Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205h.jpg" align="left" border="0" height="265" width="353">
Retails sales trends in EMU/EU countries that seemed like they
might have been acquiring some life have turned lower in October. 
 

As the first month in a new quarter, the October readings
afford us an early look at the speed of sales in the new quarter. We
find that retail sales volumes are dropping at a 3.7% annual rate in Q4
in the EMU-13 area. Spending on food is up in the quarter at a 0.1%
annualized rate; nonfood items have volumes contracting at a pace of
-5.6%. 
 

Sequential growth rates for nonfood and overall retail sales
have been showing clear deceleration. 
 

In Germany sales are weakening fast. In the UK the slowing is
itself in slow-motion, but the deceleration is still clear to see. 
 

The table below shows that momentum in retail sales volumes
has been fading. Europe is slipping regardless of the optimism there. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Euro area 13 Retail Sales Volume </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</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">Euro area 13 Total</td>
<td>-0.8%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>-2.2%</td>
<td>-0.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.8%</td>
<td>-1.0%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Nonfood</td>
<td>-1.1%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-3.9%</td>
<td>-0.4%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>N/A</td>
<td>1.9%</td>
<td>-0.3%</td>
<td>10.9%</td>
<td>7.2%</td>
<td>8.2%</td>
</tr>
<tr>
<td class="firstcol">HH Goods</td>
<td>N/A</td>
<td>-1.2%</td>
<td>0.5%</td>
<td>-0.8%</td>
<td>-0.3%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Books newspapers &amp;
others</td>
<td>N/A</td>
<td>-0.3%</td>
<td>-0.4%</td>
<td>-0.8%</td>
<td>0.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Pharmaceuticals</td>
<td>N/A</td>
<td>0.6%</td>
<td>0.2%</td>
<td>4.7%</td>
<td>4.2%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">Other nonspecial store sales</td>
<td>N/A</td>
<td>0.7%</td>
<td>-0.6%</td>
<td>-0.3%</td>
<td>-0.8%</td>
<td>-0.1%</td>
</tr>
<tr>
<td class="firstcol">Mail Order</td>
<td>N/A</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-2.3%</td>
<td>3.7%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Nonfood
Volume</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-3.8%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>-11.8%</td>
<td>-8.3%</td>
<td>-4.0%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>N/A</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>2.9%</td>
<td>4.5%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Italy (Total Value)</td>
<td>N/A</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>-2.6%</td>
<td>-2.9%</td>
<td>-2.2%</td>
</tr>
<tr>
<td class="firstcol">UK (EU)</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.7%</td>
<td>4.9%</td>
<td>6.5%</td>
<td>6.7%</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">Shaded areas
calculated on a
one-month lag due to lagging data.</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">The EA 13
countries are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
</body></html>

Retails sales trends in EMU/EU countries that seemed like they might have been acquiring some life have turned lower in October. As the first month in a new quarter, the October readings afford us an early look at the speed of sales [...]

EMU/EU Retail Sales Enthusiasm is Cut Short…

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205g.jpg" width="353">
Challenger, Grey &amp; Christmas reported that job cut announcements in November picked up slightly to 73,140 from 63,114 during October. The number of job cut announcements has moved roughly sideways this year at a level reduced from prior years.
Job cut announcements rose sharply m/m in the auto industry (-5.8% y/y) and energy (637.2% y/y) but showed little up or down movement in most others.
During the last ten years there has been a 79% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans were roughly stable with the prior three months.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></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>
<td class="firstcol">Announced Job Cuts</td>
<td>73,140</td>
<td>63,114</td>
<td>-4.7%</td>
<td>839,822</td>
<td>1,072,054</td>
<td>1,039,935</td>
</tr>
</tbody>
</table>
</body>
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Challenger, Grey & Christmas reported that job cut announcements in November picked up slightly to 73,140 from 63,114 during October. The number of job cut announcements has moved roughly sideways this year at a level reduced from [...]

Challenger Layoffs Picked Up Modestly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205f.jpg" width="353">
The ADP National Employment Report, reported by the payroll processor, indicated that private nonfarm payroll growth improved further to 189,000 during November after a revised 119,000 rise in October.
The U.S. Bureau of Labor Statistics employment figure for November will be published this Friday.
Last month, ADP&#39;s measure of private nonfarm payrolls for October indicated the upwardly revised 119,000 increase in jobs that was followed by a 73,000 gain in private nonfarm payrolls.
The sub-index for large payrolls made for a piece of the declines during the prior five months with a 30,000 increase
The sub-index for small payrolls outpaced a firm October rise with a 77,000 increase.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/FINAL_NER_Report_November2007.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.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/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></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>
<td class="firstcol">Nonfarm Private Payroll Employment (m/m Chg.)</td>
<td>189,000</td>
<td>119,000</td>
<td>1.0%</td>
<td>1.7%</td>
<td>1.8%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>


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The ADP National Employment Report, reported by the payroll processor, indicated that private nonfarm payroll growth improved further to 189,000 during November after a revised 119,000 rise in October.

ADP Report: Private Payroll Growth Improved Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205d.jpg" width="353">
According to the Institute for Supply Management, the November Business Activity Index for the non-manufacturing sector slipped to 54.1 from 55.8. 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%.
The new orders sub index of the Business Activity fell sharply to 51.1 from 55.7. The latest was the lowest reading since early 2003.
The employment sub index similarly fell to 50.8, just barely suggesting rising employment. 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205e.jpg" width="353">
Pricing power surged m/m to its highest level since 2005. 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.

<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">November</th>
<th scope="col">October</th>
<th scope="col">November &#39;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>54.1</td>
<td>55.8</td>
<td>57.4</td>
<td>58.0</td>
<td>60.2</td>
<td>62.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>76.5</td>
<td>63.5</td>
<td>52.6</td>
<td>65.2</td>
<td>68.0</td>
<td>68.8</td>
</tr>
</tbody>
</table>


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According to the Institute for Supply Management, the November Business Activity Index for the non-manufacturing sector slipped to 54.1 from 55.8. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced [...]

U.S. ISM Non-manufacturing Index Slipped, Prices Soared

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205a.jpg" width="353">
Due mostly to an upward revision in output, nonfarm labor productivity growth last quarter was revised up to 6.3% from 4.9%. The revised gain matched Consensus estimates and it was the quickest quarterly rise in four years. 
The largest factor behind the revision came from output growth to 5.7% from the preliminary 4.3%. More output from fewer hours worked. Hours worked were revised little and now are estimated to have fallen 0.6%, the largest quarterly drop in over four years.
Revised in the opposite direction, compensation per hour last quarter was taken down to 4.2%. Despite that revision, as well as a deceleration in compensation growth from outsized gains during 1Q &amp; 4Q &#39;06, the annual gain in compensation of 5.8% was its quickest since 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205b.jpg" width="353">
The combination of more productivity and less compensation lowered unit labor cost growth to -2.0% from -0.2%, again the weakest since 2004.That was enough to drop the y/y gain to its lowest in a year.
Released for the first time with this report were figures for the nonfinancial corporate sector. Output per hour there rose 4.2%, its quickest since 2004. The gain was accompanied by a moderate 4.4% rise in compensation and that left unit labor costs about flat as they were in 2Q. Raising costs, however, were two large increases during 1Q and 4Q &#39;06. They raised the y/y gain in unit labor costs to 3.6%, its fastest in two years. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205c.jpg" width="353">
Productivity in the factory sector also was revised up, but to a lesser extent, to 5.0% from a preliminary 4.6% gain. It was double the 2Q increase and it still owed to a slight decline in hours worked accompanied by a swift 4.5% gain in output. Compensation growth in the factory sector made up for a 2Q decline with a 1.5% rise. That left the y/y gain stable at 5.6%, its fastest since early 2005. Unit labor costs in the factory sector fell a revised 3.3%, about as they did in the initial report. The annual increase was lowered a bit 2.8%, still the quickest since late 2000.
How well do wages follow productivity growth? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070301/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">Q3 &#39;07 Revised</th>
<th scope="col">Q3 &#39;07 Prelim.</th>
<th scope="col">Q2 &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>6.3%</td>
<td>4.9%</td>
<td>2.2%</td>
<td>2.7%</td>
<td>1.0%</td>
<td>1.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>4.2%</td>
<td>4.7%</td>
<td>4.4%</td>
<td>5.8%</td>
<td>3.9%</td>
<td>4.0%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-2.0%</td>
<td>-0.2%</td>
<td>2.2%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>2.0%</td>
<td>0.9%</td>
</tr>
</tbody>
</table>


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Due mostly to an upward revision in output, nonfarm labor productivity growth last quarter was revised up to 6.3% from 4.9%. The revised gain matched Consensus estimates and it was the quickest quarterly rise in four years. The [...]

Q3 Productivity Revised Up, Unit Labor Costs Revised Down

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071204g.jpg" align="left" border="0" height="265" width="353">
The countries included in the Gulf Cooperation Council
(GCC)--Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab
Emirates--have, with the exception of Kuwait, pegged their currencies
to the U. S dollar for over the past ten years or so. Kuwait has
allowed its currency to float in a narrow band but, in May of this
year, formally abandoned the dollar peg and switched to a basket of
currencies. The UAE's dirhams per us dollar, as an example of the
stability in the exchanges of all the five non Kuwaiti currencies and
Kuwait's dinars per dollar are shown in the first chart. By the end of
September, the Kuwaiti dinar had appreciated by slightly more than 4%
since the peg was abandoned.
At the conclusion of the recent GCC annual meeting, the Qatari
Prime Minister, Sheikh Hamad bin Jassem al-Thani said the group,
excluding Kuwait, had decided to keep the dollar peg. However, doubts
regarding the resolve of the individual countries have begun to
surface. All six of the gulf countries have been experiencing rapid and
rising price increases. For the three countries that report monthly
data, year to year price increases are running between 5 and 7% as
shown in the second chart. Current data for inflation in Bahrain is
woefully lacking. The latest report is for the year 2005. While the
consumer price index rose only 2.6%, this represented a substantial
change from the deflation that had taken place earlier. Current
inflation data for Qatar and the U.A.E are also scarce, but the recent
annual data are of concern. In 2006, the consumer price index rose 9%
in the U.A.E. and 12% in Qatar. The inflation rates for the three
countries that have only annual data are shown in the third chart.
Inflation pressures were a factor in Kuwait's decision to abandon it
peg in May.
Data on the GCC countries can be found in the country sourced
data in the EMERGEMA database and in the IFS
database. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071204i.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071204h.jpg" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GULF
COOPERATION COUNCIL</th>
<th scope="col">Sep 07</th>
<th scope="col">Aug 07</th>
<th scope="col">Jul 06&nbsp;</th>
<th scope="col">Jun 06&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">INFLATION</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Bahrain</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td></td>
<td>n.a.</td>
<td>2.6</td>
<td>2.4</td>
<td>1.6</td>
<td>-0.5</td>
</tr>
<tr>
<td class="firstcol">Kuwait&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>n.a.</td>
<td>n.a.</td>
<td>5.0</td>
<td>4.5</td>
<td>3.1</td>
<td>4.1</td>
<td>1.2</td>
<td>0.9</td>
<td>0.5</td>
</tr>
<tr>
<td class="firstcol">Oman</td>
<td>7.1</td>
<td>6.5</td>
<td>5.7</td>
<td>5.3</td>
<td>3.0</td>
<td>1.2</td>
<td>0.4</td>
<td>-0.6</td>
<td>n.a.</td>
</tr>
<tr>
<td class="firstcol"> Qatar</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>11.8</td>
<td>8.8</td>
<td>6.8</td>
<td>2.3</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Saudi Arabia</td>
<td>3.0</td>
<td>3.1</td>
<td>3.8</td>
<td>4.4</td>
<td>2.3</td>
<td>0.6</td>
<td>0.4</td>
<td>0.6</td>
<td>n.a.</td>
</tr>
<tr>
<td class="firstcol">United Arab Emirates</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>9.3</td>
<td>6.2</td>
<td>5.0</td>
<td>3.1</td>
<td>2.9</td>
</tr>
</tbody>
</table>
</body></html>

The countries included in the Gulf Cooperation Council (GCC)--Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates--have, with the exception of Kuwait, pegged their currencies to the U. S dollar for over the past [...]

Are the Gulf States About to Abandon Their Dollar Pegs?

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The NTC sector indexes for the UK show that all three main sectors have been losing traction. The new services sector observation is not yet released so the table below reflects changes through October. But for MFG and Construction there are new observations available for November. Through November, these sectors show a trend of weakness that has been moderated in November by a run up in MFG that still leaves that sector short of its September level. Construction continued to fall and it fell hard in November. In October services took a large fall leaving it in the bottom 40 percent of its range. Construction is now weaker in the lower third of its range. MFG is still in the top 35% of its range. We are eagerly awaiting the new services observation to see if that weakness remains in place or not. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
MFG, Construction and Services PMI CIPS/NTC
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Monthly readings</td>
<td colspan="3">Change over:</td>
<td>percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3MO</td>
<td>6MO</td>
<td>12MO</td>
<td>of range</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>54.32</td>
<td>57.41</td>
<td>60.25</td>
<td>-10.50</td>
<td>-3.69</td>
<td>-0.46</td>
<td>36.12</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>54.32</td>
<td>57.41</td>
<td>60.25</td>
<td>-10.50</td>
<td>-3.69</td>
<td>-0.46</td>
<td>36.12</td>
</tr>
<tr>
<td class="firstcol">Services*</td>
<td>#N/A</td>
<td>53.08</td>
<td>56.69</td>
<td>-3.94</td>
<td>-4.17</td>
<td>-6.18</td>
<td>39.4</td>
</tr>
<tr>
<td colspan="8">MFG range since January 1992; Construction Since April 1997 Services Since July 1996</td>
</tr>
<tr>
<td colspan="8">*Services changes and ranking and stem from Oct-07 which is the most current date.</td>
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The NTC sector indexes for the UK show that all three main sectors have been losing traction. The new services sector observation is not yet released so the table below reflects changes through October. But for MFG and Construction [...]

UK Sector Downdraft Still Seems to be in Play Waiting for the New Services Numbers, However ...

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

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

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

US is big leader in global surge in private AI investment

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

Sharply rising share of AI-related jobs

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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Sandy Batten

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

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

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

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

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

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

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

Winnie Tapasanun

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

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

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

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

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

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

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

Michael J. Moran

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

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

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

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

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

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

Import and Export Prices: Firm in May

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

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

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

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

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

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

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

U.S. Housing Starts Plunged in May

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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.

Economy in Brief

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EMU/EU Retail Sales Enthusiasm is Cut Short…

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U.S. ISM Non-manufacturing Index Slipped, Prices Soared

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Q3 Productivity Revised Up, Unit Labor Costs Revised Down

Are the Gulf States About to Abandon Their Dollar Pegs?

UK Sector Downdraft Still Seems to be in Play Waiting for the New Services Numbers, However ...