Tom Moeller

The National Association of Realtors reported that the level of pending home sales in December fell 1.5% from November following that month's decline of 3.0%. These notable declines, however, followed increases during the prior two [...]

U.S. Pending Home Sales Seeking a Bottom?

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206e.jpg" align="left" border="0" height="265" width="353">
French sequential growth rates are working their way lower for
the volume of total retail sales. Passenger car registrations have,
however, picked up a bit. The spike up in car registrations has to do
with some changing regulations in France and are clustering sales into
the current periods much as they did at the end of 2006 for Germany as
buyers there tried to avoid the coming VAT hike. The overall retail
numbers do not show much of this effect since the impact is for an
auto-specific change related to environmental concerns. 
 

Retail sales volumes in France continue to move ahead at a 2%
pace over three months, a bit less than their 3% yr/yr rate and the
same as the year ago pace of 2%. French consumers, like other Euro Area
consumers are having a hard time getting spending on track. With the
new financial turmoil, higher energy prices, strong euro and slowing
economy, the consumer may not turn that corner to better times. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">French Real Retail Sales </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr Ago</td>
<td>QTR: SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">VOLUME</td>
</tr>
<tr>
<td class="firstcol">Retail Volume</td>
<td>0.9%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">Registrations</td>
</tr>
<tr>
<td class="firstcol">Passenger Cars</td>
<td>10.7%</td>
<td>0.5%</td>
<td>0.3%</td>
<td>54.7%</td>
<td>35.4%</td>
<td>19.8%</td>
<td>-4.4%</td>
<td>26.7%</td>
</tr>
</tbody>
</table>
</body></html>

French sequential growth rates are working their way lower for the volume of total retail sales. Passenger car registrations have, however, picked up a bit. The spike up in car registrations has to do with some changing regulations in [...]

French Retail Sales Trend Slips

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206d.jpg" align="left" border="0" height="265" width="353">
Not every inflation report or trend in the EMU is bad news.
But the news is still not pleasing to an ECB that is trying to inherit
the mantel of inflation fighting respectability from the Bundesbank.
Inflation in the Euro Area consists of an overall HICP measure but
there is also the country level data that contribute to the HICP.
Italy&#8217;s new inflation report is shown below. Headline inflation slowed
sharply in January and the three-month growth rate edged slightly lower
from its six-month value. Even so, that rate is unacceptably high.
Across categories inflation slowed producing a diffusion rate of 42%
implying that the deceleration was relatively widespread. But over six
months diffusion shows that it has accelerated and over 12 months it is
about the same as it was a year ago in terms of the breadth of the
acceleration/deceleration (diffusion) even though it is higher in terms
of the headline and the core. 
 

The chart shows that the core rate has been steadily
accelerating. But if energy prices abate that trend should be
truncated. In short Italy&#8217;s data are the exact reason that the ECB
remains wary. While the current month hints at a break in the pace the
trends are simply not good enough to take the ECB off guard.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy HICP
and CPI details </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</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">HICP Total</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">Core</td>
<td>--</td>
<td>0.3%</td>
<td>0.2%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.6%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">CPI</td>
</tr>
<tr class="odd">
<td class="firstcol">All</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.4%</td>
<td style="color: red;">4.9%</td>
<td style="color: red;">3.8%</td>
<td>2.9%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI excl Tobacco</td>
<td>--</td>
<td>0.4%</td>
<td>0.4%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>0.5%</td>
<td>0.5%</td>
<td>0.5%</td>
<td>6.0%</td>
<td style="color: red;">6.9%</td>
<td style="color: red;">4.5%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Alcohol</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>4.6%</td>
<td style="color: red;">4.7%</td>
<td>3.5%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing &amp; Shoes</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td style="color: red;">1.8%</td>
<td style="color: red;">1.6%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rent &amp; Utilities</td>
<td>1.1%</td>
<td>0.5%</td>
<td>0.7%</td>
<td style="color: red;">9.8%</td>
<td style="color: red;">7.4%</td>
<td>4.0%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing &amp; Furniture</td>
<td>0.8%</td>
<td>0.2%</td>
<td>0.2%</td>
<td style="color: red;">4.7%</td>
<td style="color: red;">3.6%</td>
<td style="color: red;">3.6%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Health Care</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-1.0%</td>
<td>0.5%</td>
<td style="color: red;">0.7%</td>
<td>-1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport</td>
<td>0.9%</td>
<td>1.1%</td>
<td>0.7%</td>
<td style="color: red;">11.7%</td>
<td style="color: red;">7.4%</td>
<td style="color: red;">5.5%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Communication</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td style="color: red;">-3.4%</td>
<td style="color: red;">-4.2%</td>
<td>-8.4%</td>
<td>-4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation &amp; Culture</td>
<td>-1.1%</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-1.6%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Education</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other</td>
<td>0.4%</td>
<td>0.1%</td>
<td>0.4%</td>
<td style="color: red;">3.7%</td>
<td style="color: red;">3.5%</td>
<td style="color: red;">3.1%</td>
<td>2.3%</td>
</tr>
<tr class="even">
<td class="firstcol">Diffusion</td>
<td colspan="3">&nbsp;</td>
<td>41.7%</td>
<td style="color: red;">66.7%</td>
<td>50.0%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>--</td>
</tr>
</tbody>
</table>
</body></html>

Not every inflation report or trend in the EMU is bad news. But the news is still not pleasing to an ECB that is trying to inherit the mantel of inflation fighting respectability from the Bundesbank. Inflation in the Euro Area [...]

Italy’s Inflation Rate Shows Core Pressure Through Dec; In Jan Headline Abates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206a.jpg" width="353">
Nonfarm labor productivity growth last quarter slowed considerably to 1.8% from a little revised 6.0% during 3Q07. The preliminary 4Q figure beat Consensus expectations for a 0.5% rise. Despite the 4Q slowdown, productivity growth of 1.6% for all of last year was up from the measly 1.0% rate during 2006 due to that 6.0% 3Q spurt.
Output growth last quarter did indeed decelerate sharply to just 0.4% from 5.6% during 3Q but a decline in hours worked to a 1.5% rate of decline was the sharpest fall of three during 2007. For all of last year hours worked rose 0.7% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206b.jpg" width="353">
Compensation per hour last quarter held roughly steady with 3Q at a 3.9% rate of growth. Despite that stability compensation growth for the year accelerated to a 4.8% rate of growth which was the quickest since 2000.
That stability of compensation in the face of slower productivity raised unit labor cost growth to 2.1% from its 3Q decline by a like amount. The Consensus expectation had been for 3.5% growth in unit labor costs. The 4Q rise was enough to lift the gain in labor costs for the full year by 3.1% That was slightly ahead of the 2006 increase but it also was the quickest since 2000.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206c.jpg" width="353">
Productivity in the factory sector eased to a 2.5% growth rate from a downwardly revised 4.0% during 3Q. For all of 2007 factory sector productivity rose 2.9%, the slowest rate of growth since 2001. The weakness in productivity resulted as output growth slowed to -1.9% from 3.9% in 3Q and that outpaced the slowdown in hours worked to -4.3% from -0.1%. The 4.2% rise in factory sector compensation pulled unit labor costs up 1.7% after a 2.9% 3Q decline. For the full year unit labor costs in the factory sector rose 1.6% after two years of negative growth and that rate of increase was the quickest since 2000.
The January 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200801/fullreport.pdf"> here</a>.
How well do wages follow productivity growth? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070301/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">Q4 &#39;07</th>
<th scope="col">Q3 &#39;07</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">Output per Hour</td>
<td>1.8%</td>
<td>6.0%</td>
<td>2.6%</td>
<td>1.6%</td>
<td>1.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.9%</td>
<td>4.0%</td>
<td>3.7%</td>
<td>4.8%</td>
<td>3.9%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.1%</td>
<td>-1.9%</td>
<td>1.0%</td>
<td>3.1%</td>
<td>2.9%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


</html>

Nonfarm labor productivity growth last quarter slowed considerably to 1.8% from a little revised 6.0% during 3Q07. The preliminary 4Q figure beat Consensus expectations for a 0.5% rise. Despite the 4Q slowdown, productivity growth of [...]

U.S. Productivity Down in Q4 But Up for All of 2007; Factory Sector Costs Up

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206a.jpg" align="left" border="0" height="265" width="353">
Nonfarm labor productivity growth last
quarter slowed considerably to 1.8% from a little revised 6.0% during
3Q07. The preliminary 4Q figure beat Consensus expectations
for a 0.5% rise. Despite the 4Q slowdown, productivity growth of 1.6%
for all of last year was up from the measly 1.0% rate during 2006 due
to that 6.0% 3Q spurt.
Output growth last quarter did indeed decelerate sharply to
just 0.4% from 5.6% during 3Q but a decline in hours worked to a 1.5%
rate of decline was the sharpest fall of three during 2007. For all of
last year hours worked rose 0.7% y/y.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206b.jpg" align="right" border="0" height="265" width="353">
Compensation per hour last quarter held
roughly steady with 3Q at a 3.9% rate of growth. Despite that stability
compensation growth for the year accelerated to a 4.8% rate of growth
which was the quickest since 2000.
That stability of compensation in the face of slower
productivity raised unit labor cost growth to 2.1%
from its 3Q decline by a like amount. The Consensus expectation had
been for 3.5% growth in unit labor costs. The 4Q rise was enough to
lift the gain in labor costs for the full year by 3.1% That was
slightly ahead of the 2006 increase but it also was the quickest since
2000.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206c.jpg" align="left" border="0" height="265" width="353">
Productivity in the factory sector eased
to a 2.5% growth rate from a downwardly revised 4.0% during 3Q. For all
of 2007 factory sector productivity rose 2.9%, the slowest rate of
growth since 2001. The weakness in productivity resulted as output
growth slowed to -1.9% from 3.9% in 3Q and that outpaced the slowdown
in hours worked to -4.3% from -0.1%. The 4.2% rise in factory sector
compensation pulled unit labor costs up 1.7% after a 2.9% 3Q decline.
For the full year unit labor costs in the factory sector rose 1.6%
after two years of negative growth and that rate of increase was the
quickest since 2000.


The January 2008 Senior Loan Officer Opinion Survey
on Bank Lending Practices from the Federal Reserve Board is
available <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200801/fullreport.pdf">
here</a>.
How well do wages follow productivity growth? from
the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070301/cover.pdf">here</a>.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm
Business Sector</a> (SAAR)</th>
<th scope="col">Q4 '07</th>
<th scope="col">Q3 '07</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">Output per Hour</td>
<td>1.8%</td>
<td>6.0%</td>
<td>2.6%</td>
<td>1.6%</td>
<td>1.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.9%</td>
<td>4.0%</td>
<td>3.7%</td>
<td>4.8%</td>
<td>3.9%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.1%</td>
<td>-1.9%</td>
<td>1.0%</td>
<td>3.1%</td>
<td>2.9%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
Italy&#8217;s Inflation Rate Shows Core
Pressure Through Dec; In Jan Headline Abates&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 6, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206d.jpg" align="left" border="0" height="265" width="353">
Not every inflation report or trend in the EMU is bad news.
But the news is still not pleasing to an ECB that is trying to inherit
the mantel of inflation fighting respectability from the Bundesbank.
Inflation in the Euro Area consists of an overall HICP measure but
there is also the country level data that contribute to the HICP.
Italy&#8217;s new inflation report is shown below. Headline inflation slowed
sharply in January and the three-month growth rate edged slightly lower
from its six-month value. Even so, that rate is unacceptably high.
Across categories inflation slowed producing a diffusion rate of 42%
implying that the deceleration was relatively widespread. But over six
months diffusion shows that it has accelerated and over 12 months it is
about the same as it was a year ago in terms of the breadth of the
acceleration/deceleration (diffusion) even though it is higher in terms
of the headline and the core. 
 

The chart shows that the core rate has been steadily
accelerating. But if energy prices abate that trend should be
truncated. In short Italy&#8217;s data are the exact reason that the ECB
remains wary. While the current month hints at a break in the pace the
trends are simply not good enough to take the ECB off guard.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy HICP
and CPI details </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</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">HICP Total</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">Core</td>
<td>--</td>
<td>0.3%</td>
<td>0.2%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.6%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">CPI</td>
</tr>
<tr class="odd">
<td class="firstcol">All</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.4%</td>
<td style="color: red;">4.9%</td>
<td style="color: red;">3.8%</td>
<td>2.9%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI excl Tobacco</td>
<td>--</td>
<td>0.4%</td>
<td>0.4%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>0.5%</td>
<td>0.5%</td>
<td>0.5%</td>
<td>6.0%</td>
<td style="color: red;">6.9%</td>
<td style="color: red;">4.5%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Alcohol</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>4.6%</td>
<td style="color: red;">4.7%</td>
<td>3.5%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing &amp; Shoes</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td style="color: red;">1.8%</td>
<td style="color: red;">1.6%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rent &amp; Utilities</td>
<td>1.1%</td>
<td>0.5%</td>
<td>0.7%</td>
<td style="color: red;">9.8%</td>
<td style="color: red;">7.4%</td>
<td>4.0%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing &amp; Furniture</td>
<td>0.8%</td>
<td>0.2%</td>
<td>0.2%</td>
<td style="color: red;">4.7%</td>
<td style="color: red;">3.6%</td>
<td style="color: red;">3.6%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Health Care</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-1.0%</td>
<td>0.5%</td>
<td style="color: red;">0.7%</td>
<td>-1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport</td>
<td>0.9%</td>
<td>1.1%</td>
<td>0.7%</td>
<td style="color: red;">11.7%</td>
<td style="color: red;">7.4%</td>
<td style="color: red;">5.5%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Communication</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td style="color: red;">-3.4%</td>
<td style="color: red;">-4.2%</td>
<td>-8.4%</td>
<td>-4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation &amp; Culture</td>
<td>-1.1%</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-1.6%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Education</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other</td>
<td>0.4%</td>
<td>0.1%</td>
<td>0.4%</td>
<td style="color: red;">3.7%</td>
<td style="color: red;">3.5%</td>
<td style="color: red;">3.1%</td>
<td>2.3%</td>
</tr>
<tr class="even">
<td class="firstcol">Diffusion</td>
<td colspan="3">&nbsp;</td>
<td>41.7%</td>
<td style="color: red;">66.7%</td>
<td>50.0%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>--</td>
</tr>
</tbody>
</table>
French Retail Sales Trend Slips 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 6, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206e.jpg" align="left" border="0" height="265" width="353">
French sequential growth rates are working their way lower for
the volume of total retail sales. Passenger car registrations have,
however, picked up a bit. The spike up in car registrations has to do
with some changing regulations in France and are clustering sales into
the current periods much as they did at the end of 2006 for Germany as
buyers there tried to avoid the coming VAT hike. The overall retail
numbers do not show much of this effect since the impact is for an
auto-specific change related to environmental concerns. 
 

Retail sales volumes in France continue to move ahead at a 2%
pace over three months, a bit less than their 3% yr/yr rate and the
same as the year ago pace of 2%. French consumers, like other Euro Area
consumers are having a hard time getting spending on track. With the
new financial turmoil, higher energy prices, strong euro and slowing
economy, the consumer may not turn that corner to better times. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">French
Real Retail Sales </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr Ago</td>
<td>QTR: SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">VOLUME</td>
</tr>
<tr>
<td class="firstcol">Retail Volume</td>
<td>0.9%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">Registrations</td>
</tr>
<tr>
<td class="firstcol">Passenger Cars</td>
<td>10.7%</td>
<td>0.5%</td>
<td>0.3%</td>
<td>54.7%</td>
<td>35.4%</td>
<td>19.8%</td>
<td>-4.4%</td>
<td>26.7%</td>
</tr>
</tbody>
</table>
</body></html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080205h.jpg" width="353">
Six of the countries in the emerging markets data base EMERGEPR, which covers the Pacific Rim, have reported January data for the Consumer Price Index. The inflation picture that arises from these data (Defining inflation as the year to year change in the Consumer Price Index) covers a wide span from 2.96% in Taiwan to 14.0% in Vietnam. The first chart shows the headline inflation for Indonesia, Vietnam and the Philippines, the three relatively high inflation countries. The second chart shows the headline inflation for Taiwan, South Korea and Thailand, three relatively low inflation countries. All six countries show a rising trend for inflation over the past six months.
Core inflation rates, excluding food and energy, are available for Thailand since January &#39;91, for South Korea, since January &#39;76 and for Taiwan since January &#39;92 and are shown in the third chart. Core rates of inflation in Korea and Thailand are rising more slowly than the headline series, but in Taiwan, the core rate has spiked in recent months.
Core inflation rates for the Philippines are available only from June, 2004 and for Indonesia, from December 2005. There are no core rates for Vietnam. The rationale for excluding food and energy prices from the Consumer Price index was based on the historical evidence that in industrialized countries these items tended to rise and fall around a fairly trend less norm. It was never clear that the concept should be applied to emerging countries. Recent history, however, suggests that the long term trend in food and energy prices, even in highly developed countries is no longer trend less but definitely rising, casting doubts about the usefulness of the core inflation concept. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080205i.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080205j.jpg" width="353"> 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INFLATION IN THE PACIFIC RIM&nbsp;</th>
<th scope="col">Jan 08</th>
<th scope="col">Dec 07&nbsp;</th>
<th scope="col">Nov 07&nbsp;</th>
<th scope="col">Oct 07&nbsp;</th>
<th scope="col">Sep 07&nbsp;</th>
<th scope="col">Aug 07</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Year to Year Change in CPI</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Indonesia&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>7.36</td>
<td>6.59</td>
<td>6.71</td>
<td>6.88</td>
<td>6.95</td>
<td>6.51</td>
</tr>
<tr>
<td class="firstcol">Vietnam&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>14.09</td>
<td>12.57</td>
<td>10.04</td>
<td>9.35</td>
<td>8.80</td>
<td>8.55</td>
</tr>
<tr>
<td class="firstcol">Philippines</td>
<td>4.86</td>
<td>3.94</td>
<td>3.23</td>
<td>2.73</td>
<td>2.61</td>
<td>2.37</td>
</tr>
<tr>
<td class="firstcol">Thailand</td>
<td>4.26</td>
<td>3.21</td>
<td>3.03</td>
<td>2.51</td>
<td>2.09</td>
<td>1.13</td>
</tr>
<tr>
<td class="firstcol">South Korea</td>
<td>3.89</td>
<td>3.61</td>
<td>3.52</td>
<td>3.02</td>
<td>2.32</td>
<td>2.04</td>
</tr>
<tr>
<td class="firstcol">Taiwan&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>2.96</td>
<td>3.33</td>
<td>4.80</td>
<td>5.33</td>
<td>3.11</td>
<td>1.61</td>
</tr>
<tr class="odd">
<td class="firstcol">Year to Year Change in CORE</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Thailand</td>
<td>1.23</td>
<td>1.24</td>
<td>1.14</td>
<td>1.05</td>
<td>0.76</td>
<td>0.67</td>
</tr>
<tr>
<td class="firstcol">South Korea</td>
<td>2.82</td>
<td>2.44</td>
<td>2.44</td>
<td>2.45</td>
<td>2.35</td>
<td>2.25</td>
</tr>
<tr>
<td class="firstcol">Taiwan&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>2.71</td>
<td>2.57</td>
<td>2.36</td>
<td>2.27</td>
<td>1.98</td>
<td>1.62</td>
</tr>
</tbody>
</table>
</body>
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Six of the countries in the emerging markets data base EMERGEPR, which covers the Pacific Rim, have reported January data for the Consumer Price Index. The inflation picture that arises from these data (Defining inflation as the year [...]

Inflation in the Pacific Rim

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080205g.jpg" width="353">
EMU retail sales are doing badly. German sales look worse than they are in the yr/yr graph due to the comparison with the December base in 2006 just ahead of the introduction of the VAT hike in 2007. That pushed activity into Dec of 2006 and robbed it from early 2007. Still on shorter horizons Euro retail sales are not doing well as the growth rate in the table reminds us. Moreover German sales are doing really poorly even without suing a year/year comparison. 
For the quarter-to-date EMU retail sales volumes are dropping at a 4.3% annual rate. Food is off at a 3.1% pace, and no food purchases are falling at a 4.5% pace. Germany leads this quarter&#150;to-quarter weakness with a sales volume drop for nonfoods of 10.5%. That compares to a rise at a 2.6% pace in France and a rise in the UK (an EU, not EMU, country) of 3.1%. 
What is worst is that the progressive growth rates (12-Mo to 6-Mo to 3-Mo) show that a slowing is underway in the Euro Area as well as in Germany, in Italy, in the UK and partly for France. 
While the raw results for December and the fourth quarter are disquieting, the ongoing trend decline in retail sales volumes is even more disturbing. We cannot yet tell if the manufacturing sector will remain strong enough to hold growth aloft or if this weakness in the consumer sector is enough to drag the EMU economics lower. 
It is hard to tell how much special factors like the strong euro or the weak finical sector or whatever drove the January services PMI lower might be responsible. What is clear is that there is more weakness in train than we had previously thought and it is showing up in various places at slightly different times. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Ezone (13) Retail Sales Volume
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>12-Mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Euro Area (13) Total</td>
<td>-0.1%</td>
<td>-0.7%</td>
<td>-0.6%</td>
<td>-5.4%</td>
<td>-1.8%</td>
<td>-1.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Food</td>
<td>0.0%</td>
<td>-1.0%</td>
<td>-0.4%</td>
<td>-5.3%</td>
<td>-1.6%</td>
<td>-1.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Non food</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>-0.8%</td>
<td>-5.3%</td>
<td>-2.0%</td>
<td>-1.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Textiles</td>
<td>#N/A</td>
<td>-0.5%</td>
<td>-3.1%</td>
<td>-6.3%</td>
<td>3.9%</td>
<td>-0.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Household goods</td>
<td>#N/A</td>
<td>-0.7%</td>
<td>-0.5%</td>
<td>-9.9%</td>
<td>-1.2%</td>
<td>-2.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Books news, etc</td>
<td>#N/A</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>-1.6%</td>
<td>2.8%</td>
<td>0.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Pharmaceuticals</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.3%</td>
<td>4.2%</td>
<td>3.7%</td>
<td>3.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Other Nonspecial goods</td>
<td>#N/A</td>
<td>-0.6%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>1.0%</td>
<td>-1.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Mail Order</td>
<td>#N/A</td>
<td>-1.1%</td>
<td>-1.1%</td>
<td>-8.2%</td>
<td>-4.1%</td>
<td>-2.3%</td>
</tr>
<tr class="grey2">
<td colspan="7">Non-food Country detail: Volume</td>
</tr>
<tr class="grey1">
<td class="firstcol">Germany</td>
<td>0.7%</td>
<td>-1.0%</td>
<td>-2.4%</td>
<td>-10.2%</td>
<td>-4.7%</td>
<td>-6.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>0.7%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>2.6%</td>
<td>4.0%</td>
<td>3.8%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy (Total, Value)</td>
<td>#N/A</td>
<td>-1.0%</td>
<td>0.6%</td>
<td>-4.0%</td>
<td>-2.5%</td>
<td>-2.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK(EU)</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>3.4%</td>
<td>4.0%</td>
</tr>
<tr class="grey3">
<td colspan="7">Shaded areas calculated on a one-month lag due to lagging data</td>
</tr>
<tr class="grey3">
<td colspan="7">The EA 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
</body>
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EMU retail sales are doing badly. German sales look worse than they are in the yr/yr graph due to the comparison with the December base in 2006 just ahead of the introduction of the VAT hike in 2007. That pushed activity into Dec of [...]

EMU Retail Sales Sink…Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080205e.jpg" width="353">
Factory inventories rose 0.8% during December. That gain followed a 0.7% increase during November and pulled the three month increase in inventories to 1.6%, up from a low of 0.2% in August. Nevertheless the 3.6% rise in inventories last year was well below the 6.4% increase during 2006.
Excluding the volatile transportation sector, inventories rose 0.4% in December and the three month average rate of accumulation of 0.4% is up from 0.1% decumulation in August. The civilian aircraft industry very much dominated the factory sector figures last year with a 7.1% gain in inventories over the year&#39;s final three months and a 23.2% gain y/y.
A 2.3% rise in total factory orders during December also was dominated by an 11.7% (28.4% y/y) surge in orders for civilian aircraft. It followed a 28.6% November jump. Overall, a 5.0% rise in orders for durable goods was reduced only slightly from the advance report of a 5.2% increase.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080205d.jpg" width="353">
The aircraft industry just couldn&#39;t keep shipments up with the inflow of new orders. Unfilled orders of civilian aircraft &amp; parts surged 4.2% in December (42.7% y/y) and the average change during the final three months of 2007 was 10.1%. Excluding the transportation sector altogether unfilled orders rose 1.3% in December and the three month average growth rate was a still firm 2.5%. That rate of increase has been fairly steady of late.
Factory shipments fell 0.3% in December after gains of 1.3% and 1.2% during the prior two months. Excluding transportation shipments fell 0.1% after gains of 1.6% and 1.4%.
Publishing FOMC Economic Forecasts from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-01.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS, %)</th>
<th scope="col">December</th>
<th scope="col">November</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">Inventories</td>
<td>0.8</td>
<td>0.7</td>
<td>3.6</td>
<td>3.6</td>
<td>6.4</td>
<td>8.9</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.3</td>
<td>1.7</td>
<td>6.1</td>
<td>1.4</td>
<td>5.1</td>
<td>11.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>0.7</td>
<td>1.5</td>
<td>5.9</td>
<td>1.2</td>
<td>5.4</td>
<td>11.5</td>
</tr>
<tr>
<td class="firstcol">Shipments</td>
<td>-0.3</td>
<td>1.3</td>
<td>4.1</td>
<td>1.1</td>
<td>4.3</td>
<td>10.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Unfilled Orders</td>
<td>2.5</td>
<td>1.2</td>
<td>18.2</td>
<td>18.2</td>
<td>20.0</td>
<td>15.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>1.3</td>
<td>0.5</td>
<td>9.1</td>
<td>9.1</td>
<td>14.1</td>
<td>8.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Factory inventories rose 0.8% during December. That gain followed a 0.7% increase during November and pulled the three month increase in inventories to 1.6%, up from a low of 0.2% in August. Nevertheless the 3.6% rise in inventories [...]

U.S. Factory Numbers Dominated by Aircraft Industry

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

Considerably more monetary ease expected from US and UK as Japan tightens

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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.

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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

Sandy Batten

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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

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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.

ZEW Shows Mixed Conditions and an Expectations Rebound

Winnie Tapasanun

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Industrial production (IP) increased a less-than-expected 0.1% m/m in May, the third monthly gain in four months, following an upwardly revised 0.9% rise in April (+0.7% initially) and a 0.3% decline in March (unrevised), according to data from the Federal Reserve Board. A 0.3% m/m May increase had been expected in the Action Economics Forecast Survey. The year-on-year rate accelerated to 1.7% in May, the highest since January, from 1.4% in April (0.3% in May 2025). The May IP index at 102.6 was 3.3% above a low of 99.3 in November 2024 and 3.4% above a low of 99.2 in January 2024.

By **industry groups**, manufacturing production was essentially unchanged m/m (+1.4% y/y) in May after upwardly revised gains of 0.7% in April (+0.6% initially) and 0.2% in March (+0.1% previously). Durable goods production rose 0.8% (3.2% y/y) in May, the fourth m/m rise in five months, after a 1.1% increase in April. Within durables, almost all categories rose m/m in May, led by a 2.3% gain (-2.0% y/y) in wood products, followed by increases of 1.8% (3.1% y/y) in nonmetallic mineral products, 1.3% (4.4% y/y) in primary metals, 1.2% (-1.7% y/y) in motor vehicles & parts, 1.0% (-4.5% y/y) in furniture & related products, 0.9% (10.3% y/y) in computer & electronic products, 0.8% (2.5% y/y) in fabricated metal products, 0.5% (6.9% y/y) in aerospace & miscellaneous transportation equipment, 0.5% (2.7% y/y) in electrical equipment, appliances & components, and 0.2% (4.3% y/y) in machinery. Notably, aircraft & parts production climbed 1.1% (11.7% y/y), the fourth consecutive m/m rise, after a 2.6% April gain. Meanwhile, miscellaneous durable goods were virtually unchanged m/m (+0.9% y/y) in May following a 0.8% decline in April.

Nondurable goods production slid 0.9% (-0.6% y/y) in May, the first m/m slide since January, after a 0.3% increase in April. The May output decline was led by a 3.0% drop (-1.1% y/y) in petroleum & coal products, followed by decreases of 2.4% (-4.1% y/y) in textiles & product mills, 1.6% (-2.3% y/y) in printing & related support activities, 0.8% (0.0% y/y) in chemicals, 0.8% (-3.0% y/y) in paper, 0.5% (-0.4% y/y) in food, beverages & tobacco, and 0.3% (-0.2% y/y) in plastics & rubber products. In contrast, apparel & leather goods—the only rising category—recovered 2.4% (-0.1% y/y) in May following two successive m/m declines.

Mining activity advanced 1.3% (2.0% y/y) in May, the fourth m/m gain in five months, after a 0.2% increase in April (-0.1% initially). Utilities output, however, fell 0.4% (+3.1% y/y) following a 2.2% April rebound (+1.9% initially), reflecting a 1.7% drop (+1.8% y/y) in electric utilities output and an 8.5% rise (12.5% y/y) in natural gas utilities output.

By **market groups**, construction supplies production increased 1.1% (2.3% y/y) in May, up for the second time in three months, reversing a 0.3% decline in April. Business equipment output rose 0.6% (5.7% y/y), the fifth m/m rise in six months, following a 1.8% April gain. Materials production grew 0.3% (1.9% y/y), the third m/m increase in four months, after a 0.7% April rise. In contrast, consumer goods output fell 0.5% (-0.6% y/y) after a 1.2% April rebound, reflecting a 0.5% increase (-3.0% y/y) in durable consumer goods and a 0.8% decrease (+0.1% y/y) in nondurable consumer goods.

In **special classifications**, factory output of selected high-tech industries rose 1.8% (12.6% y/y) in May on top of an upwardly revised 2.2% rise in April (+1.0% initially)—marking the third straight m/m gain and the seventh in eight months. Manufacturing production excluding selected high-tech industries held steady m/m (+1.1% y/y) in May after a 0.7% increase in April, while manufacturing production excluding selected high-tech and motor vehicles & parts dipped 0.1% (+1.3% y/y) following a 0.5% April rise.

Capacity utilization inched up to 76.2% in May, the highest since July 2025, from 76.1% in April (unrevised). The result matched the forecast by the Action Economics Forecast Survey. The May reading was 3.2 percentage points below its long-run (1972–2025) average. Manufacturing capacity utilization held at 75.7% in May and April (75.8% previously), the highest since September 2025; the May rate was 2.5 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- May IP +0.1% (+1.7% y/y), third m/m increase in four months, led by a 1.3% gain in mining.
- Manufacturing unchanged (+1.4% y/y), w/ durables +0.8% and nondurables -0.9%.
- Selected high-tech +1.8%, third straight m/m rise; motor vehicles +1.2%, fifth gain in six mths.
- Utilities -0.4%, led by a 1.7% drop in electric utilities output.
- Key categories in market groups mostly up.
- Capacity utilization up to a 10-month-high 76.2%; mfg. capacity utilization steady at 75.7%.

U.S. Industrial Production Up Marginally in May; Manufacturing Flat

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The economy watchers survey, along with other surveys, was doing fine until about March in the wake of the Iran war and the closing of the Strait of Hormuz. With that action, the economy watchers index dove sharply from a level of 48.9 in February to 42.2 in March and slipped further to 40.8 in April. The various sector gauges for the retail sector, eating & drinking places, the service sector, and employment are all lower. The only improvement in April came from the future index, where there was some minor optimism about the potential for conditions to improve ahead. And, of course, over the weekend, there is the announcement of a U.S.-Iran deal to end the hostilities between the two countries. That is expected to be signed on Friday and then will put the war into a pause phase for the next 60 days, with the hope that the two sides can come to agreement on some of the stickier elements, including Iran's access to nuclear materials, which has yet to be hammered out.

That omission makes the announcement of this arrangement as a conflict ending deal hugely speculative. Another sticking point is that Israel is not on board and is still engaged in fighting with Hezbollah.

The Teikoku survey, another survey using diffusion indexes that describes Japanese sectors, weakened sharply in March and weakened across the board again in April. Manufacturing, retailing, wholesaling, services, and construction sectors all are posting weaker numbers in April than in March.

The percentile rankings for the economy watchers survey and the Teikoku surveys are both very weak, with the economy watchers standings in the 10th percentile range or lower; the Teikoku rankings are generally higher, around the 30th percentile or perhaps as low as the 20th percentile, as seen in construction. These are still very weak readings. All the raw diffusion readings are below 50, indicating contraction.

The sector indexes from METI on manufacturing and services, which both weakened in March, rebounded in April; in both cases, the April readings were above the February readings. Standings of these indexes based on growth rates are around the 80th percentile; at the 79th percentile for industry and at the 82.5 percentile for the tertiary or services index. Based on the value of the index itself, the tertiary index has a standing at its 98.9 percentile, which we would expect over time for an index that simply grows, as is the case for the METI indexes that are not diffusion indexes. However, the industrial index for Japan has only a 19.9 percentile standing, indicating the stress that Japan's industrial sector has been through, although the current ranking based on the growth rate shows that there is some recovery in progress. The industry level index is 6.3% below its January 2020 level, while the tertiary index is 3.1% above its January 2020 level.

The leading economic index has continued to rise during all these times. It rose in February compared to January, and it rose again in March compared to February; now in April compared to March, it was up again to 115.9, from the March reading of 115.4. Based on year-over-year growth, the leading economic index has a 95.1 percentile standing, which is relatively strong. Based on the index level, we get another strong reading at the 93.2 percentile mark. The leading index is also up 12.9% from its January 2020 level.

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The report of a deal to end the U.S. embargo of Iran and open the Strait of Hormuz without tolls is potentially a real gamechanger for the economic outlook. However, the deal still had pieces to be negotiated, and I, for one, am very wary since we know Iran wants to have nuclear access and the U.S. wants to block it. I just don’t see what a 60-day cooling period for negotiation will do. It will push the U.S. closer to midterm elections and make Trump less willing to engage in conflict with Iran, which is likely to remain intransigent on this issue of nuclear access. I view this as the eye of a hurricane, a period in which there will be calm, with the potential for a reset of confrontation down the road, say 60 days on.

Economy in Brief

Jump to:

U.S. Pending Home Sales Seeking a Bottom?

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Inflation in the Pacific Rim

EMU Retail Sales Sink…Again

U.S. Factory Numbers Dominated by Aircraft Industry