Robert Brusca

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121f.jpg">
Japan&#146;s tertiary (services) sector index is a fresh release and it signals a modest rebound in activity in November as the sector index edges up to 100.6 form 100.5. Its growth rate (y/y) rises to 1.1% for a 0.9% in November, but is still slower than it has been much of the year previously. It is also above its three-month average. The mining and MFG sector is growing faster that the service sector over the past year with a growth rate of 1.6% compared to the 1.1% for services. Still, MFG sector growth by this index peaked at 4.5% in Februaru and at 4.4% in August. Since August the MFG slowdown has been pronounced. The slip in MFG growth to 1.6% November is from 3.6% on October.
The chart on the left shows that one signal of a slowdown in Japan is when the MFG and Mining sector index grows slower than the service sector index. There are three examples of that happening since 1997 and two of them were in recessions. So far Japanese officials are still upbeat about the economy. The slowing in the MFG sector and crawling growth rate in services are reminders of how close Japan remains to the edge that separates slow growth from contractions.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Up to date Japan Industry Surveys
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Nov-2007</td>
<td>Oct-2007</td>
<td>Sep-2007</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>110.4</td>
<td>112.2</td>
<td>110.3</td>
<td>111.0</td>
<td>110.2</td>
<td>109.0</td>
<td>112.2</td>
<td>87.7</td>
<td>92.7%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>110.6</td>
<td>110.5</td>
<td>109.2</td>
<td>110.1</td>
<td>110.3</td>
<td>110.0</td>
<td>111.2</td>
<td>91.0</td>
<td>97.0%</td>
</tr>
<tr>
<td colspan="10">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
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Japans tertiary (services) sector index is a fresh release and it signals a modest rebound in activity in November as the sector index edges up to 100.6 form 100.5. Its growth rate (y/y) rises to 1.1% for a 0.9% in November, but is [...]

Japan MFG and Service Sectors still growing…but slower

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118g.jpg" align="left" border="0" height="265" width="353">
The hit to UK retail sales was severe enough to reverberate in
the exchange markets where sterling suffered a set back in trading
after the retail figures were made public. The chart tells the story
without the benefits of numbers. The pattern clearly shows a loss in
headline momentum and a loss in momentum on all major horizons. Real
excl auto sales echos that pattern. 
 

In numbers retail sales drop by 0.4% (ex autos) in real terms
in December, and that drop is never a good sign. For the full quarter,
however, real retail sales ex autos continue to grow at a pace of 1.9%.
But the slip in the three month growth rate is a negative indicator for
momentum and the period ahead. Food sales were up in December with
nonfood spending weak. UK indicators have been touch and go in recent
months, This one pushes the BOE closer to being truly concerned about
growth and may be enough to get a rate cut from it. But since inflation
data are not cooperative and the EMU region is slowing but holding
policy pat, it is not yet clear if the UK will follow the US lead to
lower rates or to be stoic and stay with continental Europe. The UK
economy seems to be on the cusp. 
 
 


<table border="0" cellspacing="0" width="100%">
</table>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">UK Real and Nominal Retail Sales </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</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>Year Ago</td>
</tr>
<tr>
<td class="firstcol">Total Retail</td>
<td>-0.6%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>-0.9%</td>
<td>0.5%</td>
<td>1.7%</td>
<td>4.8%</td>
</tr>
<tr>
<td class="firstcol">Food Beverages &amp; Tobacco</td>
<td>0.4%</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.2%</td>
<td>5.4%</td>
<td>3.2%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>-0.9%</td>
<td>-6.2%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>8.1%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Real</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">Retail excl auto</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>4.9%</td>
</tr>
</tbody>
</table>
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The hit to UK retail sales was severe enough to reverberate in the exchange markets where sterling suffered a set back in trading after the retail figures were made public. The chart tells the story without the benefits of numbers. [...]

UK Retail Sales Take a Hit

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118c.jpg" align="left" border="0" height="265" width="353">
French new industrial orders are lower in two of the past
three months. Still, year over year orders retain solid upward
momentum. The sequential growth rates, however tell a different story,
one of a loss in momentum within the past year. That loss is stronger
on the domestic front since we see that foreign orders have stepped
down in growth from their Yr/Yr to six month pace but then recovered in
the recent three months, when total orders slowed, presumable weighed
down by weak domestic orders. Still with that in train Q4 growth in
orders is still positive. Total orders are up at a 1.2% pace in the
fourth quarter with two months of data in, while foreign orders are up
by a much stronger 6.5%.

A survey of small French firms finds that they are reasonably
comfortable for now but are concerned about the outlook. France is one
of the large EMU economies and is going through a shifting in gears
that will impact the EMU growth rate itself.

While today German government officials said there is no need
for an EMU-wide stimulus program, the main growth signals from Europe
have indicated a slowing. Germans retain confidence that growth will
continue despite the challenges and risks. Although there is no way to
tell yet how severe the slowing will be in Germany, France, Italy and
in the EU&#8217;s UK all major EU nations are showing signs of some
unevenness in growth.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> French Orders</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-0.2%</td>
<td>2.4%</td>
<td>-2.5%</td>
<td>-1.3%</td>
<td>2.7%</td>
<td>8.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign</td>
<td>1.7%</td>
<td>2.2%</td>
<td>-2.9%</td>
<td>3.7%</td>
<td>2.7%</td>
<td>6.6%</td>
</tr>
</tbody>
</table>
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French new industrial orders are lower in two of the past three months. Still, year over year orders retain solid upward momentum. The sequential growth rates, however tell a different story, one of a loss in momentum within the past [...]

French New Orders Soften but Still Grow

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118d.jpg" width="353">
The Conference Board reported that the December composite index of leading economic indicators fell 0.2% after an unrevised 0.4% decline during November. A 0.1% decline had been expected.
For all of last year the leaders fell 0.2% and their six month growth rate, which is calculated as the latest month&#39;s reading divided by the average of the prior twelve months, stood at -1.6%. That was equal to the lowest level since 2001.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators index and the lagged change in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118f.jpg" width="353">
The breadth of one month gain amongst the 10 components of the leading index rose slightly to a still low 40.0%. Over a six month period, the breadth of gain amongst the leaders components was 30%, equal to its lowest level since 2002.
Last month unemployment insurance claims, stock prices, and consumer expectations made the largest contributions to the decline in the overall leading index.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118e.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.1% after a downwardly revised 0.1% November uptick. Over the last ten years there has been an 86% correlation between the y/y change in the coincident indicators and real GDP growth. Three of the four coincident series components rose very slightly and the gains were offset by a decline in real income.
The lagging index rose 0.4% and continued its steady rise. Last month the gain was due to a longer duration of unemployment. The ratio of coincident to lagging indicators (a measure of economic excess) fell during nine months last year to the lowest level since 1991. 
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Signal or Noise? Implications of the Term Premium for Recession Forecasting from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/forthcoming/0801rose.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></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">Leading</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>-1.4%</td>
<td>-0.2%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.0%</td>
<td>3.5%</td>
</tr>
</tbody>
</table>


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The Conference Board reported that the December composite index of leading economic indicators fell 0.2% after an unrevised 0.4% decline during November. A 0.1% decline had been expected. For all of last year the leaders fell 0.2% and [...]

U.S. Leading Economic Indicators Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118a.jpg" width="353">
For early January, the University of Michigan&#39;s consumer sentiment index recovered 6.6% m/m to 80.5, the highest level since October.The increase was only the second in eight months and it beat expectations for a continued decline to a level of 74.8.
The current conditions index rose 7.8%, following declines in six of the prior seven months, to the highest level since August. Current buying conditions for large household goods rose 12.4% (-7.2% y/y) on the strength of a 2.3% jump in perceptions that now is a good time to buy. The view of current personal finances rose a lesser 2.0% (-18.7% y/y) following two months of decline.
Expected business conditions during the next year rose 5.3% (-21.1% y/y). A 7.4% improvement in expectations for business conditions during the next five years lifted the total. The latest reading is equal to the 4Q average. Expectations for personal finances rose all of 2.7% (-9.4% y/y), reversed the December decline but was only the second gain in the last nine months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118b.jpg" width="353">
Expectations for inflation during the next twelve months slipped to 4.1%. For the next five to ten years expectations similarly slipped to a 3.4% rise in prices, equal to the expected gain during all of last year.
Opinions about government policy rose 8.1% m/m (-16.7% y/y) and made up most of December&#39;s decline.
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.
A Primer on the Mortgage Market and Mortgage Finance from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/08/01/McDonald.pdf"> here</a>.
Evolving Inflation Dynamics from the New Keynesian Philips Curve from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/fall2007/hornstein.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Jan (Prelim)</th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Jan&nbsp; y/y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>80.5</td>
<td>75.5</td>
<td>76.1</td>
<td>-16.9% </td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>98.1</td>
<td>91.0</td>
<td>91.5</td>
<td>-11.9%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>69.1</td>
<td>65.6</td>
<td>66.2</td>
<td>-21.1%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
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For early January, the University of Michigan's consumer sentiment index recovered 6.6% m/m to 80.5, the highest level since October.The increase was only the second in eight months and it beat expectations for a continued decline to [...]

Michigan Consumer Sentiment Highest in Four Months

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118a.jpg" align="left" border="0" height="265" width="353">
For early January, the University of Michigan's consumer
sentiment index recovered 6.6% m/m to 80.5, the highest level since
October.The increase was only the second in eight months and it beat
expectations for a continued decline to a level of 74.8.
The current conditions index rose 7.8%, following declines in
six of the prior seven months, to the highest level since August.
Current buying conditions for large household goods rose 12.4% (-7.2%
y/y) on the strength of a 2.3% jump in perceptions that now is a good
time to buy. The view of current personal finances rose a lesser 2.0%
(-18.7% y/y) following two months of decline.
Expected business conditions during the next year rose 5.3%
(-21.1% y/y). A 7.4% improvement in expectations for business
conditions during the next five years lifted the total. The latest
reading is equal to the 4Q average. Expectations for personal finances
rose all of 2.7% (-9.4% y/y), reversed the December decline but was
only the second gain in the last nine months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118b.jpg" align="right" border="0" height="265" width="353">
Expectations for inflation during the next twelve months
slipped to 4.1%. For the next five to ten years expectations similarly
slipped to a 3.4% rise in prices, equal to the expected gain during all
of last year.
Opinions about government policy rose 8.1% m/m (-16.7% y/y)
and made up most of December's decline.
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's USECON database,
with details in the proprietary UMSCA database.
A Primer on the Mortgage Market and Mortgage Finance from
the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/08/01/McDonald.pdf">
here</a>.
Evolving Inflation Dynamics from the New Keynesian
Philips Curve from the Federal Reserve Bank of Richmond can
be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/fall2007/hornstein.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Jan (Prelim)</th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Jan&nbsp; y/y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>80.5</td>
<td>75.5</td>
<td>76.1</td>
<td>-16.9% </td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current
Conditions</td>
<td>98.1</td>
<td>91.0</td>
<td>91.5</td>
<td>-11.9%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;
Expectations</td>
<td>69.1</td>
<td>65.6</td>
<td>66.2</td>
<td>-21.1%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
U.S. Leading Economic Indicators
Down Again 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 18, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118d.jpg" align="left" border="0" height="265" width="353">
The Conference Board reported that the December composite
index of leading economic indicators fell 0.2% after an unrevised 0.4%
decline during November. A 0.1% decline had been expected.
For all of last year the leaders fell 0.2% and
their six month growth rate, which is calculated as the latest month's
reading divided by the average of the prior twelve months, stood at
-1.6%. That was equal to the lowest level since 2001.
During the last ten years there has been a 59% correlation
between the y/y change in the leading indicators index and the lagged
change in real GDP.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118f.jpg" align="right" border="0" height="265" width="353">
The breadth of one month gain amongst the 10 components of the
leading index rose slightly to a still low 40.0%. Over a six month
period, the breadth of gain amongst the leaders components was 30%,
equal to its lowest level since 2002.
Last month unemployment insurance claims, stock prices, and
consumer expectations made the largest contributions to the decline in
the overall leading index.
The method of calculating the contribution to the leading
index from the spread between 10 year Treasury securities and the Fed
funds rate has been revised. A negative contribution will now occur
only when the spread inverts rather than when declining as in the past.
More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118e.jpg" align="left" border="0" height="265" width="353">
The leading index is based on eight previously reported
economic data series. Two series, orders for consumer goods and orders
for capital goods, are estimated.
The coincident indicators rose 0.1% after a downwardly revised
0.1% November uptick. Over the last ten years there has been an 86%
correlation between the y/y change in the coincident indicators and
real GDP growth. Three of the four coincident series components rose
very slightly and the gains were offset by a decline in real income.
The lagging index rose 0.4% and continued its steady rise.
Last month the gain was due to a longer duration of unemployment. The
ratio of coincident to lagging indicators (a measure of economic
excess) fell during nine months last year to the lowest level since
1991. 
Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world.


Signal or Noise? Implications of the Term Premium for
Recession Forecasting from the Federal Reserve Bank of New
York can be found <a href="http://www.newyorkfed.org/research/epr/forthcoming/0801rose.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/BCI/BCI.HTM">Business
Cycle Indicators</a></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">Leading</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>-1.4%</td>
<td>-0.2%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.0%</td>
<td>3.5%</td>
</tr>
</tbody>
</table>
French New Orders Soften but
StillGrow 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 18, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118c.jpg" align="left" border="0" height="265" width="353">
French new industrial orders are lower in two of the past
three months. Still, year over year orders retain solid upward
momentum. The sequential growth rates, however tell a different story,
one of a loss in momentum within the past year. That loss is stronger
on the domestic front since we see that foreign orders have stepped
down in growth from their Yr/Yr to six month pace but then recovered in
the recent three months, when total orders slowed, presumable weighed
down by weak domestic orders. Still with that in train Q4 growth in
orders is still positive. Total orders are up at a 1.2% pace in the
fourth quarter with two months of data in, while foreign orders are up
by a much stronger 6.5%.

A survey of small French firms finds that they are reasonably
comfortable for now but are concerned about the outlook. France is one
of the large EMU economies and is going through a shifting in gears
that will impact the EMU growth rate itself.

While today German government officials said there is no need
for an EMU-wide stimulus program, the main growth signals from Europe
have indicated a slowing. Germans retain confidence that growth will
continue despite the challenges and risks. Although there is no way to
tell yet how severe the slowing will be in Germany, France, Italy and
in the EU&#8217;s UK all major EU nations are showing signs of some
unevenness in growth.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> French
Orders</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-0.2%</td>
<td>2.4%</td>
<td>-2.5%</td>
<td>-1.3%</td>
<td>2.7%</td>
<td>8.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign</td>
<td>1.7%</td>
<td>2.2%</td>
<td>-2.9%</td>
<td>3.7%</td>
<td>2.7%</td>
<td>6.6%</td>
</tr>
</tbody>
</table>
UK Retail Sales Take a
Hit&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 18, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118g.jpg" align="left" border="0" height="265" width="353">
The hit to UK retail sales was severe enough to reverberate in
the exchange markets where sterling suffered a set back in trading
after the retail figures were made public. The chart tells the story
without the benefits of numbers. The pattern clearly shows a loss in
headline momentum and a loss in momentum on all major horizons. Real
excl auto sales echos that pattern. 
 

In numbers retail sales drop by 0.4% (ex autos) in real terms
in December, and that drop is never a good sign. For the full quarter,
however, real retail sales ex autos continue to grow at a pace of 1.9%.
But the slip in the three month growth rate is a negative indicator for
momentum and the period ahead. Food sales were up in December with
nonfood spending weak. UK indicators have been touch and go in recent
months, This one pushes the BOE closer to being truly concerned about
growth and may be enough to get a rate cut from it. But since inflation
data are not cooperative and the EMU region is slowing but holding
policy pat, it is not yet clear if the UK will follow the US lead to
lower rates or to be stoic and stay with continental Europe. The UK
economy seems to be on the cusp. 
 
 


<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">UK Real
and Nominal Retail Sales </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</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>Year Ago</td>
</tr>
<tr>
<td class="firstcol">Total Retail</td>
<td>-0.6%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>-0.9%</td>
<td>0.5%</td>
<td>1.7%</td>
<td>4.8%</td>
</tr>
<tr>
<td class="firstcol">Food Beverages &amp; Tobacco</td>
<td>0.4%</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.2%</td>
<td>5.4%</td>
<td>3.2%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>-0.9%</td>
<td>-6.2%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>8.1%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Real</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">Retail excl auto</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>4.9%</td>
</tr>
</tbody>
</table>
</body></html>

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<html><head>
<style>
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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080117g.jpg" align="left" border="0" height="265" width="353">
Yr/Yr EMU import growth is now exceeding export growth. Import
growth is creeping up at a faster pace while export growth is being
damped and is faltering. But sequential growth rates within the past
year shows that most components within the import aggregate are seeing
growth tail off with the exception of food. For exports sequential
growth rates also indicates a slowing. The sequential growth rate
parses the data over the past year to allow us to get a sense of the
intra-yearly pattern. What we see there makes us wonder about demand
within the Euro Area since imports are slowing within that horizon.
Since Euro Area exports are slowing on that horizon as well we are left
to wonder if export markets for EMU are also slowing or if it is an
impact of the strong euro value or of both.
Global growth 

As we begin to get evidence of Europe&#8217;s slowing we are also
getting re-thinks on the growth rates for member countries. The Bank of
France&#8217;s survey is pointing to a softer rate of growth in Q4. Germany
is said to be considering a reduction in its new forecast as some
private outlooks have been cut. The EU Commission is now reported to be
in the process of revamping its outlook to find Europe less insulated
from the effect of a US slowdown. Japan has been slowing and the
government has been reluctant to downgrade growth, as has the BOJ.
China is suffering though some overheating and despite it&#8217;s trying to
forestall any slowing until after the Olympic games, it has been forced
into a more defensive monetary policy sooner than it desired.

On balance there is a considerable amount of evidence to
support the notion of slowing growth on a widespread global scale.
Commodity prices are just beginning to reflect this shift. But so far
we have no indication how much the slowdown might progress. Some hold
out hope that demand will remain in place in the developing world and
will buffer the growth in the main industrial countries. There is
little evidence of that or that such a small amount of essentially
infrastructure spending that might be resilient might support global
growth. Instead, the evidence seems to be falling on the side of
showing that the US slowdown drags the world with it and that it is
happening again.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Ezone 13-Trade trends for goods </th>
</tr>
</thead>
<tbody>
<tr class="grey6">
<td class="firstcol">&nbsp;</td>
<td colspan="2">m/m%</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>12-Mo Ago</td>
</tr>
<tr class="grey4">
<td class="firstcol">Balance*</td>
<td>&#8364;&#8364; 2,718</td>
<td>&#8364;&#8364; 2,984</td>
<td>&#8364;&#8364; 3,141</td>
<td>&#8364;&#8364; 3,160</td>
<td>&#8364;&#8364; 3,024</td>
<td>&#8364;&#8364; (1,251)</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">All Exports</td>
<td>0.3%</td>
<td>1.2%</td>
<td>0.5%</td>
<td>9.9%</td>
<td>5.9%</td>
<td>11.9%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Food and Drinks</td>
<td>-0.7%</td>
<td>1.6%</td>
<td>-3.4%</td>
<td>13.7%</td>
<td>8.3%</td>
<td>11.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Raw materials</td>
<td>-1.3%</td>
<td>1.0%</td>
<td>2.6%</td>
<td>-0.6%</td>
<td>0.9%</td>
<td>22.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Other</td>
<td>0.4%</td>
<td>1.2%</td>
<td>0.7%</td>
<td>10.0%</td>
<td>5.9%</td>
<td>11.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Manufacturing</td>
<td>-0.7%</td>
<td>0.3%</td>
<td>-8.1%</td>
<td>8.2%</td>
<td>1.9%</td>
<td>15.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">All Imports</td>
<td>0.5%</td>
<td>1.9%</td>
<td>4.4%</td>
<td>11.8%</td>
<td>6.6%</td>
<td>7.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Food and Drinks</td>
<td>-3.4%</td>
<td>-1.2%</td>
<td>23.7%</td>
<td>26.0%</td>
<td>14.7%</td>
<td>5.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Raw materials</td>
<td>-3.9%</td>
<td>1.1%</td>
<td>-24.3%</td>
<td>-5.7%</td>
<td>-3.7%</td>
<td>27.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Other</td>
<td>1.0%</td>
<td>2.1%</td>
<td>5.0%</td>
<td>12.0%</td>
<td>6.7%</td>
<td>6.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Manufacturing</td>
<td>-2.4%</td>
<td>-0.9%</td>
<td>-19.2%</td>
<td>1.1%</td>
<td>-0.2%</td>
<td>10.6%</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">*Eur mlns; mo or period average</td>
</tr>
</tbody>
</table>
</body></html>

Yr/Yr EMU import growth is now exceeding export growth. Import growth is creeping up at a faster pace while export growth is being damped and is faltering. But sequential growth rates within the past year shows that most components [...]

Exports Slowing in the Zone; Imports improving...at least Yr/Yr

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080117e.jpg" width="353">
Unexpectedly, initial claims for jobless insurance dropped 21,000 last week to 301,000 after an unrevised 12,000 decline during the week prior. The latest level was the lowest since late September and contrasted with expectations for a rise to 332,000 claims. The recent claims figures may still be distorted by seasonal adjustment difficulties this time of year.
The latest claims figure covers the survey week for January nonfarm payrolls and claims fell 47,000 (-13.5%) from the December period.
The four week moving average of initial claims, a measure which smoothes out most of the series&#39; w/w volatility, fell to 328,500 (+5.6% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080117f.jpg" width="353">
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance rose 66,000 and reversed a revised 69,000 drop during the prior week. The figure provides some indication of workers&#39; ability to find employment.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment rose back to the cycle&#39;s high of 2.1%.
The Fed&#39;s latest Beige Book covering regional economic conditions can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2008/20080116/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">01/12/08</th>
<th scope="col">01/05/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;301</td>
<td>322</td>
<td>4.9%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,751</td>
<td>11.3%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
</html>

Unexpectedly, initial claims for jobless insurance dropped 21,000 last week to 301,000 after an unrevised 12,000 decline during the week prior. The latest level was the lowest since late September and contrasted with expectations for [...]

U.S. Initial Claims for Jobless Insurance Lowest Since September

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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Sandy Batten

260616F4.jpg

260616G4.jpg

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.

260616H4.jpg

260616I4.jpg

- 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

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

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.

Japan

Japan’s Surveys Mixed in April but Mostly Weak

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Industrial production in the United Kingdom took another step up in April, rising by 0.4% after gaining 1.2% month-to-month in March. Consumer durable goods production fell by 0.7% and capital goods production fell by 0.6% in April, but nondurable goods production increased by 0.8% and intermediate goods output increased by 1.1%. Given the weighting for these sectors, all that amounted to an overall increase of 0.4% in manufacturing output.

In March, there had been month-to-month increases in each of these sectors. Sector by sector gains were quite substantial in March for all the sectors, except for capital goods output up only 0.1%; capital goods output has been weak over the last several months and has come through a period of some significant volatility.

Sequentially, U.K. manufacturing output has registered gains over 12 months, six months and three months. The 12-month gain is only 1%, but over six months output expands at a 6.4% annual rate, and while it stepped back to a 5.7% rate of expansion over three months, there is a hint of acceleration.

**Sequential trends in manufacturing output**
Looking at sectors, there are two that have accelerated over this time span; the output of consumer nondurable goods and the output of intermediate goods. Nondurable goods output rose by 0.4% over 12 months, then stepped up to an 8.1% pace over six months and rose further to an 11.1% pace over three months. For intermediate goods, output declined by 0.9% over 12 months, then switched to post a gain at a 3.2% pace over six months and then again at a 9.7% annual rate over three months. Durable goods output has a hint of acceleration but doesn't quite go over the hurdle as its 8.7% year-over-year growth rate fades to 5.7% over six months but then jumps back to 10.1% over three months. Capital goods output is more indeterminate, with a 3.9% growth rate over 12 months, a very strong 9.5% growth rate over six months, and then a decline of 1.9% at an annual rate over three months.

On a quarter-to-date (QTD) basis, all the sectors are showing increases except for capital goods where output is falling at a 3.1% annual rate. The QTD calculation as of April is only one month into the new quarter; the quarter’s overall output is growing at a 7% annual rate. Manufacturing sectors have recovered fairly well from the difficulties during COVID. The exception is intermediate goods where output as of April 2026 is still 17% below what it was back in January 2020. However, if we evaluate the sectors on their current year-over-year growth rates, we'll find consumer durables has a strong standing at their 86th percentile and capital goods, despite its recent weakness, has a 71.5 percentile standing among its growth rates back to January 2012. However, manufacturing growth overall at 1.0% has only a 43.6 percentile standing. Intermediate goods (that registered a decline over 12 months) have a 40.7 percentile standing. Consumer nondurables, despite their current acceleration string, have only a 25.6 percentile standing, but that's based on the year-over-year growth rate of only 0.4%.

**U.K. industries**
The industry level growth rates and standings for the United Kingdom show more diversity, with current growth rates above their medians for textile & leather as well as for utilities. Food, motor vehicles, and mining generate growth rates below their medians on data back to 2012. However, comparing aggregate levels of output to January 2020 shows three sectors: textile & leather, mining & quarrying, and utilities that report a level of output below where it was over six years ago. The shortfalls in mining & quarrying and in utilities are stunningly weak.

Overall, the manufacturing sector is doing quite well by comparison with past trends. But parts of the U.K. economy are clearly going through some massive changes.

Economy in Brief

Jump to:

Japan MFG and Service Sectors still growing…but slower

UK Retail Sales Take a Hit

French New Orders Soften but Still Grow

U.S. Leading Economic Indicators Down Again

Michigan Consumer Sentiment Highest in Four Months

Michigan Consumer Sentiment Highest in Four Months

Exports Slowing in the Zone; Imports improving...at least Yr/Yr

U.S. Initial Claims for Jobless Insurance Lowest Since September