Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219c.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s new orders are off in October, led by weakness in
foreign orders on the month. But that drop only offsets the rise the
month before. Domestic order weakness remains despite the 1.7% rise in
October. Over three months both domestic and foreign orders are
falling. Yr/Yr foreign order growth is still strong at +10.2%, while
domestic orders are up by just 2.9% over 12-months. In the quarter to
date, total orders are dropping at a 6.3% pace, while foreign orders
are dropping at a 19% rate. Domestic orders in Q4 2007 are edging
upward a pace of 1.9% at an annualized rate. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Italy Orders </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-1.1%</td>
<td>0.3%</td>
<td>-0.7%</td>
<td>-5.7%</td>
<td>6.3%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>-5.6%</td>
<td>5.6%</td>
<td>-4.1%</td>
<td>-16.3%</td>
<td>12.5%</td>
<td>10.2%</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>1.7%</td>
<td>-2.6%</td>
<td>1.2%</td>
<td>1.1%</td>
<td>3.0%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Sales</td>
<td>-0.5%</td>
<td>-3.6%</td>
<td>3.9%</td>
<td>-1.3%</td>
<td>5.6%</td>
<td>3.7%</td>
</tr>
</tbody>
</table>
</body></html>

Italy’s new orders are off in October, led by weakness in foreign orders on the month. But that drop only offsets the rise the month before. Domestic order weakness remains despite the 1.7% rise in October. Over three months both [...]

Italy’s Orders Sag and Drop in New Quarter

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219b.jpg" align="left" border="0" height="265" width="353">
The IFO index for December is out, but the detail awaits
releases next week. The headlines and sector news tell us what we
already knew and that is, conditions are still deteriorating. The
Business climate and Current situation indices are still firm-valued as
they reside at or near the three-quarters mark of their respective
ranges. The outlook index is less upbeat as it resides at the one-third
mark. If we were assigning grades it would be 'Cs&#8217; for climate and
current and a &#8216;D&#8217; for expectations. The IFO gauge has slipped more
rapidly that it did in the 2005 episode. 
 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">IFO Survey: Germany </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Percent: Yr/Yr</td>
<td colspan="3">INDEX NUMBERS</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Current</td>
<td>Average</td>
<td>Percentile</td>
</tr>
<tr>
<td class="firstcol">Biz Climate</td>
<td style="color: red;">-5.3%</td>
<td style="color: red;">-2.5%</td>
<td style="color: red;">-1.4%</td>
<td style="color: red;">-0.9%</td>
<td>0.7%</td>
<td>103.0</td>
<td>95.8</td>
<td>75.6%</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td style="color: red;">-6.2%</td>
<td style="color: red;">-3.2%</td>
<td style="color: red;">-2.1%</td>
<td style="color: red;">-1.3%</td>
<td>2.5%</td>
<td>108.1</td>
<td>94.9</td>
<td>77.6%</td>
</tr>
<tr>
<td class="firstcol">Biz Expectations</td>
<td style="color: red;">-4.3%</td>
<td style="color: red;">-2.0%</td>
<td style="color: red;">-0.8%</td>
<td style="color: red;">-0.4%</td>
<td style="color: red;">-1.1%</td>
<td>98.2</td>
<td>96.7</td>
<td>66.8%</td>
</tr>
</tbody>
</table>
</body></html>

The IFO index for December is out, but the detail awaits releases next week. The headlines and sector news tell us what we already knew and that is, conditions are still deteriorating. The Business climate and Current situation [...]

IFO Presages Weak EMU Reading for Germany as Well

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219a.jpg" align="left" border="0" height="265" width="353">
It&#8217;s telling when an organization like the CBI says that the
expected January reading of -5 still corresponds to an annual volume
increase of 2.5%. But the result of December is the weakest in a bit
over one year (since Nov 2006). The expected sales for January are the
weakest since April of 2006. This is not Draconian weakness but then a
look at the plots in this report and an application of the
ever-reliable straight-edge forecast rule gives an idea of where we
might yet be headed. Then again, straight edge forecasts are always
wrong at some point, the only question is: when? Soon or later on? For
the moment, momentum is gone and financial fragility &#8211; or even turmoil
- is still with us. The BOE is worried enough to have cut rates even
with a forecast that sees an inflation overshoot into 2008. In an era
when the central banking mantra is "cement and anchor inflation
expectations", this is indeed a bold step by the central bank. Of
course the times are odd since there is even talk from the PM himself
that doesn't rule out a nationalization of Northern Rock. The times
they are a-changin&#8217;, aren&#8217;t they? 
 

The level of the readings in the chart make a telling
comparison with where they have been in the previous two years and THE
LEVELS speak of current strength -- or better put -- current momentum.
But the steadiness of the slippage is yet another signal and it forms a
dark side of that momentum that sounds a warning for the times ahead.
The expectations for sales and orders in January are off sharply from
December and in truth it is hard to know what to pencil in for February
and that is the number that policy must look to at the moment to sort
out the mess. Is January a rogue and outsized drop? Will February
reverse it? Will February worsen on trend? These are things we do not
know, and as Inspector Clouseau of Pink Panther fame reminds us: &#8216;we do
not know what we do not know&#8217;. So policy must have its hunch and make
its deal with the devil. The question is, of course, which devil? The
CBI report is decidedly mixed and the trend is a call to action. But it
is not clear that the BOE has the wherewithal to answer it, despite
having cut rates once already. It is also far from clear what action is
called for. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">UK Retail
volume data CBI Survey </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Reported:</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>12Mo Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr>
<td class="firstcol">Sales/Year Ago</td>
<td>--</td>
<td>8</td>
<td>13</td>
<td>10</td>
<td>21</td>
<td>47%</td>
<td>57</td>
<td>-35</td>
<td>92</td>
</tr>
<tr>
<td class="firstcol">Orders/Year Ago</td>
<td>--</td>
<td>6</td>
<td>18</td>
<td>16</td>
<td>16</td>
<td>55%</td>
<td>42</td>
<td>-38</td>
<td>80</td>
</tr>
<tr>
<td class="firstcol">Sales:Time/Yr</td>
<td>--</td>
<td>-5</td>
<td>-3</td>
<td>0</td>
<td>5</td>
<td>41%</td>
<td>41</td>
<td>-37</td>
<td>78</td>
</tr>
<tr>
<td class="firstcol">Stocks: Sales</td>
<td>--</td>
<td>24</td>
<td>18</td>
<td>13</td>
<td>13</td>
<td>80%</td>
<td>30</td>
<td>0</td>
<td>30</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="10">Expected:</td>
</tr>
<tr>
<td class="firstcol">Sales/Yr Ago</td>
<td>-5</td>
<td>11</td>
<td>15</td>
<td>16</td>
<td>17</td>
<td>25%</td>
<td>49</td>
<td>-23</td>
<td>72</td>
</tr>
<tr>
<td class="firstcol">Orders/Yr Ago</td>
<td>-9</td>
<td>10</td>
<td>12</td>
<td>16</td>
<td>12</td>
<td>35%</td>
<td>38</td>
<td>-34</td>
<td>72</td>
</tr>
<tr>
<td class="firstcol">Sales:Time/Yr</td>
<td>-16</td>
<td>3</td>
<td>2</td>
<td>-9</td>
<td>4</td>
<td>22%</td>
<td>29</td>
<td>-29</td>
<td>58</td>
</tr>
<tr>
<td class="firstcol">Stocks: Sales</td>
<td>24</td>
<td>11</td>
<td>12</td>
<td>5</td>
<td>10</td>
<td>100%</td>
<td>24</td>
<td>3</td>
<td>21</td>
</tr>
</tbody>
</table>
</body></html>

It’s telling when an organization like the CBI says that the expected January reading of -5 still corresponds to an annual volume increase of 2.5%. But the result of December is the weakest in a bit over one year (since Nov 2006). The [...]

UK CBI Retail Survey Continues to Deflate Messy-nomics

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219d.jpg" align="left" border="0" height="265" width="353">
On average, retail gasoline prices last week held at the prior
period's level of $3.00 per gallon, according to the US Department of
Energy survey.That level is, however, down eleven cents from the peak
one month ago.
The recent stability of gasoline prices owes to the decline in
the price of crude oil. For spot WTI crude oil, prices at $90.00 per
barrel are down almost 10% from the highs last month which nearly
touched $100 per barrel.
That stability, however, is little comfort at the pump where
prices have doubled versus the $1.56 averaged during 2003. To drive
10,000 miles in a vehicle which averages 20 miles per gallon, the
annual cost has risen to $1,500 from $750.
At the margin, where spending decisions are made, persons
earning $30,000 per year now will now spend 5% of yearly income on
gasoline versus 2.5% in 2003. Since then the demand for gasoline indeed
has fallen, but only modestly to 2.3% of real consumer expenditures
from 2.5%. Bottom line: less will be available for spending on other
goods &amp; services.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219e.jpg" align="right" border="0" height="265" width="353">
Longer term trends paint a somewhat less gloomy picture for
two reasons. 1) As a percentage of total consumer spending, that
percentage spent on gasoline is down by nearly one half since before
oil prices quadrupled in the mid 1970s, and 2) versus all other
consumer prices gasoline has risen sharply, yet only to the level of
the early 1980s.
Less demand for gasoline only is perhaps a
saving grace for this picture. Had vehicle fuel efficiency not roughly
doubled to that 20 miles per gallon, annual fuel costs would be $3,000.
Ouch. That's still a doubling.
Relative to all other consumer prices, gasoline indeed has
risen. Ouch. In fact, the rise rivals the gain of
25-30 years ago. A saving grace, perhaps; the level
prices have risen to is still below the high seen in 1980. (That's only
a positive if a person was born before 1963.)
Other factors also do mitigate the negative effects of the
recent rise in gasoline prices. Disposable income growth is now
accelerating versus decelerating in earlier periods of oil price
shocks. And even though employment growth is recently down, the
deceleration is nowhere near as dramatic as in earlier periods. And the
unemployment rate is lower. Finally, interest rates are quite a bit
lower.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219f.jpg" align="left" border="0" height="265" width="353">
That all, makes it quite uncertain how consumer will/is
holding up. The data are inconclusive, so far. Anecdotal reports are
mixed. Chain store sales are easing. Vehicle sales are flat to lower.
(All of the data used in this analysis is available in Haver's USECON
and USWEEKLY data bases.)
Oil Shocks and Price Stability from the
Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20071201/cover.pdf">here</a>.
Today's announcement by the Fed of recent auction result can
be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071219c.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/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">12/17/07</th>
<th scope="col">12/10/07</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>
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>3.00</td>
<td>3.00</td>
<td>29.2%</td>
<td>2.57</td>
<td>2.27</td>
<td>1.85</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>90.03</td>
<td>88.33</td>
<td>47.5%</td>
<td>61.11</td>
<td>58.16</td>
<td>41.78</td>
</tr>
</tbody>
</table>
 UK CBI Retail Survey Continues
toDeflate&nbsp; Messy-nomics
 
by <a href="/comment/Brusca.html">Robert
Brusca</a> December 19, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219a.jpg" align="left" border="0" height="265" width="353">
It&#8217;s telling when an organization like the CBI says that the
expected January reading of -5 still corresponds to an annual volume
increase of 2.5%. But the result of December is the weakest in a bit
over one year (since Nov 2006). The expected sales for January are the
weakest since April of 2006. This is not Draconian weakness but then a
look at the plots in this report and an application of the
ever-reliable straight-edge forecast rule gives an idea of where we
might yet be headed. Then again, straight edge forecasts are always
wrong at some point, the only question is: when? Soon or later on? For
the moment, momentum is gone and financial fragility &#8211; or even turmoil
- is still with us. The BOE is worried enough to have cut rates even
with a forecast that sees an inflation overshoot into 2008. In an era
when the central banking mantra is "cement and anchor inflation
expectations", this is indeed a bold step by the central bank. Of
course the times are odd since there is even talk from the PM himself
that doesn't rule out a nationalization of Northern Rock. The times
they are a-changin&#8217;, aren&#8217;t they? 
 

The level of the readings in the chart make a telling
comparison with where they have been in the previous two years and THE
LEVELS speak of current strength -- or better put -- current momentum.
But the steadiness of the slippage is yet another signal and it forms a
dark side of that momentum that sounds a warning for the times ahead.
The expectations for sales and orders in January are off sharply from
December and in truth it is hard to know what to pencil in for February
and that is the number that policy must look to at the moment to sort
out the mess. Is January a rogue and outsized drop? Will February
reverse it? Will February worsen on trend? These are things we do not
know, and as Inspector Clouseau of Pink Panther fame reminds us: &#8216;we do
not know what we do not know&#8217;. So policy must have its hunch and make
its deal with the devil. The question is, of course, which devil? The
CBI report is decidedly mixed and the trend is a call to action. But it
is not clear that the BOE has the wherewithal to answer it, despite
having cut rates once already. It is also far from clear what action is
called for. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">UK Retail
volume data CBI Survey </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Reported:</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>12Mo Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr>
<td class="firstcol">Sales/Year Ago</td>
<td>--</td>
<td>8</td>
<td>13</td>
<td>10</td>
<td>21</td>
<td>47%</td>
<td>57</td>
<td>-35</td>
<td>92</td>
</tr>
<tr>
<td class="firstcol">Orders/Year Ago</td>
<td>--</td>
<td>6</td>
<td>18</td>
<td>16</td>
<td>16</td>
<td>55%</td>
<td>42</td>
<td>-38</td>
<td>80</td>
</tr>
<tr>
<td class="firstcol">Sales:Time/Yr</td>
<td>--</td>
<td>-5</td>
<td>-3</td>
<td>0</td>
<td>5</td>
<td>41%</td>
<td>41</td>
<td>-37</td>
<td>78</td>
</tr>
<tr>
<td class="firstcol">Stocks: Sales</td>
<td>--</td>
<td>24</td>
<td>18</td>
<td>13</td>
<td>13</td>
<td>80%</td>
<td>30</td>
<td>0</td>
<td>30</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="10">Expected:</td>
</tr>
<tr>
<td class="firstcol">Sales/Yr Ago</td>
<td>-5</td>
<td>11</td>
<td>15</td>
<td>16</td>
<td>17</td>
<td>25%</td>
<td>49</td>
<td>-23</td>
<td>72</td>
</tr>
<tr>
<td class="firstcol">Orders/Yr Ago</td>
<td>-9</td>
<td>10</td>
<td>12</td>
<td>16</td>
<td>12</td>
<td>35%</td>
<td>38</td>
<td>-34</td>
<td>72</td>
</tr>
<tr>
<td class="firstcol">Sales:Time/Yr</td>
<td>-16</td>
<td>3</td>
<td>2</td>
<td>-9</td>
<td>4</td>
<td>22%</td>
<td>29</td>
<td>-29</td>
<td>58</td>
</tr>
<tr>
<td class="firstcol">Stocks: Sales</td>
<td>24</td>
<td>11</td>
<td>12</td>
<td>5</td>
<td>10</td>
<td>100%</td>
<td>24</td>
<td>3</td>
<td>21</td>
</tr>
</tbody>
</table>
IFO Presages Weak EMU Reading for
Germany as Well 
by <a href="/comment/Brusca.html">Robert
Brusca&nbsp;</a> December 19, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219b.jpg" align="left" border="0" height="265" width="353">
The IFO index for December is out, but the detail awaits
releases next week. The headlines and sector news tell us what we
already knew and that is, conditions are still deteriorating. The
Business climate and Current situation indices are still firm-valued as
they reside at or near the three-quarters mark of their respective
ranges. The outlook index is less upbeat as it resides at the one-third
mark. If we were assigning grades it would be 'Cs&#8217; for climate and
current and a &#8216;D&#8217; for expectations. The IFO gauge has slipped more
rapidly that it did in the 2005 episode. 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">IFO
Survey: Germany </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Percent: Yr/Yr</td>
<td colspan="3">INDEX NUMBERS</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Current</td>
<td>Average</td>
<td>Percentile</td>
</tr>
<tr>
<td class="firstcol">Biz Climate</td>
<td style="color: red;">-5.3%</td>
<td style="color: red;">-2.5%</td>
<td style="color: red;">-1.4%</td>
<td style="color: red;">-0.9%</td>
<td>0.7%</td>
<td>103.0</td>
<td>95.8</td>
<td>75.6%</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td style="color: red;">-6.2%</td>
<td style="color: red;">-3.2%</td>
<td style="color: red;">-2.1%</td>
<td style="color: red;">-1.3%</td>
<td>2.5%</td>
<td>108.1</td>
<td>94.9</td>
<td>77.6%</td>
</tr>
<tr>
<td class="firstcol">Biz Expectations</td>
<td style="color: red;">-4.3%</td>
<td style="color: red;">-2.0%</td>
<td style="color: red;">-0.8%</td>
<td style="color: red;">-0.4%</td>
<td style="color: red;">-1.1%</td>
<td>98.2</td>
<td>96.7</td>
<td>66.8%</td>
</tr>
</tbody>
</table>
Italy&#8217;s Orders Sag and Drop in New
Quarter 
by <a href="/comment/Brusca.html">Robert
Brusca</a> December 19, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219c.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s new orders are off in October, led by weakness in
foreign orders on the month. But that drop only offsets the rise the
month before. Domestic order weakness remains despite the 1.7% rise in
October. Over three months both domestic and foreign orders are
falling. Yr/Yr foreign order growth is still strong at +10.2%, while
domestic orders are up by just 2.9% over 12-months. In the quarter to
date, total orders are dropping at a 6.3% pace, while foreign orders
are dropping at a 19% rate. Domestic orders in Q4 2007 are edging
upward a pace of 1.9% at an annualized rate. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-1.1%</td>
<td>0.3%</td>
<td>-0.7%</td>
<td>-5.7%</td>
<td>6.3%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>-5.6%</td>
<td>5.6%</td>
<td>-4.1%</td>
<td>-16.3%</td>
<td>12.5%</td>
<td>10.2%</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>1.7%</td>
<td>-2.6%</td>
<td>1.2%</td>
<td>1.1%</td>
<td>3.0%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Sales</td>
<td>-0.5%</td>
<td>-3.6%</td>
<td>3.9%</td>
<td>-1.3%</td>
<td>5.6%</td>
<td>3.7%</td>
</tr>
</tbody>
</table>
</body></html>

On average, retail gasoline prices last week held at the prior period's level of $3.00 per gallon, according to the US Department of Energy survey.That level is, however, down eleven cents from the peak one month ago. The recent [...]

Gasoline Still Near $3.00 per Gallon. Longer Term, Less is Used

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071218e.jpg" align="left" border="0" height="265" width="353">
Both Canada and the United Kingdom reported lower than
expected core inflation for November. In Canada, core inflation
excluding food and energy was 1.76% while headline inflation was 2.47%.
In the UK, comparable figures were 1.47% and 2.13%. Core and headline
inflation rates for the U.K. and Canada are shown in the first and
second charts. In the
United States, on the other hand, the November rises in the core and
headline inflation rates, announced earlier, were greater than
expected. The core inflation rate was 2.33% and the headline 4.31%.
Fears of stagflation--slow or no growth and inflation--are being
surfacing. Former Federal Reserve Board Chairman, Greenspan, speaking
on ABC's "This Week" program on December 15, said "We are beginning to
get not stagflation, but the early symptoms of it."
Core inflation, usually defined as headline inflation
excluding energy and food, is frequently the target of a Central Bank's
monetary policy. Over time, the theory goes, rises or falls in the
prices of food and energy tend to be offset by subsequent falls or
rises in these prices. Exclusion of these items gives a better picture
of underlying inflation. However, there are times when it may be
prudent to focus not on core inflation but on the broader headline
inflation. In stagflation it is the headline series that matters. The
current rise in commodity prices is due less to a cyclical shortage of
supply that will be corrected by a cyclical increase in production in
the coming months than it is to a structural shift in world demand for
food and energy, engendered, in large part, by the rapid growth of the
emerging economies, especially, China. Yesterday, December 17, for
example, the price of a bushel of wheat almost reached $10, its highest
price on record. Soybeans also marked a record at $11.14 a bushel. Even
the price of corn, which had declined earlier in the year was up to
$4.10 on December 17. The daily prices of corn, wheat and soybeans over
the last two years are shown in the third chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071218f.jpg" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071218g.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">INFLATION
RATES&nbsp;</th>
<th scope="col">Nov 07</th>
<th scope="col">Oct 07&nbsp;</th>
<th scope="col">Nov 06&nbsp;</th>
<th scope="col">M/M %Chg&nbsp;</th>
<th scope="col">Y/Y %Chg&nbsp;</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">U.K.
Headline&nbsp; (2005=100)</td>
<td>105.6</td>
<td>105.3</td>
<td>103.4</td>
<td>0.28</td>
<td>2.13</td>
<td>102.3</td>
<td>100.0</td>
<td>98.0</td>
</tr>
<tr>
<td class="firstcol">U.K.
Core&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>103.6</td>
<td>103.5</td>
<td>102.1</td>
<td>0.10</td>
<td>1.47</td>
<td>101.3</td>
<td>100.0</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Canada Headline
(2002=100)</td>
<td>111.9</td>
<td>111.6</td>
<td>109.2</td>
<td>0.27</td>
<td>2.47</td>
<td>109.1</td>
<td>107.0</td>
<td>104.7</td>
</tr>
<tr>
<td class="firstcol"> Canada Core</td>
<td>109.6</td>
<td>109.6</td>
<td>107.7</td>
<td>0.00</td>
<td>1.76</td>
<td>106.9</td>
<td>105.3</td>
<td>103.9</td>
</tr>
<tr class="odd">
<td class="firstcol">U. S. Headline
(1982-84=100)</td>
<td>210.2</td>
<td>208.9</td>
<td>201.5</td>
<td>0.59</td>
<td>4.31</td>
<td>201.6</td>
<td>195.3</td>
<td>188.9</td>
</tr>
<tr>
<td class="firstcol">U. S. Core</td>
<td>212.4</td>
<td>212.3</td>
<td>207.6</td>
<td>0.06</td>
<td>2.33</td>
<td>205.9</td>
<td>200.9</td>
<td>196.6</td>
</tr>
</tbody>
</table>
</body></html>

Both Canada and the United Kingdom reported lower than expected core inflation for November. In Canada, core inflation excluding food and energy was 1.76% while headline inflation was 2.47%. In the UK, comparable figures were 1.47% [...]

In Spite of Lower than Expected Inflation in Canada and the Uk in November, Stagflation Fears Are Rising

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071218h.jpg" align="left" border="0" height="265" width="353">
It may seem curious that so many Europeans are complaining
about the strength of the euro while Europe&#8217;s economic data are off
peak but are not collapsing and as the Euro Area trade surplus is still
growing in October. Growing &#8211; the SURPLUS? Why is Gernot Nerb of
Germany&#8217;s prestigious IFO saying that if the euro moves much higher,
the ECB might even consider cutting rates although Euro Area inflation
would certainly not accommodate that (nor would the growth rates of
money or credit for that matter)? 
 

A closer look at the trade components shows what is going on.
Exports are still growing and growing faster than imports (8.6% Versus
6%, Yr/Yr for both). But one year ago export growth was 14.3% (y/y) and
one year ago import growth was 12.6% (Y/Y). So both flows have slowed
dramatically as the Euro has risen. 
 

Over the recent three months imports are up at just less than
a 6% pace but with food and drink imports running at nearly a 25%
annual pace. 
 

Overall exports are still growing as well, but if we look at
the all&#8211;important manufacturing category we see that manufacturing
exports have slipped from a pace of 15% one year ago to a Yr/Yr pace of
5.3% in November of 2007 and to a three month annualized pace of 4.2%
over three months. This is a marked slowdown. For imports of
manufacturing products the slippage is even more awesome. Imports of
manufacturing goods were up by 14.4% Y/Y in Nov of 2006. In Nov of 2007
that Yr/Yr growth rate is down to +1.6% and over three months that rate
is at a -10% pace. 
 

The trade surplus continues to grow because the Zone&#8217;s imports
are falling faster than export growth, but both flows are receding
rapidly. The strong euro is impacting Euro Area exports and the
weakness in exports sending shivers through the economy and slowing
everything down impacting imports as well. It is no wonder that the
OECD is urging the ECB to be tolerant of its inflation overshoot. Even
so the policy endorsed by Nerb is an outliner. 
 

These trade-offs are merely a sample of the sort of stuff
Europe can expect if it wishes to pursue for the Euro a role as major
reserve currency unit. Often what the FX market demands is a result
that is not copasetic with the needs the domestic economy. Welcome to
globalization. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> Euro Area 13-Trade trends for goods</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="even">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>12-Mo Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance*</td>
<td>&#8364;&#8364; 4,017</td>
<td>&#8364;&#8364; 3,648</td>
<td>&#8364;&#8364; 3,931</td>
<td>&#8364;&#8364; 3,692</td>
<td>&#8364;&#8364; 3,251</td>
<td>&#8364;&#8364; (1,655)</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="7">Exports</td>
</tr>
<tr class="odd">
<td class="firstcol">All Exports</td>
<td>2.3%</td>
<td>-1.2%</td>
<td>15.3%</td>
<td>13.1%</td>
<td>8.6%</td>
<td>14.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food and Drinks</td>
<td>0.2%</td>
<td>-1.8%</td>
<td>3.4%</td>
<td>11.0%</td>
<td>7.6%</td>
<td>15.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Raw materials</td>
<td>1.3%</td>
<td>0.6%</td>
<td>1.5%</td>
<td>6.3%</td>
<td>6.8%</td>
<td>19.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>-0.4%</td>
<td>-1.6%</td>
<td>4.2%</td>
<td>7.6%</td>
<td>5.3%</td>
<td>15.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="7">Imports</td>
</tr>
<tr class="odd">
<td class="firstcol">All Imports</td>
<td>2.0%</td>
<td>-0.9%</td>
<td>5.9%</td>
<td>11.2%</td>
<td>6.0%</td>
<td>12.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food and Drinks</td>
<td>-3.7%</td>
<td>8.8%</td>
<td>24.6%</td>
<td>18.1%</td>
<td>11.4%</td>
<td>8.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Raw materials</td>
<td>-0.5%</td>
<td>-5.0%</td>
<td>-16.5%</td>
<td>-0.4%</td>
<td>-4.1%</td>
<td>35.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>-1.7%</td>
<td>-2.0%</td>
<td>-10.0%</td>
<td>4.3%</td>
<td>1.6%</td>
<td>14.6%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">*Eur mlns; mo or period average</td>
</tr>
</tbody>
</table>
</body></html>

It may seem curious that so many Europeans are complaining about the strength of the euro while Europe’s economic data are off peak but are not collapsing and as the Euro Area trade surplus is still growing in October. Growing – the [...]

EMU Trade Surplus Grows as Flows Slow

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071218c.jpg" width="353">
Chain store sales last week rose 1.4% last week but the increase still left sales in December 0.7% below the November average, according to the International Council of Shopping Centers (ICSC)-UBS.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS rose 0.4% and added to a 0.6% gain during the prior week.
Collecting Consumer Debt in America from the Federal Reserve Bank of Philadelphia is available <a href="http://www.phil.frb.org/files/br/2007/q2/hunt_collecting-consumer-debt.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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/14/07</th>
<th scope="col">12/07/07</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>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>475.7</td>
<td>469.3</td>
<td>2.1%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales last week rose 1.4% last week but the increase still left sales in December 0.7% below the November average, according to the International Council of Shopping Centers (ICSC)-UBS.

U.S. Chain Store Sales Ticked Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071218d.jpg" width="353">
The Composite Housing Market Index from the National Association of Home Builders&#39; (NAHB) remained unchanged m/m in December at the lowest level since early 1991. The index was 49% below the high this past February.
In December, the index fell sharply m/m in the Northeast (-48.6% y/y, was unchanged out West (-43.8% y/y) and rose in the South (-46.2 y/y and in the Midwest (-31.8% y/y).
During the last twenty years there has been a 76% correlation between the y/y change in the Composite Index and the change in single family housing starts. 
The sub-index from the NAHB for current sales improved 5.6% in December but remained down 76% from the 2004 high.
The sub-index covering prospective sales in the next six months ticked up slightly m/m but also remained two thirds lower than the 2005 peak.
Traffic of prospective home buyers virtually dried up and fell 17.6% m/m, down three quarters 2005 high.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions good than poor. 
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a>&nbsp;</th>
<th scope="col">December</th>
<th scope="col">November &nbsp;</th>
<th scope="col">Dec. &#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">Composite Housing Market Index</td>
<td>19</td>
<td>19</td>
<td>33</td>
<td>27</td>
<td>42</td>
<td>67</td>
</tr>
</tbody>
</table>
</body>
</html>

The Composite Housing Market Index from the National Association of Home Builders' (NAHB) remained unchanged m/m in December at the lowest level since early 1991. The index was 49% below the high this past February. In December, the [...]

U.S. NAHB Housing Market Index Unchanged

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

260616A.jpg

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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.