Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303a.jpg" align="left" border="0" height="265" width="353">
For the second month in the last three, the Institute of
Supply Management (ISM) reported that its Composite Index of
Manufacturing Sector Activity was below the breakeven level of 50. The
m/m decline to 48.3 was right in line with Consensus expectations for a
drop to 48.4. Data points above 50 indicate growth in factory sector
activity.
Last month's composite reading was down from 50.7 in January
and 48.4 in December. The three month average level of 49.1 was its
lowest since early 2003.
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three month growth in
factory sector industrial production.
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by being constructed using all
of the absolute positive changes in activity added to one half of the
no change in activity measures.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303b.jpg" align="right" border="0" height="265" width="353">
Sharp declines in each of the five component series, excepting
new orders, contributed to last month's decline in the composite index.
Production fell 4.5 points and reversed most of its January recovery.
The inventory component fell 3.7 points and reversed all of its January
rise while the vendor deliveries component fell 2.7 points to the
lowest level since 2003.
The employment index fell a sharp 1.1 points, repeating most
of the January decline, to the lowest level since 2003. During the last
twenty years there has been a 67% correlation between the level of the
ISM employment Index and the three month growth in factory sector
employment.
The new orders index fell a more moderate 0.4 points although
domestic orders may have held up. The index of new export orders fell a
sharp 2.5 points to 56.0, back to the average level during 4Q07 and
3Q07.
The prices paid index continued firm. A modest 0.5 point
downtick during February followed very strong gains in three of the
prior four months. That left the index at its highest level since
August 2006. During the last twenty years there has been a 77%
correlation between the price index and the three month change in the
PPI for intermediate goods.
The Benefits of Systematic Monetary Policy
is today's speech by Philadelphia Fed President Charles I. Plosser and
it can be found <a href="http://www.philadelphiafed.org/publicaffairs/speeches/plosser/2008/03-03-08_natl-assn-business-economics.cfm">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February '07</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">Composite Index</td>
<td>48.3</td>
<td>50.7</td>
<td>51.5</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>49.1</td>
<td>49.5</td>
<td>55.4</td>
<td>54.3</td>
<td>53.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>46.0</td>
<td>47.1</td>
<td>50.9</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>75.5</td>
<td>76.0</td>
<td>59.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Fell.
All Categories Down 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 3, 2008



<div align="left"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303c.jpg" align="left" border="0" height="265" width="353">

The value of construction put in place fell 1.7% during
January, roughly repeating its little revised 1.3% December downdraft.
The latest decline was the forth consecutive monthly drop but the last
two were by far the largest of the bunch. Activity during the opening
month of 2008 was 1.7% below the 4Q07 average. A 0.7% decline had been
generally expected in January construction activity.
For the first month since late 2006, the value of
nonresidential building activity fell. Building in the lodging area
fell 3.0% (+55.1 y/y) and roughly repeated its downwardly revised 2.7%
December decline. Office construction rose a modest 0.7% (7.1% y/y) but
a previously reported large December gain was revised away. Multi-unit
retail (shopping malls) fell 2.3% (+1.6% y/y).
Growth in the nonresidential area continued with a 2.1% (21.8%
y/y) rise in education. Spending in the factory sector ticked up 0.1%
(31.7 y/y) after little revised, very strong gains during the prior
four months. Spending in the transportation area fell 0.8% (+15.2% y/y)
and spending in the health care industry fell 1.0% (+4.8% y/y).
Private construction in total fell another 2.2%, pulled down
further by a 3.0% drop in residential building, the largest since last
October. Construction activity on new single family units tumbled 5.2%
(-32.1% y/y), about the rate of decline as during the prior five
months. Building activity on multi-family units also fell a sharp 1.7%
(-18.6% y/y) while spending on improvements ticked down 0.2% (+5.2%
y/y).
Housing and the "R" Word from the Federal
Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20080201/cover.pdf">here</a>
.
During the last twenty years there has been an 84% correlation
between the q/q change in the value of residential building and its
contribution to growth in real GDP.
Public construction spending fell slightly, by 0.2%.
Construction on highways &amp; streets fell 1.3% (+0.9% y/y) for
the third consecutive monthly decline. The value of construction on
highways &amp; streets is nearly one third of the value of total
public construction spending.
These more detailed categories represent the Census Bureau&#8217;s
reclassification of construction activity into end-use groups. Finer
detail is available for many of the categories; for instance,
commercial construction is shown for Automotive sales and parking
facilities, drugstores, building supply stores, and both commercial
warehouses and mini-storage facilities. Note that start dates vary for
some seasonally adjusted line items in 2000 and 2002 and that
constant-dollar data are no longer computed.
</div>


<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/@E9/@E907/@E907.HTM">Construction</a></th>
<th scope="col">January</th>
<th scope="col">December</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>-1.7%</td>
<td>-1.3%</td>
<td>-3.3%</td>
<td>-2.7%</td>
<td>5.6%</td>
<td>10.7%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-2.2%</td>
<td>-1.3%</td>
<td>-6.4%</td>
<td>-6.8%</td>
<td>4.7%</td>
<td>12.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-3.0%</td>
<td>-2.6%</td>
<td>-19.7%</td>
<td>-18.1%</td>
<td>0.5%</td>
<td>13.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.2%</td>
<td>0.4%</td>
<td>17.3%</td>
<td>18.0%</td>
<td>15.2%</td>
<td>7.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.2%</td>
<td>-1.6%</td>
<td>6.6%</td>
<td>12.3%</td>
<td>9.2%</td>
<td>6.2%</td>
</tr>
</tbody>
</table>
Canadian GDP Report
FuelsSpeculation of a Rate Cut 
by <a href="/comment/Curley.html">Louise
Curley</a> March 3, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303d.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303e.jpg" border="0" height="265" width="312">

Growth in the Canadian economy slowed in the fourth quarter of
2007 to 0.79% at an annual rate, the slowest rate of increase since the
second quarter of 2003 as can be seen in the first chart. For the year
as a whole, GDP increased 2.65% compared with 2.76% in 2006.
In addition to the traditional quarterly series of GDP, Canada
also maintains a monthly series that is less comprehensive than the
quarterly series. The two series are compared in the second chart. The
monthly series has been aggregated to a quarterly basis for comparison.
The monthly series shows that the rate of growth deteriorated
sharply in the months of the final quarter. GDP in December was .67%
below November, as can be seen in the third chart.
The strength of the Canadian dollar which has affected exports
adversely and has encouraged imports has accounted for some of the slow
down in the Canadian economy. Last Friday, Canada announced a deficit
on its current account of $513 million Canadian, the first since the
second quarter of 1999.
As a result of the slow growth, there is growing speculation
that when the central bank meets tomorrow it will lower its target rate
of 4%. The target interest rate of Canada is shown in the fourth chart
with that of the United States.
 <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303f.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303g.jpg" border="0" height="265" width="312"> 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">CANADA&nbsp;</th>
<th scope="col">Q4 07</th>
<th scope="col">Q3 07&nbsp;</th>
<th scope="col">Q2 07&nbsp;</th>
<th scope="col">Q1 07&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP Quarterly Series
(Percent Change at Annual Rate)</td>
<td>0.79</td>
<td>2.98</td>
<td>3.76</td>
<td>4.01</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP Monthly Series
(Percent Change at Annual Rate)&nbsp;</td>
<td>0.80</td>
<td>2.25</td>
<td>3.41</td>
<td>4.23</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;Current
Account (Million C$)</td>
<td>-513</td>
<td>1335</td>
<td>6400</td>
<td>6960</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Dec&nbsp; 07</td>
<td>Nov 07&nbsp;</td>
<td>Oct 07&nbsp;</td>
<td>Sep 07&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP Monthly (Percent
Change M/M)</td>
<td>-0.67</td>
<td>0.10</td>
<td>0.31</td>
<td>-0.02</td>
</tr>
</tbody>
</table>
Inflation Continues to be too
Strong in EMU in February 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 3, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303h.jpg" align="left" border="0" height="265" width="353">
The new FLASH estimate of EMU inflation stands at 3.2%
year/year in February 2008 the same pace as in January.
Germany's own headline rate rose by 0.2% in February and
that is the rate implied by the new 3.2% for all of EMU (no month/month
rate is released but one can be calculated form the released data but
with less overall precision). Even
with flaring oil prices headline inflation is not accelerating over the
sequential monthly rates. AT 2.5% the 3-month pace is much better than
the 4.3% over six months and 3.2% year/year but still above the ECB&#8217;s
desired ceiling of 2%. German inflation data which are up-to-date show
the same dampening of inflation trends. Italy does not. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Trends
in EMU HICP; Flash Index</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% month/month</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EMU-13</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.5%</td>
<td> 4.3%</td>
<td> 3.2%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.5%</td>
<td> 2.7%</td>
<td> 2.3%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>-0.5%</td>
<td>0.1%</td>
<td>2.0%</td>
<td> 4.8%</td>
<td> 3.7%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>-0.2%</td>
<td>0.9%</td>
<td> 2.4%</td>
<td>0.4%</td>
<td> 2.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol"> HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>1.1%</td>
<td> 3.9%</td>
<td> 2.9%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.4%</td>
<td> 5.9%</td>
<td> 4.6%</td>
<td> 3.2%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.6%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>4.2%</td>
<td> 4.7%</td>
<td> 3.1%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.5%</td>
<td> 6.5%</td>
<td> 5.8%</td>
<td> 4.4%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td colspan="2" class="firstcol">
Core:xFE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan="6" class="firstcol">Blue shaded
area data trail by one
month</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
UK MFG Sector Makes a Small Bounce 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 3, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303i.jpg" align="left" border="0" height="265" width="353">
The UK MFG sector rebounded slightly in February although it
remains a weak reading for the sector at 52.26. Readings above 50
indicated expansion on this measure. The MFG measure stands in the 61st
percentile of its range, a moderately expansionary reading. Construction and services sector are
still relatively weaker in their respective ranges but are as yet only
available through January, not February.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">MFG,
Construction and Services PMI CIPS/NTC </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="2">Monthly readings</td>
<td colspan="3">Change over:</td>
<td>percentile</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>3MO</td>
<td>6MO</td>
<td>12MO</td>
<td>of range</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG</td>
<td>51.26</td>
<td>50.69</td>
<td>-2.02</td>
<td>-4.75</td>
<td>-3.09</td>
<td>61.8</td>
</tr>
<tr class="grey2">
<td class="firstcol">Construction</td>
<td>#N/A</td>
<td>53.87</td>
<td>-3.54</td>
<td>-7.95</td>
<td>-4.03</td>
<td>34.3</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services*</td>
<td>#N/A</td>
<td>52.46</td>
<td>-0.62</td>
<td>-4.56</td>
<td>-6.76</td>
<td>35.8</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">MFG range
since January
1992; Construction Since April 1997 Services Since July 1995.</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">*Services
&amp;
construction changes and ranking: Jan-08 which is the most current date.</td>
</tr>
</tbody>
</table>
</body></html>

For the second month in the last three, the Institute of Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity was below the breakeven level of 50. The m/m decline to 48.3 was right in line with [...]

ISM Index Factory Sector Falls Below 50: Indicates Contraction

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229h.jpg" align="left" border="0" height="265" width="353">
February has seen a now dollar low VS the Euro, a new high for
gold and for other precious metals, as well as repeated new highs for
oil prices. In January EMU prices are up by 0.3% with inflation
accelerating in its sequential growth rates: up at a 4.8% pace for
three months, at a 4.2% pace for six months, at a 3.2% pace for twelve
months compared to a 1.9% pace over the previous twelve months. Even so
the inflation picture is brightening up in Europe.
Despite ongoing pressures from oil and now food stuffs, the
core inflation rate (that ECB goes out of its way to say it does not
target) is behaving in a very positive fashion.
In the last three months the core rate decelerated from a
monthly rate of 0.3% in Nov to 0.2% in Dec to a 0.1% rise in January.
Its three month rate of change is below its six month pace. Moreover,
Germany, the largest EMU economy, shows that three month of core
inflation decelerated while Spain and Italy show a lower three month
than six month pace.
Apart from that sort of technical trend stuff, there is the
gap between the headline rate and the core. That gap has widened
sequentially for EMU and for each of the countries in the table below.
Yet despite this greater pull of headline inflation pressures the
three-month pace of inflation has improved in three of four of the
countries as well as for EMU overall.
If headline inflation does not make core inflation worse, then
when the headline stops taking its pounding from the special interest
inflation categories, headline inflation will settle down rapidly and
gravitate toward the core. So far there is very little evidence of a
pass-through of inflation in Europe. But as long as the
headline-to-core rate of inflation gap remains, expect the ECB to pound
the market with anti-inflation rhetoric. At the moment it is concerned
with the ongoing round of wage negotiations.
The ECB still may not be happy with these developments. Surely
it is still wary of the strong increases in commodity prices and the
strong growth in European money and credit aggregates. But German,
Italian and Spanish inflation rates have come lower. Only France in
this group has some mild inflation that may be taking hold. Ultimately
this will undermine the ability of the French president and his finance
minister to carp at the ECB. To the extent that France has tried to go
its own way to and to pressure the ECB to support stronger growth, the
French fiscal and domestic policy stance reveals inflation trends that
remind us why the ECB should NOT be hostage to or influenced by
national desires. Politicians usually have one objective: stronger
growth. If it can be accompanied by low inflation, that&#8217;s fine. But for
politicians it is not a goal. Yet they are the first to complain when
inflation gets stoked and central banks must hike rates in response.
Only in Germany and a handful of other countries, do we find
governments that persistently understand the importance of keeping
inflation down and that do not try to jawbone the central bank. The ECB
has its priorities straight: protect against inflation first and resist
pressure. Now all we need is to get France&#8217;s Sarkozy to see the merits
in this approach and maybe the ECB can be even more effective. There is
nothing like having someone of influence chewing away at your
independence to undermine it. What we see amid this potential inflation
bubble is how well the ECB has acquitted itself so far despite the
pitfalls and the pressures&#8230; We can be optimistic for the time being but
the game is still engaged; it&#8217;s too soon to declare a victory.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Trends in HICP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.7%</td>
<td> 4.8%</td>
<td> 4.2%</td>
<td> 3.2%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.5%</td>
<td> 2.7%</td>
<td> 2.3%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-0.5%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>2.0%</td>
<td> 4.8%</td>
<td> 3.7%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-0.2%</td>
<td>0.9%</td>
<td>-0.1%</td>
<td> 2.4%</td>
<td>0.4%</td>
<td> 2.5%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol"> HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>1.0%</td>
<td> 4.3%</td>
<td> 3.7%</td>
<td> 3.0%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.7%</td>
<td> 5.9%</td>
<td> 4.6%</td>
<td> 3.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>3.5%</td>
<td> 3.9%</td>
<td> 3.1%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.2%</td>
<td>0.5%</td>
<td>0.8%</td>
<td> 6.5%</td>
<td> 5.8%</td>
<td> 4.4%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol"> Core: xFE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>1.9%</td>
<td>2.0%</td>
<td> 2.1%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.3%</td>
<td> 3.5%</td>
<td> 3.1%</td>
<td> 2.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>1.9%</td>
<td> 2.7%</td>
<td> 2.5%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.3%</td>
<td> 4.1%</td>
<td> 3.2%</td>
<td>2.7%</td>
</tr>
</tbody>
</table>
</body></html>

February has seen a now dollar low VS the Euro, a new high for gold and for other precious metals, as well as repeated new highs for oil prices. In January EMU prices are up by 0.3% with inflation accelerating in its sequential growth [...]

Is the ECB Winning or Losing on Inflation?

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229g.jpg" align="left" border="0" height="265" width="353">
EU sentiment indexes are also lower year over year. In
February the EU/EMU and all large countries' sentiment indexes fell
except in Germany where a small bounce was recorded. Conditions in the
UK (an EU member not an EMU member) deteriorated very sharply. Among
EMU members Italy&#8217;s recent slide is the worst.
In percentile terms the ESI (EU sentiment index) stands in the
62nd percentile of its range, about 12
percentage points above its mid-point. That is still a solid
expansionary reading. But, it has been slipping for eight straight
months, although no single ESI component has fallen for that many
months straight. The last two months show the percentage drops in the
ESI have accelerated.
Services has the highest absolute net balance reading among
ESI components but it is the relative lowest in terms of its percentile
standing in its range (residing in the 31st
percentile of range a very weak showing). Interestingly, despite
concerns about the strong euro, the weakest sector is seemingly, the
most trade insulated, services. However, there is another way to look
at this since the service sector while having some items for which
demand is relatively inelastic, like home services, probably also has a
large degree of consumer discretionary items and it contains tourism,
the latter is probably quite exchange rate sensitive. The demise of
this sector may be reflecting the drop in consumer confidence which, in
its 55th percentile, is weaker than any of the
economic sectors, except services. Moreover, services are very weak in
the UK, 8th percentile, and in Spain, 1.8
percentile. Tourism is important to Spain and the high euro could be
taking a toll there. That is also true of Italy where the services
sector is in the bottom 15 percent of its range.
Note none of the country specific ESI range readings are shown
in the table below. 
Retail confidence is relatively strong near the 80th
percentile, but is at the 57th percentile in the
UK, 50th percentile in Germany, and the 28th
percentile in Spain. Oddly with all the weakness signaled in the
various Italian reports the EMU retail index scores Italy in the 86th
percentile for retailing.
The retailing results stands in marked contrast to consumer
confidence which stands in the 38th percentile
for Italy. Spain&#8217;s rating for the consumer is also in the 37th
percentile. The UK stands in the 54th percentile
and France in the 52nd percentile. German consumer responses are in the
in the 67th percentile, relatively elevated for
this group.
Industry is holding up partly due to investment demand in and
around the euro area. Industry&#8217;s strongest component is export orders
in the 84th percentile of their range. And while
production expectations are at the 67th
percentile and order volume is in the 82nd
percentile the production trend expected is only in its 61st
percentile. This sector&#8217;s strong reading may be living on borrowed time.
Employment expectations have taken a hit in the services
sector. Expectations for employment grade out in the 44th
percentile and current employment also grades out below 50 at the 44th
percentile. Interestingly, retail and industrial sector employment
expectations are around the 90th percentiles of
their respective ranges.
In this cycle the ESI has taken the largest drop in the UK -20
points followed by Italy at -16.5 and Spain at -14. The EMU index is
off by 11.0 points while France and Germany are off by 7.5 and 7.9
points respectively.

<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="12" scope="col"> EU Sectors and Country Level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">EU</td>
<td>Feb 
08</td>
<td>Jan 
08</td>
<td>Dec 
07</td>
<td>Nov 
07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-Sq 
w/ 
Overall</td>
</tr>
<tr class="odd">
<td class="firstcol">Overall</td>
<td>100.2</td>
<td>103.3</td>
<td>105.8</td>
<td>106.6</td>
<td>62.9</td>
<td>107</td>
<td>116</td>
<td>73</td>
<td>43</td>
<td>100</td>
<td>1.00</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial</td>
<td>0</td>
<td>2</td>
<td>2</td>
<td>3</td>
<td>79.4</td>
<td>53</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td>0.88</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confidence</td>
<td>-11</td>
<td>-10</td>
<td>-7</td>
<td>-7</td>
<td>55.2</td>
<td>111</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-10</td>
<td>0.83</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail</td>
<td>1</td>
<td>-3</td>
<td>2</td>
<td>4</td>
<td>81.5</td>
<td>22</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td>0.46</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>-7</td>
<td>-4</td>
<td>-3</td>
<td>-1</td>
<td>77.8</td>
<td>45</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-17</td>
<td>0.43</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>6</td>
<td>11</td>
<td>15</td>
<td>14</td>
<td>31.6</td>
<td>106</td>
<td>32</td>
<td>-6</td>
<td>38</td>
<td>17</td>
<td>0.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>% m/m</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU</td>
<td>-1.6%</td>
<td>-1.6%</td>
<td>-0.7%</td>
<td>-1.2%</td>
<td>61.5</td>
<td>102</td>
<td>117</td>
<td>73</td>
<td>44</td>
<td>99</td>
<td>0.95</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.6%</td>
<td>-1.9%</td>
<td>-0.3%</td>
<td>0.2%</td>
<td>59.8</td>
<td>77</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>99</td>
<td>0.66</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>-1.6%</td>
<td>-0.5%</td>
<td>71.6</td>
<td>74</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-3.7%</td>
<td>-1.3%</td>
<td>2.3%</td>
<td>-4.2%</td>
<td>47.2</td>
<td>146</td>
<td>121</td>
<td>71</td>
<td>50</td>
<td>100</td>
<td>0.78</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-3.4%</td>
<td>-1.6%</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>40.5</td>
<td>188</td>
<td>118</td>
<td>67</td>
<td>51</td>
<td>100</td>
<td>0.65</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: UK</td>
<td>-8.7%</td>
<td>-2.2%</td>
<td>-1.0%</td>
<td>-4.5%</td>
<td>52.3</td>
<td>156</td>
<td>118</td>
<td>69</td>
<td>50</td>
<td>100</td>
<td>0.42</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Since 1990
except Services (Oct
1996) 208 -Count&nbsp;&nbsp;&nbsp; Services: 126-Count</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Sentiment is
an index, sector
readings are net balance diffusion measures</td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body></html>

EU sentiment indexes are also lower year over year. In February the EU/EMU and all large countries' sentiment indexes fell except in Germany where a small bounce was recorded. Conditions in the UK (an EU member not an EMU member) [...]

EU Indexes Point Lower - Across the Board

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229e.jpg" width="353">
The Chicago Purchasing Manager&#39;s Association reported that its February business barometer dropped hard from January to a reading of 44.5, the lowest level since late 2001. The latest figure was quite a bit lower than Consensus expectations.
During the last ten years there has been a 66% correlation between the index and the three-month change in US factory sector industrial production. There has been an 85% correlation between the Chicago figure and the national ISM index (due for release on Monday) and that is the highest correlation of all the regional series with the Nat&#39;l index.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229f.jpg" width="353">
The new orders component of the index did rise slightly m/m, but most other component series fell quite hard. The employment index fell to its lowest since 2002 while the production series fell that sharply as well.
The prices paid index backed off just a bit from the January level which was a recent high, but the level remained at its highest since May 2006.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@S2/@S203/@S203.htm">Chicago PMI</a></th>
<th scope="col">&nbsp;February</th>
<th scope="col">&nbsp; January</th>
<th scope="col">Feb. &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Chicago PMI Business Barometer Index</td>
<td>44.5</td>
<td>51.5</td>
<td>49.4</td>
<td>54.4</td>
<td>56.8</td>
<td>60.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The Chicago Purchasing Manager's Association reported that its February business barometer dropped hard from January to a reading of 44.5, the lowest level since late 2001. The latest figure was quite a bit lower than Consensus [...]

Chicago Purchasing Managers Barometer Lowest Since 2001

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229c.jpg" width="353">
For all of February the University of Michigan&#39;s consumer sentiment index fell just 9.7% to a level of 70.8. That decline was a little better than the 11.2% plunge from January reported at mid-month. It also was better than the reading of 70 that had been generally expected. Nevertheless, it was the largest m/m decline since 2005 and it was to the lowest level since early 1992.
Opinions about government policy continued down sharply. The 11.5% m/m (-21.6% y/y) decline was deeper than initially indicated and dropped the measure of opinions to the lowest level since 1993. Just 9% of those surveyed indicated that they thought government was doing a good job and 40% indicated that a bad job was being done.
The index of expected business conditions during the next year improved very slightly from the preliminary reading but it still fell a hard 8.4% m/m, to its lowest level since just after the recession of 1990. Expectations for business conditions during the next five years fell 5.7% (-15.3% y/y) while expectations for personal finances reversed all of a January increase and fell 3.4%.
The current conditions index fell a bit more than initially indicated. The 11.2% m/m drop was to the lowest level since 1992. Current conditions for buying large household goods continued down 15.8% m/m to the lowest level since 1992. The view of current personal finances also fell 4.1% (-21.0% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229d.jpg" width="353">
Expectations for inflation during the next twelve months fell just slightly to 3.9% but that still was up from a 3.6% expectation in February &#39;07. For the next five to ten years expectations held steady at 3.4%.
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.
The Reaction of Consumer Spending and Debt to Tax Rebates &#150; Evidence from Consumer Credit Data from the Federal Reserve Bank of Chicago can be found <a href="http:/www.chicagofed.org/publications/workingpapers/wp2007_10.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><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">Feb (Final)</th>
<th scope="col">Feb (Prelim.</th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Feb&nbsp; 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>70.8</td>
<td>69.6</td>
<td>78.4</td>
<td>75.5</td>
<td>-22.5% </td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">Current Conditions</td>
<td>83.8</td>
<td>85.4</td>
<td>94.4</td>
<td>91.0</td>
<td>-21.5%</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>62.4</td>
<td>59.4</td>
<td>68.1</td>
<td>65.6</td>
<td>-23.4%</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
</body>
</html>

For all of February the University of Michigan's consumer sentiment index fell just 9.7% to a level of 70.8. That decline was a little better than the 11.2% plunge from January reported at mid-month. It also was better than the [...]

Michigan Consumer Sentiment Lowered By A Foul Opinion of Government

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229a.jpg" width="353">
Adjusted for prices, disposable personal income squeaked out a 0.1% gain last month. The weak rise followed a like increase in December but two months of decline preceding that. It left the three-month growth rate at a negative 0.7% (AR).
Nominal personal income slightly beat Consensus expectations last month with a 0.3% rise and three-month growth in income held steady at a 4.1% annual rate. Wage &amp; salary income rose 0.5% (4.1% y/y) after firm gains during the two prior months. Factory sector wages, however, were flat (+0.6% y/y) while wage &amp; salary income in the private service-providing industries rose 0.5% (4.7% y/y). Wages in the government sector rose a strong 0.9% (4.7% y/y).
Lower interest rates caused the forth straight monthly decline in interest income (+5.2% y/y). That y/y increase was less than one third the rate of gain at the end of 2005. Dividend income rose another firm 0.5% (11.9% y/y), a double digit rate of gain that is down somewhat from its peak 16.3% in 2006.
Weakness in income growth caught up with personal spending. During the last two months, real personal consumption expenditures have been flat. As a result the three-month growth rate held at 1.1%, its lowest since last May. Nominal spending grew 0.4% which was double the expected increase.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229b.jpg" width="353">
Real spending on discretionary items weakened substantially led by a 3.3% (-5.3% y/y) drop in motor vehicle &amp; parts purchases. Real spending on household furniture &amp; appliances also fell 0.4% (+4.4% y/y) for the second consecutive month of decline. Spending on apparel did post a 0.3% (0.1% y/y) in January but that followed four months of either having been unchanged or down, including a 1.9% downdraft during December.
Spending in the less discretionary area continued to show growth. Medical care spending rose 0.2% (2.7% y/y) and spending on transportation services rose 0.2% (3.1% y/y). Spending on food, however, fell 0.2% (+0.7% y/y) during January. These and other detailed spending figures are available in Haver&#39;s USNA database.
The PCE chain price index rose a firm 0.4% lifted by higher energy prices. That raised the y/y gain to 3.7%, the quickest since mid-2005. The rise in the core PCE price index was ahead of expectations. A 0.3% gain beat expectations for a 0.2% rise but, more significant, was an acceleration in the three month growth rate to 3.0% that was its fastest since late 2001 and up by half from last year.
Overview: Monetary Policy and the Economic Outlook from the Federal Reserve&#39;s Monetary Report to Congress can be found <a href="http://www.federalreserve.gov/boarddocs/hh/2008/february/0208mpr_part1.htm">here</a>.</div>

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">January</th>
<th scope="col">December</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">Personal Income</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.9%</td>
<td>6.1%</td>
<td>6.6%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.4%</td>
<td>0.3%</td>
<td>5.5%</td>
<td>5.5%</td>
<td>5.9%</td>
<td>6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Saving Rate</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>0.6% (Jan. 07)</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.7%</td>
<td>2.6%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>2.2%</td>
</tr>
</tbody>
</table>
</body>
</html>

Adjusted for prices, disposable personal income squeaked out a 0.1% gain last month. The weak rise followed a like increase in December but two months of decline preceding that. It left the three-month growth rate at a negative 0.7% [...]

U.S. Real Disposable Income Up 0.1%, Spending Flat, Core Price Gains Faster

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<div align="left"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080228h.jpg" align="left" border="0" height="265" width="353">

Japan&#8217;s dip in IP in January is hard to evaluate right now. IP
trends are moving lower but the Yr/Yr rate is still steady. The shorter
term sequential growth rates, in the table below, show that the recent
weakness is an artifact of the 3-month growth rates alone. Six-month
growth rates are higher that 12-month rates for Total MFG and total
industry. But textiles output, investment goods and minting show
erosion between the 6 and 12-month horizons. All sectors and industries
see declines in January and all are lower over three months except
electricity and gas producers.
</div>
<div align="left"> </div>


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Japan Industrial
Production Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">
m/m %
</td>
<td colspan="3">
Saar %
</td>
<td>
Yr/Yr
</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Jan-08
</td>
<td>Dec-07
</td>
<td>Nov-07
</td>
<td>3-mo
</td>
<td>6-mo
</td>
<td>12-mo
</td>
<td>Yr-Ago
</td>
</tr>
<tr>
<td class="firstcol">
Mining
&amp; Mfg
</td>
<td>-2.0%
</td>
<td>
1.4%
</td>
<td>-1.6%
</td>
<td>-8.3%
</td>
<td>
3.2%
</td>
<td>
2.5%
</td>
<td>
3.2%
</td>
</tr>
<tr>
<td class="firstcol">
Total
Industry
</td>
<td> -2.3%
</td>
<td>
1.7%
</td>
<td>-1.3%
</td>
<td>-7.6%
</td>
<td>
3.9%
</td>
<td>
2.6%
</td>
<td>
2.6%
</td>
</tr>
<tr>
<td class="firstcol">
Mfg
</td>
<td>&nbsp;-1.9%
</td>
<td>
1.4%
</td>
<td>-1.6%
</td>
<td>-8.3%
</td>
<td>3.4%
</td>
<td>
2.5%
</td>
<td>
3.2%
</td>
</tr>
<tr>
<td class="firstcol">
Textiles
</td>
<td> -2.3%
</td>
<td>
2.5%
</td>
<td> -2.2%
</td>
<td> -7.7%
</td>
<td> -7.4%
</td>
<td> -5.0%
</td>
<td> -4.2%
</td>
</tr>
<tr>
<td class="firstcol">
Transport
</td>
<td> -3.2%
</td>
<td>
2.4%
</td>
<td> -2.9%
</td>
<td> -14.2%
</td>
<td>
31.5%
</td>
<td>
11.6%
</td>
<td>
4.6%
</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="8"> Product
Group
</td>
</tr>
<tr>
<td class="firstcol">
Consumer
Goods
</td>
<td> -1.5%
</td>
<td>
2.1%
</td>
<td> -2.1%
</td>
<td> -6.1%
</td>
<td>
13.2%
</td>
<td>
4.2%
</td>
<td> -0.8%
</td>
</tr>
<tr>
<td class="firstcol">
Intermediate
Goods
</td>
<td>
-2.6%
</td>
<td>
1.3%
</td>
<td>
-1.1%
</td>
<td> -9.4%
</td>
<td>
3.6%
</td>
<td>
4.3%
</td>
<td>
3.8%
</td>
</tr>
<tr>
<td class="firstcol">
Investment
Goods
</td>
<td> -0.4%
</td>
<td> -0.6%
</td>
<td> -1.9%
</td>
<td> -11.1%
</td>
<td> -7.6%
</td>
<td> -3.4%
</td>
<td>
5.8%
</td>
</tr>
<tr>
<td class="firstcol">
Mining
</td>
<td> -2.9%
</td>
<td>
1.1%
</td>
<td> -5.9%
</td>
<td> -27.2%
</td>
<td> -15.9%
</td>
<td> -5.1%
</td>
<td>
3.5%
</td>
</tr>
<tr>
<td class="firstcol">
Electric
&amp; Gas
</td>
<td> -1.4%
</td>
<td>
0.2%
</td>
<td>
2.0%
</td>
<td>
3.2%
</td>
<td>
15.2%
</td>
<td>
5.9%
</td>
<td> -2.8%
</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s dip in IP in January is hard to evaluate right now. IP trends are moving lower but the Yr/Yr rate is still steady. The shorter term sequential growth rates, in the table below, show that the recent weakness is an artifact of [...]

Japan Industrial Production is Slipping

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

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

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Sandy Batten

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Total retail sales rose a much larger-than-expected 0.9% m/m (6.9%y/y) in May following a slightly downwardly revised 0.4% monthly gain in April (previously 0.5% m/m), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 0.5% m/m gain. Excluding autos, other sales increased 0.8% m/m (7.5% y/y) after an unrevised 0.7% m/m increase in April. Expectations were for a 0.5% monthly rise.

Elevated retail gasoline prices continued to boost the value of gasoline sales in May. Gasoline sales increased 3.4% m/m (26.5% y/y) in May on top of a 2.8% m/m increase in April. However, both monthly increases were slower than the 14.2% monthly jump reported in March. Gasoline sales accounted for 31% of total sales in May. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.7% m/m in April, up from 0.2% m/m in April. Sales excluding both autos and gasoline increased 0.5% m/m in May, the same monthly gain as in April.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in May, rising 0.7% m/m (6.3% y/y) following an unrevised 0.5% monthly increase in April. The strong performance at the end of Q1 followed by solid gains in April and May put the April-May level of control group sales up 8.6% at an annual rate from the Q1 average, pointing to another solid contribution by consumption to overall GDP growth in Q2. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales generally increased across major sectors in May. Auto sales rebounded, rising 1.2% m/m in May and more than reversing the 0.9% monthly decline in April. This was the third gain in auto sales in the past four months. Furniture sales rose 1.0% m/m but sales at electronics and appliance stores slipped 0.5% m/m. Building material sales gained 1.0% m/m on top of a 1.1% monthly increase in April. Clothing sales rose 0.3% m/m. Sales at general merchandise stores gained 0.4% m/m in May. Miscellaneous sales jumped 2.3% m/m in May, their first monthly gain in three months. Sales by nonstore retailers continued their strong performance, increasing 1.5% m/m in May on top of a 1.1% monthly rise in April. Over the first five months of this year, nonstore retail sales have risen 7.2%, not annualized. By contrast, food sales were unchanged in May from April while sales at restaurants edged down 0.1% m/m in May, their first monthly decline in four months.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total sales increased 0.9% m/m in May, nearly twice expectations.
- Auto sales rebounded, rising 1.2% m/m in May, more than reversing a 0.9% monthly decline in April. 
- Gasoline sales rose 3.4% m/m in May.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in May, the same monthly increase as in April.
- Sales of the retail control group that is used to construct PCE rose 0.7% m/m in May and are 8.6% annualized above the Q1 average.

U.S. Retail Sales Jumped More than Expected in May

Winnie Tapasanun

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Mortgage applications fell 3.8% w/w (+8.6% y/y) in the week ending June 12 following a 10.8% rebound in the week ending June 5, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the fourth w/w fall in five weeks, lowering the index to 269.5. Applications for loans to purchase a house slid 3.4% (+3.0% y/y) in the June 12 week, down for the fourth time in five weeks, after a 7.3% rise in the previous week. Applications for loan refinancing dropped 4.5% (+17.0% y/y) in the June 12 week, the seventh w/w decline in eight weeks, following a 15.3% jump in the June 5 week.

The effective interest rate on a 30-year fixed-rate loan was unchanged at 6.78% in the week ending June 12; it was above a low of 6.24% in the February 27 week but below a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages edged up 2bps to 6.18% in the June 12 week, the highest in three weeks, from 6.16% in the previous week; it was up from a low of 5.60% in the week of September 20, 2024 but down from a high of 7.44% in the week of October 27, 2023. Meanwhile, the rate on 30-year jumbo loans declined 4bps to 6.78% in the June 12 week from 6.82% in the prior week; it was above a low of 6.25% in the February 27 week but below a high of 7.99% in the week of October 27, 2023. The rate on a 5-year ARM fell 7bps to 6.16% in the June 12 week, the first w/w decline in six weeks, from 6.23% in the previous week (the highest since the week of August 15, 2025); it was above a low of 5.38% in the February 20 week but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan edged up to 40.3% of total applications in the week ending June 12—the fourth w/w increase in five weeks and the highest level since the May 15 week—after rising to 40.2% in the week ending June 5; it remained below a peak of 61.9% in the January 16 week but above a low of 34.6% in the week of May 23, 2025. The adjustable-rate mortgage (ARM) share of activity slipped to 8.5% in the June 12 week from 8.6% in the prior week; it was below a peak of 12.9% in the week of September 12, 2025 but above a low of 4.7% in the week of January 3, 2025.

The average size of a mortgage loan fell 1.5% w/w (+3.7% y/y) to $394,100 in the June 12 week, the lowest level since the April 3 week, after a 0.4% rebound to $399,900 in the June 5 week. The average size of a purchase loan dropped 1.9% (+4.0% y/y) to $456,600 in the June 12 week following a 2.8% recovery to $465,300 in the prior week. The average size of a loan to refinance a mortgage fell 0.4% (+7.0% y/y) to $301,400 in the June 12 week on top of a 2.3% decline to $302,500 in the previous week, marking the third consecutive w/w fall, the sixth decline in seven weeks, and the lowest level since the week of July 25, 2025.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications -3.4% w/w, down for fourth time in five weeks; refinance applications -4.5% w/w, seventh fall in eight weeks.
- Effective interest rate on 30-year fixed loans unchanged at 6.78%, up from a late-February low of 6.24%.
- Average loan size down for the second time in three weeks, lowest since the April 3 week.

U.S. Mortgage Applications Down 3.8% in the June 12 Week, Fourth Drop in Five Weeks

Michael J. Moran

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The headline index on import prices rose 1.9% in May, close to the blistering pace in April and the fourth consecutive high-side reading. This recent pressure has pulled the year-over-year change to 6.7%, a distinct shift from last year when import prices showed no change over the 12 months of 2025.

Prices of petroleum products have been the most important factor behind the recent surge, increasing 13.0% in May after an average of 17.8% in the prior two months. However, prices excluding petroleum products also have stirred this year, as they have increased more than 0.6% in each of the past five months. May posted the firmest increase in this string of brisk readings (1.3%). Prices of consumer goods had been increasing moderately in early 2026, but they jumped 0.5% in May. The changes in capital and consumer goods led to an increase of 0.8% in nonpetroleum prices in May and an average of 0.6% in the first five months of the year.

Some observers might seek to look for the effects of tariffs on import prices, but these figures would not be especially helpful in this regard, as prices are recorded before the imposition of tariffs. However, if foreign producers wished to absorb the tariff burden to remain competitive in the US market, they could reduce invoiced prices to keep post-tariff prices steady. Indeed, nonpetroleum prices softened after April of last year following the announcement of President Trump’s Liberation Day tariffs. The subsequent easing of some of the draconian tariffs and the nullification of tariffs imposed under the International Emergency Economic Powers Act might be factors leading importers to return to original prices this year. Given that the pressure on import prices ex-petroleum has been concentrated in the capital goods area, there does not seem to be a rush to return to pre-tariff pricing.

On the export side, prices rose 1.3% in May, continuing the firm pace seen in the preceding four months. Petroleum prices have played a role in this pressure, as shown by an increase of 2.4% in the industrial supply category (petroleum prices alone are not available on the export side). Food prices also have jumped this year, increasing 0.8% in May after an average of 1.2% in the prior three months. Prices of capital goods were tame in the early months of the year, but they have firmed in the past two months (0.5% in April and 0.7% in May).

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

260616C.jpg

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- Petroleum products led import prices higher, but capital goods also had an influence.
- Petroleum was also a factor on the export side; some stirring in food and capital goods.

Import and Export Prices: Firm in May

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Weighed down by further rises in longer-term interest rates, housing construction continued to languish in May. Housing starts plunged 15.4% m/m (-8.7% y/y) in May on top of a downwardly revised 8.5% monthly decline in April (previously -2.8% m/m). The level of starts plummeted to 1.177 million, the lowest since May 2020 when the economy was locked down during the COVID pandemic. The Action Economics Forecast Survey expected a 2.4% m/m decline to a level of 1.432 million units. The April/May average for starts was 1.285 million, 9.4% below the Q1 average. Residential investment has been a persistent drag on real GDP growth recently, subtracting from overall growth in each of the previous five quarters. Today’s report points to another subtraction in Q2.

Single-family starts fell 1.9% m/m (-6.7% y/y) in May on top of a downwardly revised 11.6% monthly plunge in April (previously -9.0% m/m). Multi-family starts, which had generally been trending up over the past year or so, albeit with quite a bit of volatility, plummeted 40.2% m/m (-14.2% y/y) in May following a downwardly revised 2.4% m/m decline in April (previously +10.3% m/m).

Starts fell in three of the four major geographic regions. Starts rose 3.7% m/m in the Midwest with gains in both single-family and multi-family starts. By contrast, starts fell in each of the other three regions, plunging 26.8% m/m in the Northeast, the third monthly decline in the past four months, falling 17.0% m/m in the South, also the third monthly decline in the past four months, and declining 17.2% m/m in the West, the fourth monthly decline in the past five months.

The performance of building permits is typically less volatile than that of starts. Total permits edged down 0.7% m/m (-0.2% y/y) to 1.413 million units in May following a 4.4% monthly gain in April and an 11.5% m/m fall in March. Expectations were for a 0.3% monthly increase in May. Single-family permits edged up 0.6% m/m (-1.8% y/y) in May versus a 1.6% monthly decline in April and a 3.7% m/m drop in March. By contrast, multi-family permits fell 2.8% m/m (+2.5 y/y) in May but this was after a 15.8% monthly surge in April.

In contrast to the regional performance of starts, permits fell in the Midwest (-18.7% m/m) but rose in each of the other three major geographic regions. Permits increased 3.1% m/m in the Northeast in May on top of a 18.1% monthly jump in April. They edged up 1.6% m/m in the South and rose 5.5% m/m in the West, the first monthly gain in three months.

The housing starts and permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Housing starts plunged 15.4% m/m in May to the lowest level since May 2020 with a significant downward revision to the previously reported April decline.
- Single family starts fell 1.9% m/m while multi-family starts plummeted 40.2% m/m to their lowest level since November 2024.
- Less volatile permits slid 0.7% m/m in May with a slight rise (+0.6% m/m) in single-family permits and a 2.8% monthly drop in multi-family permits.

U.S. Housing Starts Plunged in May

260616E.jpg

The ZEW diffusion survey (an up-minus-down survey) showed mixed improvements in the economic situation and improvements for macroeconomic expectations in June. The report shows the economic situation improving in the United States and China, with the euro area taking a small step back (to -43.4 in June from -41.4 in May), while Germany also saw a step back in the economic situation (to -81.0 from -77.8). The ranking metrics show the German reading as lower only 13.8% of the time—the weakest showing among the four. The EMU ranking is at a 36.7 percentile, with the U.S. ranking close to that at a 42.5 percentile. China has a 76.2 percentile ranking over a shorter timeline.

Macro expectations show solid improvements reported in Germany, the U.S., and China. Macroeconomic rankings all are muted, with the U.S. at a 39.9 percentile standing as the strongest, followed by Germany at a 35.2 percentile standing and China at a 22.2 percentile standing.

Inflation expectations are still high across the board, ranging from a low percentile standing for the EMU, Germany, and China—from a euro area low of 78.6 to a high standing for this group at 85.7 for China. In contrast, the U.S. ranking is still high, but only at its 61.8 percentile. And all the inflation expectations readings fell in June as optimism on opening the Strait of Hormuz has been growing. 

Nonetheless, expectations for short-term rates have been rising. They rose solidly in the EMU and China, and strongly in the U.S., from 10.5 in May to 38.5 in June.

In contrast, long-term rate expectations rose across the board as well but by modest amounts. The rankings for short-term expectations are stronger for all three countries compared to the ranking on long-term rate expectations. I suppose we can understand that as expectations of anti-inflation medicine.

Stock markets are assessed as higher month-to-month in the EMU and in all three countries. China has a strong ranking for its stock market assessment at its 81st percentile. The U.S. standing is above its median at its 51.5 percentile; the euro area expectation is at its 34.2 percentile, with German stock market expectations still weak at its 23.6 percentile.

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The pending conflict-ending deal in the Middle East should be a catalyst for further improvement. While the U.S.-Iran deal is not yet announced in detail—or even signed—market reactions are clear-cut across the board; there is no sign that this deal is expected to wither so soon. But it still has issues and contentious elements, such as Iran’s nuclear ambitions and the fact that the Israel is not on board with what it regards as a too-early exit from hostilities. Israel wants regime change and warns of a more difficult future without one.

Economy in Brief

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ISM Index Factory Sector Falls Below 50: Indicates Contraction

Is the ECB Winning or Losing on Inflation?

EU Indexes Point Lower - Across the Board

Chicago Purchasing Managers Barometer Lowest Since 2001

Michigan Consumer Sentiment Lowered By A Foul Opinion of Government

U.S. Real Disposable Income Up 0.1%, Spending Flat, Core Price Gains Faster

U.S. Real Disposable Income Up 0.1%, Spending Flat, Core Price Gains Faster

Japan Industrial Production is Slipping