Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107b.jpg" width="353">
The value of construction put in place rose slightly in November by 0.1%. That followed a 0.4% October decline which was softer than the 0.8% drop reported initially. The revision was due to a rise in nonresidential building instead of the decline indicated last month. The three month growth in total construction activity remained at a stable at -0.1% (AR), an improvement from the 2.3% rate of decline last Autumn.
In November, residential building continued lower. The 2.4% m/m decline was the largest of the current down cycle and it dropped the three month change to -24.4% (AR). Building of new single family units fell 5.0% m/m (-41.2%, three month, AR) and spending on improvements gained 0.7% (6.7%, three month, AR).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107c.jpg" width="353">
Nonresidential building continued strong and produced a 1.7% rise after a increase 1.2% during the month prior. Three month growth remained quite firm at 24.4% (AR) due to a 37.2% three month rise in office construction and a 21.7% rise in multi-retail building. Commercial construction got back in the upside act with a 12.1% three month gain and educational facility building rose 34.2%.
A 2.5% November rise in public construction spending raised the three month growth rate to 22.2%. Construction on highways &amp; streets rose 32.1% (AR) on a three month basis. The value of construction on highways &amp; streets is nearly one third of the value of total public construction spending. Construction spending on educational facilities again was strong with a 19.1% three month rise.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.
Recent and Prospective Developments in Monetary Policy Transparency and Communications: A Global Perspective is today&#39;s speech by Fed Vice ChairmanDonald L. Kohn at the National Association for Business Economics Annual Meeting in New Orleans, Louisiana and is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080105a.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">&nbsp;</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">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">Total</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>5.6%</td>
<td>10.7%</td>
<td>11.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7%</td>
<td>-0.9%</td>
<td>-4.8%</td>
<td>4.7%</td>
<td>12.0%</td>
<td>13.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.4%</td>
<td>-2.3%</td>
<td>-17.8%</td>
<td>0.5%</td>
<td>13.7%</td>
<td>18.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.7%</td>
<td>1.2%</td>
<td>19.5%</td>
<td>15.2%</td>
<td>7.8%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>2.5%</td>
<td>0.9%</td>
<td>16.2%</td>
<td>9.2%</td>
<td>6.2%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place rose slightly in November by 0.1%. That followed a 0.4% October decline which was softer than the 0.8% drop reported initially. The revision was due to a rise in nonresidential building instead [...]

U.S. Construction Spending Up Slightly in November

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107b.jpg" align="left" border="0" height="265" width="353">
The value of construction put in place rose slightly in
November by 0.1%. That followed a 0.4% October decline which was softer
than the 0.8% drop reported initially. The revision was due to a rise
in nonresidential building instead of the decline indicated last month.
The three month growth in total construction activity remained at a
stable at -0.1% (AR), an improvement from the 2.3% rate of decline last
Autumn.
In November, residential building continued lower. The 2.4%
m/m decline was the largest of the current down cycle and it dropped
the three month change to -24.4% (AR). Building of new single family
units fell 5.0% m/m (-41.2%, three month, AR) and spending on
improvements gained 0.7% (6.7%, three month, AR).
During the last twenty years there has been an 84% correlation
between the q/q change in the value of residential building and its
contribution to growth in real GDP.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107c.jpg" align="right" border="0" height="265" width="353">
Nonresidential building continued strong and produced a 1.7%
rise after a increase 1.2% during the month prior. Three month growth
remained quite firm at 24.4% (AR) due to a 37.2% three month rise in
office construction and a 21.7% rise in multi-retail building.
Commercial construction got back in the upside act with a 12.1% three
month gain and educational facility building rose 34.2%.
A 2.5% November rise in public construction spending raised
the three month growth rate to 22.2%. Construction on highways
&amp; streets rose 32.1% (AR) on a three month basis. The value of
construction on highways &amp; streets is nearly one third of the
value of total public construction spending. Construction spending on
educational facilities again was strong with a 19.1% three month rise.
These more detailed categories represent the Census Bureau&#8217;s
reclassification of construction activity into end-use groups. Finer
detail is available for many of the categories; for instance,
commercial construction is shown for Automotive sales and parking
facilities, drugstores, building supply stores, and both commercial
warehouses and mini-storage facilities. Note that start dates vary for
some seasonally adjusted line items in 2000 and 2002 and that
constant-dollar data are no longer computed.
Recent and Prospective Developments in Monetary
Policy Transparency and Communications: A Global Perspective is
today's speech by Fed Vice ChairmanDonald L. Kohn at the National
Association for Business Economics Annual Meeting in New Orleans,
Louisiana and is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080105a.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">&nbsp;</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">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">Total</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>5.6%</td>
<td>10.7%</td>
<td>11.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7%</td>
<td>-0.9%</td>
<td>-4.8%</td>
<td>4.7%</td>
<td>12.0%</td>
<td>13.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.4%</td>
<td>-2.3%</td>
<td>-17.8%</td>
<td>0.5%</td>
<td>13.7%</td>
<td>18.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.7%</td>
<td>1.2%</td>
<td>19.5%</td>
<td>15.2%</td>
<td>7.8%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>2.5%</td>
<td>0.9%</td>
<td>16.2%</td>
<td>9.2%</td>
<td>6.2%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
 PPI Headline Inflation SoarsWhile
ex Energy Prices
Hold at a Too-High Pace 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 7, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107d.jpg" align="left" border="0" height="265" width="353">
The Euro Area&#8217;s past two month&#8217;s headline gains for the PPI
excluding construction were a sizeable +0.8% and +0.7%, respectively.
These are huge increases. On the same period the ex-energy PPI rose by
0.1% and 0.4% a much better pairing - but still not satisfactory for
the ECB. While the ECB&#8217;s inflation ceiling of 2% applies to the HICP
clearly having other indices rising faster than that creates problems
for price stability.

At the moment energy prices are pushing headline prices off
the map. The 3-mo headline inflation gain of the E-zone PPI is 7.7% up
from 4.8% over six months and 4.1% Yr/Yr. All of these figures are
excessive. The core rate flattened out at 2.6% over 3-mo and 6-mo lower
than the 3.2% it is up Yr/Yr. That is some encouragement but the pace
of ex-energy inflation is still excessive.

Still, across countries problems linger. Excl energy inflation
in Germany is decelerating, true. But in Italy and in the UK excl
energy inflation is higher over three months than it was over six
months. It is no wonder that the ECB continues to rattle its saber over
inflation.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> Euro
Area and UK PPI Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Ezone-13</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">Total excl Construction</td>
<td>0.8%</td>
<td>0.7%</td>
<td style="color: red;">7.7%</td>
<td style="color: red;">4.8%</td>
<td>4.1%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>3.2%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.0%</td>
<td>0.1%</td>
<td style="color: red;">1.0%</td>
<td>0.9%</td>
<td>1.5%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.3%</td>
<td>0.5%</td>
<td style="color: red;">5.2%</td>
<td style="color: red;">5.0%</td>
<td style="color: red;">3.6%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Intermediate &amp; Capital
Goods</td>
<td>0.0%</td>
<td>0.3%</td>
<td>1.3%</td>
<td>1.3%</td>
<td>2.8%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>3.2%</td>
<td>1.8%</td>
<td style="color: red;">26.9%</td>
<td style="color: red;">12.3%</td>
<td style="color: red;">7.8%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.7%</td>
<td>0.5%</td>
<td style="color: red;">6.9%</td>
<td>4.7%</td>
<td style="color: red;">4.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.8%</td>
<td>0.4%</td>
<td style="color: red;">5.8%</td>
<td style="color: red;">3.2%</td>
<td>2.5%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>1.4%</td>
<td>1.8%</td>
<td>2.3%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.9%</td>
<td>0.5%</td>
<td style="color: red;">7.8%</td>
<td style="color: red;">5.2%</td>
<td>4.6%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td style="color: red;">2.4%</td>
<td>2.2%</td>
<td>3.2%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>2.2%</td>
<td>1.9%</td>
<td style="color: red;">22.6%</td>
<td style="color: red;">13.2%</td>
<td style="color: red;">3.1%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td style="color: red;">3.2%</td>
<td>2.9%</td>
<td>3.2%</td>
<td>3.3%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">E-zone 13
Harmonized PPI excluding
Construction</td>
</tr>
<tr>
<td colspan="7" class="firstcol">The EA 13
countries are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
Economic Sentiment
Continues to Falter in Europe 
by <a href="/comment/Curley.html">Louise
Curley</a> January 7, 2087


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107e.jpg" align="left" border="0" height="265" width="353">
With the price of oil and the euro continuing to climb and
financial markets continuing to be unsettled, it is not surprising that
economic sentiment among Europeans continues to weaken. For the 27
countries in the European Union, the Economic Sentiment Indicator (ESI)
fell 0.4% from 107.5 in November to 107.1 in December and was 4.7%
below December, 2006. For the 13 countries in the Euro Area, the ESI
fell only 0.1% in December to 104.7 from 104.8 in November (actually
less than the consensus estimate) and was 4.6% below December 2006.
Although there are measures of economic sentiment for the EU
27 and the EA13, it is not possible to derive measures for the non EA
as whole. However since sentiment in the EU 27 has generally been
higher than that in the EA13, (as can be seen in the first chart) it
can be inferred that sentiment in, at least, some of the non EA
countries has been higher than those in the EA. The second chart
showing selected countries in the EA--France, Germany and Italy--and
the third chart, selected countries in the non EA--Sweden, United
Kingdom, Poland and Latvia illustrate the point.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107f.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107g.jpg" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;Economic
Sentiment Indicators&nbsp; (Long Term Average =100)</th>
<th scope="col">Dec 07</th>
<th scope="col">Nov 07&nbsp;</th>
<th scope="col">Dec 06&nbsp;</th>
<th scope="col">M/M %Chg&nbsp;</th>
<th scope="col">Y/Y %Chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU 27</td>
<td>107.1</td>
<td>107.5</td>
<td>112.4</td>
<td>-0.37</td>
<td>-4.72</td>
<td>111.8</td>
<td>108.3</td>
<td>99.4</td>
</tr>
<tr>
<td class="firstcol">EA 13</td>
<td>104.7</td>
<td>104.8</td>
<td>109.8</td>
<td>-0.10</td>
<td>-4.62</td>
<td>109.0</td>
<td>106.9</td>
<td>97.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>105.9</td>
<td>106.2</td>
<td>108.8</td>
<td>-0.28</td>
<td>-2.67</td>
<td>109.2</td>
<td>105.9</td>
<td>95.1</td>
</tr>
<tr>
<td class="firstcol"> France</td>
<td>109.3</td>
<td>110.2</td>
<td>108.6</td>
<td>-0.82</td>
<td>0.64</td>
<td>110.6</td>
<td>106.9</td>
<td>103.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>100.2</td>
<td>97.9</td>
<td>108.9</td>
<td>2.35</td>
<td>-8.79</td>
<td>105.6</td>
<td>108.6</td>
<td>97.9</td>
</tr>
<tr>
<td class="firstcol">United Kingdom</td>
<td>106.6</td>
<td>107.8</td>
<td>110.8</td>
<td>-1.11</td>
<td>-3.79</td>
<td>110.7</td>
<td>107.0</td>
<td>99.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden</td>
<td>114.8</td>
<td>114.6</td>
<td>116.8</td>
<td>0.17</td>
<td>-1.71</td>
<td>119.3</td>
<td>114.2</td>
<td>105.3</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>133.4</td>
<td>134.0</td>
<td>126.2</td>
<td>-0.45</td>
<td>5.71</td>
<td>133.3</td>
<td>116.0</td>
<td>105.0</td>
</tr>
<tr class="odd">
<td class="firstcol"> Latvia</td>
<td>108.1</td>
<td>109.2</td>
<td>118.9</td>
<td>-1.01</td>
<td>-9.08</td>
<td>114.8</td>
<td>114.7</td>
<td>109.7</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090106i.jpg" width="353">
Regular gasoline prices moved seven cents higher last week and nearly recouped the declines of the prior three periods, according to the U.S. Department of Energy survey. Nevertheless, at $1.68 per gallon the price was about even with the December average and down from $2.75 for all of November. Yesterday, the spot market price for a gallon of regular gasoline rose another seven cents to $1.14 per gallon.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
Product demand continues to fall despite lower prices, pulled down by the developing economic recession. The U.S. Department of Energy reported that the demand for gasoline fell by 3.2% y/y, nearly the fastest rate of decline since late-1995 (the latest four weeks versus the same four weeks last year). The demand for all petroleum products also fell 3.7% y/y.
These DOE figures are available in Haver&#39;s OILWKLY database.
The price for a barrel of West Texas Intermediate crude oil also moved higher last week to $42.50 per barrel, the highest level in three weeks and up from the $40.56 averaged last week. Prices reached their high of $145.66 last July. In futures trading yesterday, the one-month price for crude oil was $48.81.
Last week, prices for natural gas recouped the prior week&#39;s decline and rose to $5.66 per mmbtu (-26.2% y/y). The latest average price was 50% below natural gas prices in early-July of $13.19/mmbtu.

<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/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">01/05/09</th>
<th scope="col">12/29/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>1.68</td>
<td>1.61</td>
<td>-45.8%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>42.50</td>
<td>32.37</td>
<td>-56.7%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
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Regular gasoline prices moved seven cents higher last week and nearly recouped the declines of the prior three periods, according to the U.S. Department of Energy survey. Nevertheless, at $1.68 per gallon the price was about even with [...]

U.S. Gasoline Prices Moved Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104h.jpg" width="353">
According to the Institute for Supply Management, the December Business Activity Index for the non-manufacturing sector fell to 53.9 from 54.1. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced Consensus expectations for a lesser fall.
Since the series&#39; inception in 1997 there has been a 44% correlation between the level of the Business Activity Index in the non-manufacturing sector and the Q/Q change in real GDP for the services and the construction sectors. The correlation of the factory sector ISM index with the change in real GDP less just services is a higher 57%, though over the last ten years it only has been 34%.
Both the new orders sub index and the employment sub index rose, though the latter remained ear the 2007 average which was down from 2006 which was down from 2005. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power eased m/m, but only slightly. Since inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
The Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the ISM manufacturing sector composite index is a weighted average of five components.
Sticky Prices: Why Firms Hesitate to Adjust the Price of Their Goods from the Federal Reserve Bank of New York an be found <a href="http://www.newyorkfed.org/research/current_issues/ci13-10.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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">December &#39;06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>53.9</td>
<td>54.1</td>
<td>56.7</td>
<td>56.0</td>
<td>58.0</td>
<td>60.2</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.7</td>
<td>76.5</td>
<td>59.7</td>
<td>63.9</td>
<td>65.2</td>
<td>68.0</td>
</tr>
</tbody>
</table>


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According to the Institute for Supply Management, the December Business Activity Index for the non-manufacturing sector fell to 53.9 from 54.1. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced [...]

U.S. ISM Non-manufacturing Index Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104f.jpg" width="353">
U.S. sales of light vehicles rose all of 0.4% last month to a 16.27M unit annual selling rate, according to the Autodata Corporation. The uptick followed a 0.9% increase during November. These recent upticks left sales for the year down 2.2% from 2006 when sales fell 2.5% from 2005.
Sales of domestically made light vehicles fell 0.6% last month after a 1.0% November rise. For the full year domestically made vehicle sales fell 4.2%, a decline similar to the 5.9% drop in 2006. Sales of U.S. made cars fell 4.8% last month and were down 4.5% for the year. Sales of domestically made light trucks, however, rose 2.9% in December and made up a small part of the prior three months&#39; decline. For the year sales of domestically made light trucks fell 4.0% on top of an 8.7% 2006 decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104g.jpg" width="353">
Sales of imported light vehicles rose 3.6% last month for the fourth consecutive monthly increase. The rise to 4.14M units was to the new record level. Last month&#39;s increase was due to a 4.7% gain in sales of imported autos. A 1.7% rise in sales of imported light trucks lifted sales 8.2% for the full year.
Import&#39;s share of the U.S. light vehicle market rose to a near record 25.4% during December. The rise in import&#39;s share for all of 2007 to 24.6% was a new record for any year.
Today&#39;s speech by Fed Vice ChairmanDonald L. Kohn At the American Economic Association Session can be found <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080104a.htm"> here</a>.
Stock Prices and Business Investment from the Federal eserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q4/leitner_stock-prices-and-investment.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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">December</th>
<th scope="col">&nbsp;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">Total</td>
<td>16.27</td>
<td>16.20</td>
<td>0.4%</td>
<td>16.18</td>
<td>16.55</td>
<td>16.96</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.82</td>
<td>7.97</td>
<td>-1.8%</td>
<td>7.58</td>
<td>7.77</td>
<td>7.65</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>5.21</td>
<td>5.47</td>
<td>-2.4%</td>
<td>5.07</td>
<td>5.31</td>
<td>5.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>2.62</td>
<td>2.50</td>
<td>-0.6%</td>
<td>2.51</td>
<td>2.45</td>
<td>2.25</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>8.44</td>
<td>8.22</td>
<td>-2.4%</td>
<td>8.60</td>
<td>8.78</td>
<td>9.32</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>6.92</td>
<td>6.73</td>
<td>-3.2%</td>
<td>7.12</td>
<td>7.42</td>
<td>8.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.52</td>
<td>1.49</td>
<td>1.8%</td>
<td>1.48</td>
<td>1.37</td>
<td>1.20</td>
</tr>
</tbody>
</table>
</body>
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U.S. sales of light vehicles rose all of 0.4% last month to a 16.27M unit annual selling rate, according to the Autodata Corporation. The uptick followed a 0.9% increase during November. These recent upticks left sales for the year [...]

U.S. Vehicle Sales Tick Up in December, Down in 2007

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104e.jpg" align="left" border="0" height="265" width="353">
While France&#8217;s services sector is holding up pretty well the
consumer is not keeping up that sort of pace. Consumer confidence fell
by one point in December but the index has lost 16 points from its peak
in this cycle and the resulting index now stands at a relatively weak
position with respect to its recent range of values. Confidence is now
in the bottom ten percent of its range over the past eighteen years.
Consumers say it&#8217;s the worst price environment in the past 18 years.
They expect pricing conditions to ease up in the 12-months ahead. 
 

Households assess their living conditions over the past 12
months as in the bottom seven percentile of the past 18 year&#8217;s results.
They see that improving to the bottom 19 percentile in the year ahead. 
 

Households place unemployment prospects in the bottom 38th
percentile for the 12 months ahead. Their spending plans are in the
bottom third of their range, a similar reading Households assess their
current financial situation as middling: in the 52nd percentile of its
range. But over the past 12months they place it in the bottom fifth of
its range and over the next 12 months they expect a bottom quarter of
the range result. Consumer responses are certainly more downbeat than
the performance of the French services sector would let us infer.
France is clearly one to watch to see which way its various and
disparate readings eventually coalesce or if they do. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> INSEE
Household Monthly Survey</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="4">&nbsp;</td>
<td colspan="2">Since Jan 1990</td>
<td colspan="4">Since Jan 1990</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Dec 
07</td>
<td>Nov 
07</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr class="grey2">
<td class="firstcol">Household Confidence</td>
<td>-29</td>
<td>-28</td>
<td>-23</td>
<td>-21</td>
<td>9.3</td>
<td>196</td>
<td>10</td>
<td>-33</td>
<td>43</td>
<td>-17</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Living
Standards</td>
</tr>
<tr class="grey2">
<td class="firstcol">past 12 Mos</td>
<td>-61</td>
<td>-59</td>
<td>-54</td>
<td>-51</td>
<td>7.1</td>
<td>207</td>
<td>18</td>
<td>-67</td>
<td>85</td>
<td>-37</td>
</tr>
<tr class="grey2">
<td class="firstcol">Next 12-Mos</td>
<td>-31</td>
<td>-36</td>
<td>-25</td>
<td>-26</td>
<td>19.3</td>
<td>165</td>
<td>15</td>
<td>-42</td>
<td>57</td>
<td>-18</td>
</tr>
<tr class="grey2">
<td class="firstcol">Unemployment: Next 12</td>
<td>5</td>
<td>11</td>
<td>11</td>
<td>10</td>
<td>38.2</td>
<td>172</td>
<td>73</td>
<td>-37</td>
<td>110</td>
<td>30</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Price
Developments</td>
</tr>
<tr class="grey2">
<td class="firstcol">Past 12Mo</td>
<td>39</td>
<td>30</td>
<td>17</td>
<td>12</td>
<td>100.0</td>
<td>1</td>
<td>39</td>
<td>-57</td>
<td>96</td>
<td>-19</td>
</tr>
<tr class="grey2">
<td class="firstcol">Next 12-Mos</td>
<td>-23</td>
<td>-8</td>
<td>-19</td>
<td>-16</td>
<td>40.7</td>
<td>33</td>
<td>31</td>
<td>-60</td>
<td>91</td>
<td>-34</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Savings</td>
</tr>
<tr class="grey2">
<td class="firstcol">Favorable to save</td>
<td>30</td>
<td>27</td>
<td>31</td>
<td>36</td>
<td>72.2</td>
<td>32</td>
<td>40</td>
<td>4</td>
<td>36</td>
<td>23</td>
</tr>
<tr class="grey2">
<td class="firstcol">Ability to save Next 12</td>
<td>-12</td>
<td>-13</td>
<td>-7</td>
<td>-6</td>
<td>37.9</td>
<td>147</td>
<td>6</td>
<td>-23</td>
<td>29</td>
<td>-8</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Spending</td>
</tr>
<tr class="grey2">
<td class="firstcol">Favorable for major purchase</td>
<td>-23</td>
<td>-18</td>
<td>-11</td>
<td>-10</td>
<td>32.8</td>
<td>173</td>
<td>16</td>
<td>-42</td>
<td>58</td>
<td>-12</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Financial
Situation</td>

</tr>
<tr class="grey2">
<td class="firstcol">Current</td>
<td>14</td>
<td>15</td>
<td>16</td>
<td>16</td>
<td>52.4</td>
<td>66</td>
<td>24</td>
<td>3</td>
<td>21</td>
<td>12</td>
</tr>
<tr class="grey2">
<td class="firstcol">Past 12 Mos</td>
<td>-23</td>
<td>-19</td>
<td>-17</td>
<td>-15</td>
<td>18.2</td>
<td>190</td>
<td>-5</td>
<td>-27</td>
<td>22</td>
<td>-16</td>
</tr>
<tr class="grey2">
<td class="firstcol">Next 12-Mos</td>
<td>-9</td>
<td>-8</td>
<td>-6</td>
<td>-5</td>
<td>25.9</td>
<td>206</td>
<td>11</td>
<td>-16</td>
<td>27</td>
<td>0</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Number of observations in the period</td>
<td>215</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

While France’s services sector is holding up pretty well the consumer is not keeping up that sort of pace. Consumer confidence fell by one point in December but the index has lost 16 points from its peak in this cycle and the [...]

French Consumer Confidence Continues to Slide

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104d.jpg" align="left" border="0" height="265" width="353">
The chart tells a clear story of malaise and decline in
Europe&#8217;s service sector. Survey readings for services industries in the
overall community are weak. Individual countries are weak across the
board with the exception of France which bucked the trend last month by
rising when other countries&#8217; indices fell hard. This month France&#8217;s
service sector index has edged lower but it is vastly stronger than in
most other major EMU nations. The UK, an EU member, is also showing
pronounced sector weakness. 
 

If we position the current readings in their respective ranges
of values since May of 2000 we find all are below their range midpoints
except France which stands in its 60th percentile. Germany and the
overall EMU measure are in their respective 44th to 45th percentiles.
Spain, Ireland and Italy are roughly in the bottom third of their
respective ranges with Italy even weaker than that. 
 

The service sector is an important engine of job growth in
Europe as it is in the US. And concerns over the euro&#8217;s strength and
the fallout from the financial sector problems in the US are problems
that are in play. The MFG sector in Europe has actually bounced from
its lows over the past two months in the face of such pressures.
Services however, continue to weaken. The ECB is on the spot with
another strong inflation reading in December that defies it to take
anti-inflation steps as oil prices spurt and while the euro is
screaming to stronger values. The actual weakness in the economy may
seem to make the ECB&#8217;s job that much harder, but in fact actual
weakness makes ECB temperance less of an act of bravado. Its failure to
hike rates in the face of inflation and spare the euro further stress
is easier if the economy is showing some real weakness up front. The
service sector is giving the ECB a real excuse for playing the waiting
game- right or wrong. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> NTC
Services Indices for EU/EMU</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<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>Percentile</td>
</tr>
<tr class="grey1">
<td class="firstcol">Euro-13</td>
<td>53.14</td>
<td>54.14</td>
<td>55.81</td>
<td>54.36</td>
<td>55.62</td>
<td>56.58</td>
<td>43.5%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>51.24</td>
<td>53.09</td>
<td>55.08</td>
<td>53.14</td>
<td>55.12</td>
<td>56.49</td>
<td>44.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">France</td>
<td>58.89</td>
<td>59.15</td>
<td>58.48</td>
<td>58.84</td>
<td>58.44</td>
<td>58.60</td>
<td>60.4%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>49.71</td>
<td>50.77</td>
<td>55.27</td>
<td>51.92</td>
<td>54.04</td>
<td>54.86</td>
<td>15.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Spain</td>
<td>50.99</td>
<td>50.69</td>
<td>52.45</td>
<td>51.38</td>
<td>52.72</td>
<td>54.45</td>
<td>31.1%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>53.53</td>
<td>52.81</td>
<td>56.48</td>
<td>54.27</td>
<td>55.13</td>
<td>57.18</td>
<td>36.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">EU only</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">UK</td>
<td>52.36</td>
<td>51.95</td>
<td>53.08</td>
<td>52.46</td>
<td>54.78</td>
<td>56.25</td>
<td>42.5%</td>
</tr>
<tr>
<td colspan="6" class="firstcol">percentile
is over range since May
2000</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

The chart tells a clear story of malaise and decline in Europe’s service sector. Survey readings for services industries in the overall community are weak. Individual countries are weak across the board with the exception of France [...]

Service Sector Still Pummeled in Europe…France Excepted

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104a.jpg" width="353">
For December, the Bureau of Labor Statistics reported that nonfarm payrolls rose a meager 18,000 versus expectations for a 50,000 increase. That expectation was ratcheted down after yesterday&#39;s ADP report of a modest 40,000 increase in private nonfarm payrolls.
The December increase was the weakest since 2003. It was accompanied by a slight upward revision to the gain in November jobs but a downward revision to October.
Private industries payrolls fell 13,000 (+0.9% y/y), the first monthly decline since 2003.
Perhaps portending further weakness in payroll jobs was a drop in the one month diffusion index of job gain. At 48.4% this measure of the breadth of job growth amongst industries was at its lowest and below 50 for the first time since 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104c.jpg" width="353">
The unemployment rate surged to 5.0% last month from 4.7% in November. Household employment fell 436,000 (0.2% y/y and reversed most of November&#39;s 631,000 surge. The ranks of the unemployed grew 474,000 (13.2% y/y) and the labor force rose just 38,000 (0.8% y/y) after a 522,000 November jump. The labor force participation rate held steady at 66.0%, down from the 66.2% averaged last year.
The level of average hours worked has remained notably stable recently. As a result, the 4Q level of aggregate hours worked (employment times hours) rose just 1.0% (AR) following a 3Q rise of 1.2% and a 2.1% increase during 2Q. During the last ten years there has been a 44% correlation between the gain in hours and the gain in real GDP. That correlation is down from 56% over the last 20 years and from 74% over the last 30 due to the faster growth in worker productivity.
Factory sector payrolls fell another 31,000, the largest decline since August. Construction employment fell out of bed and posted a 49,000 drop last month which was the largest since February.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104b.jpg" width="353">
Continuing the shortfall in last month&#39;s job gain was the modest 62,000 rise in private service sector employment (1.5% y/y). That was half the November gain and the weakest since 2005. Retail employment fell 24,000 (+0.3% y/y) while jobs in finance fell 4,000 (-0.2% y/y), the sixth decline in the last seven months. Jobs in clothing stores fell 7,900 (+0.4% y/y) and temporary help services jobs were unchanged (-1.7% y/y).
Firm were job gains in the health care sector which rose 36,900 (3.2% y/y). Professional &amp; business services rose 43,000 (1.8% y/y).
Employment in the government sector also rose a moderate 31,000 (1.2% y/y) after a 28,000 worker increase in November. Jobs with the Federal government fell 4,000 (-0.2% y/y).
Average hourly earnings increased 0.4% and the prior month&#39;s gain was revised up slightly. Factory sector earnings reversed all of the prior month&#39;s gain with a 0.5% decline (+2.6% y/y). Private service-providing earnings rose 0.5% (4.1% y/y).

<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/@EB/@EB01/@EB01.HTM">Employment: 000s</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</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">Payroll Employment</td>
<td>18</td>
<td>115</td>
<td>159</td>
<td>1.0%</td>
<td>1.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Previous</td>
<td>--</td>
<td>94</td>
<td>170</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-31</td>
<td>-13</td>
<td>-23</td>
<td>-1.5%</td>
<td>-1.2%</td>
<td>-0.2%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-49</td>
<td>-37</td>
<td>-20</td>
<td>-2.5%</td>
<td>-0.8%</td>
<td>4.8%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8</td>
<td>33.9 (Dec &#39;06)</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>3.7%</td>
<td>3.9%</td>
<td>3.9%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.0%</td>
<td>4.7%</td>
<td>4.8%</td>
<td>4.4% (Dec &#39;06)</td>
<td>4.6%</td>
<td>4.6%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

For December, the Bureau of Labor Statistics reported that nonfarm payrolls rose a meager 18,000 versus expectations for a 50,000 increase. That expectation was ratcheted down after yesterday's ADP report of a modest 40,000 increase [...]

U.S. Payrolls Weak, Unemployment Rate Surged

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. Construction Spending Up Slightly in November

U.S. Construction Spending Up Slightly in November

U.S. Gasoline Prices Moved Higher

U.S. ISM Non-manufacturing Index Fell Again

U.S. Vehicle Sales Tick Up in December, Down in 2007

French Consumer Confidence Continues to Slide

Service Sector Still Pummeled in Europe…France Excepted

U.S. Payrolls Weak, Unemployment Rate Surged