iraq &amp; Afghanistan since much of the spending would have occurred anyway. Medicare expenditures (12% of outlays) rose by nearly one-half but that followed an October decline Social security spending (21% of outlays) rose 6% after 6.8% growth last year. Net interest payments increased 4.3% y/y.
The Government&#39;s financial data are available in Haver&#39;s USECON database, with extensive detail available in the specialized GOVFIN.

<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/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$237.2</td>
<td>$45.7B</td>
<td>-$56.8B (10/07)</td>
<td>-$454.8B</td>
<td>-$161.5B</td>
<td>-$248.2B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$164.8B</td>
<td>$272.2B</td>
<td>-7.5%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$402.0B</td>
<td>$226.5B</td>
<td>71.1%</td>
<td>9.1%</td>
<td>2.8%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

To start Fiscal Year 2009, the U.S. government's budget deficit for October reflected the duel of effects from a U.S. recession and the War in Iraq.The monthly deficit jumped to $237.2B, more than four times last year's deficit of [...]

Recession & War Swell U.S. Budget Deficit

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113d.jpg" width="353">
The weakening job market pushed initial claims for jobless insurance above 500,000 for the first time since they were briefly there; late during the recession of 2001 and just after the 9/11 terrorist attacks. At 516,000, claims rose last week from an upwardly revised reading of 484,000 during the prior period. Expectations had been for 479,000 claims. The four-week moving average of initial claims rose to this cycle&#39;s high of 491,000 (48.0% y/y).
The largest increases in initial claims for the week ending Nov. 1 were in Ohio (+3,885), Michigan (+2,619), Pennsylvania (+2,155), Wisconsin (+2,119), and Arizona (+1,692), while the largest decreases were in California (-3,603), Florida (-2,327), Nevada (-943), South Carolina (-824), and Indiana (-621).
Continuing claims for unemployment insurance during the week of November 1 rose another 65,000 after the prior week&#39;s 111,000 upward spurt. The four-week average of continuing claims rose to 3,794,000, this cycle&#39;s high and the highest since 1983. 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 2.9%. The Commerce Department indicated that the highest insured unemployment rates in the week ending October 25 were in Puerto Rico (5.1 percent), Oregon (3.7), Nevada (3.6), Michigan (3.5), California (3.4), New Jersey (3.3), South Carolina (3.3), Pennsylvania (3.2), Arkansas (3.1), Alaska (3.0), and North Carolina (3.0).

<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">11/08/08</th>
<th scope="col">11/01/08</th>
<th scope="col">10/25/08</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>516</td>
<td>&nbsp;484</td>
<td>485</td>
<td>52.7%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,897</td>
<td>3,832</td>
<td>50.6%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
</html>

The weakening job market pushed initial claims for jobless insurance above 500,000 for the first time since they were briefly there; late during the recession of 2001 and just after the 9/11 terrorist attacks. At 516,000, claims rose [...]

U.S. Claims For Unemployment Insurance Top 500,000

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113a.jpg" width="353">
The U.S. foreign trade deficit narrowed in September somewhat more than expected. At $56.5B versus an unrevised $59.1B during August, the deficit was its smallest since last October. So far this year the monthly trade deficit has averaged $59.4B, still deeper than the $58.5B averaged during the first nine months of 2007.
Adjusted for price inflation the August trade deficit in goods improved to $39.0B from $40.9B in July. Year-to-date the real deficit has narrowed by $10.0B versus 2007 to an average $46.1B as real exports surged 10.3% and real imports fell 1.2%. A narrower trade deficit was estimated to have added 1.1 percentage points to real GDP growth last quarter following a 2.9 point addition during 2Q.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113b.jpg" width="353">
Lower oil prices helped imports shrink 5.6% after a 2.2% decline during August. Imports of all energy-related products fell 21.4% (+31.9% y/y) as the value of crude petroleum imports fell by more than one quarter. That drop owed to a decline in the average price per barrel of crude oil to $107.58 (+57.2% y/y) from a high of $124.7 in July. The developing U.S. recession prompted a 15.1% decline (-16.2% y/y) in the daily quantity of crude petroleum imports.
Recessionary forces were additionally evident in the 3.6% decline in the value of nonpetroleum imports. Measured in chained 2000 dollars nonoil imports fell 2.7% (-3.7% y/y), pulled lower by a 7.8% decline (-0.9% y/y) in real imports of nonauto consumer goods. The chained dollar value of imports of automotive vehicles &amp; parts also fell by another 3.7% (-17.9% y/y). Real imports of nonauto capital goods reversed their August decline and rose 1.5% (0.9% y/y).
Services imports reversed past strength and fell 3.4% (+6.7% y/y). Travel imports fell by 2.7% with the developing economic weakness (+4.0% y/y) while passenger fares fell 3.9% (+5.8% y/y). Both of these y/y increases are down sharply, from 12% for travel and from 20% for passenger fares, as of early this year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113c.jpg" width="353">
As economies abroad weakened exports fell by 6.0% (+8.8% y/y) during September. The decline reflected an 8.3% drop in goods exports. Adjusted for prices, chained dollar goods exports fell 7.8% (+2.3% y/y) led lower by a 9.6% (-0.8% y/y) drop in capital goods. Exports of autos &amp; parts fell 1.4% (-2.0% y/y) after their 13.9% August plunge while real exports of nonauto consumer goods fell 3.3% (+4.7% y/y) on the heels of their 5.9% August drop. Adding to this weakness was a 10.8% (-5.4% y/y) drop in real exports of foods, feeds &amp; beverages.
Nominal exports of services ticked 0.1% lower (+9.3% y/y) as travel exports fell 2.3% (+16.7% y/y). Passenger fares slipped 0.6% (+31.0% y/y). Exports of &quot;other&quot; private services have deteriorated markedly but ticked up 1.6% during September. Year-to-year growth fell to 4.7% after an 18.2% gain during all of last year.
The U.S. trade deficit in goods with China deepened to a record $27.8B and during the first nine months of this year averaged $21.7B versus $20.8B during the first nine months of 2007. Exports to China fell 18.2% last month (-5.1% y/y) after 18.2% growth during all of last year and imports rose 3.9% (12.5% y/y). The trade deficit with Japan deepened to $5.6B but during the first nine months of this year it is down to average of $6.3B from an average $6.8B during the first nine months of last year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</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">U.S. Trade Deficit</td>
<td>$56.5B</td>
<td>$59.1B</td>
<td>$55.5B (9/07)</td>
<td>$700.3</td>
<td>$753.3</td>
<td>$711.6B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>-6.0%</td>
<td>-1.7%</td>
<td>8.8%</td>
<td>13.0%</td>
<td>13.5%</td>
<td>10.6%</td>
</tr>
<tr>
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>-5.6%</td>
<td>-2.2%</td>
<td>6.9%</td>
<td>6.1%</td>
<td>10.8%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-15.7%</td>
<td>-13.9%</td>
<td>31.5%</td>
<td>9.4%</td>
<td>20.1%</td>
<td>39.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>-3.6%</td>
<td>1.0%</td>
<td>1.6%</td>
<td>4.8%</td>
<td>9.1%</td>
<td>10.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. foreign trade deficit narrowed in September somewhat more than expected. At $56.5B versus an unrevised $59.1B during August, the deficit was its smallest since last October. So far this year the monthly trade deficit has [...]

U.S. Trade Deficit Shrank With Lower Oil Prices & Recession

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113a.jpg" align="left" border="0" height="265" width="353">
The U.S. foreign trade deficit narrowed in September somewhat
more than expected. At $56.5B versus an unrevised $59.1B during August,
the deficit was its smallest since last October. So far this year the
monthly trade deficit has averaged $59.4B, still deeper than the $58.5B
averaged during the first nine months of 2007.
Adjusted for price inflation the August trade deficit in goods
improved to $39.0B from $40.9B in July. Year-to-date the real deficit
has narrowed by $10.0B versus 2007 to an average $46.1B as real exports
surged 10.3% and real imports fell 1.2%. A narrower trade deficit was
estimated to have added 1.1 percentage points to real GDP growth last
quarter following a 2.9 point addition during 2Q.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113b.jpg" align="right" border="0" height="265" width="353">
Lower oil prices helped imports shrink 5.6% after a 2.2%
decline during August. Imports of all energy-related products fell
21.4% (+31.9% y/y) as the value of crude petroleum imports fell by more
than one quarter. That drop owed to a decline in the average price per
barrel of crude oil to $107.58 (+57.2% y/y) from a high of $124.7 in
July. The developing U.S. recession prompted a 15.1% decline (-16.2%
y/y) in the daily quantity of crude petroleum imports.
Recessionary forces were additionally evident in the 3.6%
decline in the value of nonpetroleum imports. Measured in chained 2000
dollars nonoil imports fell 2.7% (-3.7% y/y), pulled lower by a 7.8%
decline (-0.9% y/y) in real imports of nonauto consumer goods. The
chained dollar value of imports of automotive vehicles &amp; parts
also fell by another 3.7% (-17.9% y/y). Real imports of nonauto capital
goods reversed their August decline and rose 1.5% (0.9% y/y).
Services imports reversed past strength and fell 3.4% (+6.7%
y/y). Travel imports fell by 2.7% with the developing economic weakness
(+4.0% y/y) while passenger fares fell 3.9% (+5.8% y/y). Both of these
y/y increases are down sharply, from 12% for travel and from 20% for
passenger fares, as of early this year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113c.jpg" align="left" border="0" height="265" width="353">
As economies abroad weakened exports fell by 6.0% (+8.8% y/y)
during September. The decline reflected an 8.3% drop in goods exports.
Adjusted for prices, chained dollar goods exports fell 7.8% (+2.3% y/y)
led lower by a 9.6% (-0.8% y/y) drop in capital goods. Exports of autos
&amp; parts fell 1.4% (-2.0% y/y) after their 13.9% August plunge
while real exports of nonauto consumer goods fell 3.3% (+4.7% y/y) on
the heels of their 5.9% August drop. Adding to this weakness was a
10.8% (-5.4% y/y) drop in real exports of foods, feeds &amp;
beverages.
Nominal exports of services ticked 0.1% lower (+9.3% y/y) as
travel exports fell 2.3% (+16.7% y/y). Passenger fares slipped 0.6%
(+31.0% y/y). Exports of "other" private services have deteriorated
markedly but ticked up 1.6% during September. Year-to-year growth fell
to 4.7% after an 18.2% gain during all of last year.
The U.S. trade deficit in goods with China deepened to a
record $27.8B and during the first nine months of this year averaged
$21.7B versus $20.8B during the first nine months of 2007. Exports to
China fell 18.2% last month (-5.1% y/y) after 18.2% growth during all
of last year and imports rose 3.9% (12.5% y/y). The trade deficit with
Japan deepened to $5.6B but during the first nine months of this year
it is down to average of $6.3B from an average $6.8B during the first
nine months of last year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign
Trade&nbsp;</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">U.S. Trade Deficit</td>
<td>$56.5B</td>
<td>$59.1B</td>
<td>$55.5B (9/07)</td>
<td>$700.3</td>
<td>$753.3</td>
<td>$711.6B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp;
Services</td>
<td>-6.0%</td>
<td>-1.7%</td>
<td>8.8%</td>
<td>13.0%</td>
<td>13.5%</td>
<td>10.6%</td>
</tr>
<tr>
<td class="firstcol">Imports - Goods &amp;
Services</td>
<td>-5.6%</td>
<td>-2.2%</td>
<td>6.9%</td>
<td>6.1%</td>
<td>10.8%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-15.7%</td>
<td>-13.9%</td>
<td>31.5%</td>
<td>9.4%</td>
<td>20.1%</td>
<td>39.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>-3.6%</td>
<td>1.0%</td>
<td>1.6%</td>
<td>4.8%</td>
<td>9.1%</td>
<td>10.3%</td>
</tr>
</tbody>
</table>
Recession &amp; War Swell U.S.
Budget Deficit 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 13, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113e.jpg" align="left" border="0" height="265" width="353">
To start Fiscal Year 2009, the U.S. government's budget
deficit for October reflected the duel of effects from a U.S. recession
and the War in Iraq.The monthly deficit jumped to $237.2B, more than
four times last year's deficit of $56.8B. October's figure also was
more than double Consensus projections for a deficit of $99.2B.
Many forecasts for the budget deficit during all of this
fiscal year are near $700B. If realized, that would swell the deficit
to about 5% of GDP following last year's roughly 3.2% and FY07's
marginal 1.2%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113f.jpg" align="right" border="0" height="265" width="353">
Net revenues during October suffered greatly and fell 7.5%
from last year. Higher unemployment took the steam out of individual
income tax receipts and they fell 9.7% from last October. Lingering
payouts of the Government's "stimulus" checks reduced revenues
somewhat. However the big negative factor would have been that payroll
employment, and thus tax receipts, fell roughly 1.0% y/y. Suffering
even more were corporate tax receipts which nearly evaporated with huge
stated losses. Growth in unemployment and social insurance taxes grew a
reduced 3.7%, the least since 2004.
U.S. government outlays nearly doubled versus last November
lifted mostly by a jump in the "commerce &amp; housing credit".
Defense spending (19% of total outlays) rose an accelerated 17.9%. The
gain does not reflect the full cost of the resources devoted to Iraq
&amp; Afghanistan since much of the spending would have occurred
anyway. Medicare expenditures (12% of outlays) rose by nearly one-half
but that followed an October decline Social security spending (21% of
outlays) rose 6% after 6.8% growth last year. Net interest payments
increased 4.3% y/y.
The Government's financial data are available in Haver's USECON
database, with extensive detail available in the specialized GOVFIN.

<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/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> &nbsp;</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$237.2</td>
<td>$45.7B</td>
<td>-$56.8B 
(10/07)</td>
<td>-$454.8B</td>
<td>-$161.5B</td>
<td>-$248.2B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$164.8B</td>
<td>$272.2B</td>
<td>-7.5%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$402.0B</td>
<td>$226.5B</td>
<td>71.1%</td>
<td>9.1%</td>
<td>2.8%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
U.S. Claims For Unemployment
Insurance Top 500,000 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 13, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113d.jpg" align="left" border="0" height="265" width="353">
The weakening job market pushed initial claims for jobless
insurance above 500,000 for the first time since they were briefly
there; late during the recession of 2001 and just after the 9/11
terrorist attacks. At 516,000, claims rose last week from an upwardly
revised reading of 484,000 during the prior period. Expectations had
been for 479,000 claims. The four-week moving average of initial claims
rose to this cycle's high of 491,000 (48.0% y/y).
The largest increases in initial claims for the week ending
Nov. 1 were in Ohio (+3,885), Michigan (+2,619), Pennsylvania (+2,155),
Wisconsin (+2,119), and Arizona (+1,692), while the largest decreases
were in California (-3,603), Florida (-2,327), Nevada (-943), South
Carolina (-824), and Indiana (-621).
Continuing claims for unemployment insurance during the week
of November 1 rose another 65,000 after the prior week's 111,000 upward
spurt. The four-week average of continuing claims rose to 3,794,000,
this cycle's high and the highest since 1983. Continuing claims provide
some indication of workers' 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
2.9%. The Commerce Department indicated that the highest insured
unemployment rates in the week ending October 25 were in Puerto Rico
(5.1 percent), Oregon (3.7), Nevada (3.6), Michigan (3.5), California
(3.4), New Jersey (3.3), South Carolina (3.3), Pennsylvania (3.2),
Arkansas (3.1), Alaska (3.0), and North Carolina (3.0).

<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">11/08/08</th>
<th scope="col">11/01/08</th>
<th scope="col">10/25/08</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>516</td>
<td>&nbsp;484</td>
<td>485</td>
<td>52.7%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,897</td>
<td>3,832</td>
<td>50.6%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
German GDP Drops in Q3 by <a href="/comment/Brusca.html">Robert
Brusca</a> November 13, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081113g.jpg" align="left" border="0" height="265" width="353">
German GDP drops -German GDP drops by 2.1%
saar in 2008-Q3. As has been the case in Germany for sometime, the
Bundesbank continues to blame the thrust of events on outside forces.
Germany's Bundesbank said that the global growth slowdown was to blame
for Germany slipping into recession this year, after gross domestic
product data on Thursday showed that its economy shrank by 0.5 percent
in the third quarter of the year. 

Germany as Victim: "National production in
Germany has significantly fallen in the summer ... compared to the
previous quarter. The broad global economic slowdown is now
increasingly making its presence felt," the German central bank said in
a statement. 

Germany as free rider - There is no
disputing these facts but the Bundesbank does not point out that
Germany has an economy geared to exporting and one that therefore is
set to do better when the world economy does better and to do worse
when the world economy does worse. Blaming the world economy in this
circumstance is like the caboose blaming the engine for going too slow.
This arrangement is one that Germany has sought and has prospered under
in the past. Now that it is not working, it is not Germany&#8217;s fault.
Right. 

Germany as braggart laggard - In the
chart at the top of this report notice that the RED German GDP line
usually exceeds the blue line. The red line is for all of GDP. The blue
line is for German domestic demand alone. Germany has been pulled ahead
by the global economy consistently since 2003. I don&#8217;t understand all
this complaining and the ongoing assertion of German superiority we
have been hearing from the Bundesbank, from the German finance ministry
and others. It has been about growth, the euro and German banks -
everything. 

Giving or taking? No one forced German
banks to buy and hold the bad assets they have accumulated. Yet they
did that and suffered after the Bundesbank assured us that German banks
had no such problem. Germany is an intrinsically slow growing economy
with a high rate of unemployment. Its choice has been to accept that
and to seek growth through exports instead of though domestic means. At
a time that the US has had a big payments imbalance, and developing
countries were pursuing strategies of export-led growth, Germany would
have contributed to the world economy more by putting its unemployed to
work and by exporting less. 

Global summit and blame: We are preparing for a global summit
where countries will sit across the table from one another and listen
to the pot calling the kettle black. Be sure that there will be a lot
of blaming and evading of blame at this G-20 meeting. But be clear that
as the center country in a currency system like this, if countries
choose a lower rate VS the dollar, they get it, and the US gets the
resulting deficit from trade. 

What to fix: The currency monetary system is not set up to
encourage currencies to trade at their proper parities or to remedy
balance of payments imbalances when they arise. Breton Woods collapsed
because of disputes arising over payments imbalances and the US
tendency to grow faster than its trading partners (&#8230;and amass deficits
and lose gold reserves). And now some 35 years later these same root
differences are the nemesis of the Bretton Woods&#8217; successor system of
fluctuating exchange rates. It&#8217;s not a matter of &#8216;is Germany better&#8217;
but rather &#8216;is it doing its share?&#8217; Is it contributing to the world
order or is it adding to the burden or the excess? That is the real
question. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">German GDP
</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Consumption</td>
<td colspan="2">Capital Formation</td>
<td>&nbsp;</td>
<td></td>
<td>Domestic</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Total</td>
<td>Housing</td>
<td>Exports</td>
<td>Imports</td>
<td>Demand</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">%
change Q/Q; X-M is Q/Q
change in Blns of euros</td>
</tr>
<tr class="even">
<td class="firstcol">Q3-08</td>
<td>-2.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
</tr>
<tr>
<td class="firstcol">Q2-08</td>
<td>-1.7%</td>
<td>-2.6%</td>
<td>1.2%</td>
<td>-2.0%</td>
<td>-13.5%</td>
<td>-0.6%</td>
<td>-5.3%</td>
<td>-4.1%</td>
</tr>
<tr>
<td class="firstcol">Q1-08</td>
<td>5.7%</td>
<td>-1.4%</td>
<td>4.6%</td>
<td>6.7%</td>
<td>24.6%</td>
<td>8.9%</td>
<td>13.2%</td>
<td>6.7%</td>
</tr>
<tr>
<td class="firstcol">Q4-07</td>
<td>1.4%</td>
<td>-0.8%</td>
<td>0.2%</td>
<td>16.0%</td>
<td>1.6%</td>
<td>5.2%</td>
<td>-1.2%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">%
change Yr/Yr; X-M is
Yr/Yr change in Gap in Blns of euros</td>
</tr>
<tr class="even">
<td class="firstcol">Q3-08</td>
<td>0.8%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
</tr>
<tr>
<td class="firstcol">Q2-08</td>
<td>1.9%</td>
<td>-0.9%</td>
<td>1.9%</td>
<td>6.5%</td>
<td>3.0%</td>
<td>5.1%</td>
<td>4.2%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Q1-08</td>
<td>2.7%</td>
<td>0.5%</td>
<td>1.6%</td>
<td>8.8%</td>
<td>3.0%</td>
<td>6.7%</td>
<td>5.1%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Q4-07</td>
<td>1.7%</td>
<td>-1.3%</td>
<td>2.0%</td>
<td>8.3%</td>
<td>-2.7%</td>
<td>3.2%</td>
<td>2.7%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
</body></html>

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.

260625Z1.jpg

**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.

260625Z2.jpg

**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.

260625Z3.jpg

**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

260624F59.jpg

260624G59.jpg

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.

260624H59.jpg

260624I59.jpg

- 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

260624A.jpg

260624B.jpg

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.

260624C.jpg

260624D.jpg

- 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

260623E.jpg

**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

Jump to:

Europe's GDP and the Auto Sector Woes

U.S. Retail Sales Drop With Gasoline Prices, Vehicle & Most Other Sales

U.S. Retail Sales Drop With Gasoline Prices, Vehicle & Most Other Sales

German GDP Drops in Q3

Recession & War Swell U.S. Budget Deficit

U.S. Claims For Unemployment Insurance Top 500,000

U.S. Trade Deficit Shrank With Lower Oil Prices & Recession

U.S. Trade Deficit Shrank With Lower Oil Prices & Recession