Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071204e.jpg" align="left" border="0" height="265" width="353">
The EMU ex construction PPI chart shows a clear pattern of
acceleration. The PPI (excluding construction) has a 3-month rate in
excess of its six-month pace that is, in turn, above the Yr/Yr pace.
That is acceleration by definition. All measures are well above the
hypothetical ceiling rate of inflation of 2% (that ceiling applies to
the HICP alone, however). Still, having PPI inflation at this strong of
a pace must be disconcerting to the ECB. 

More disconcerting is for ex-energy inflation to show that
same sort of accelerating pattern: 3-month inflation, at 3.4%, exceeds
6-month inflation, at 3%, and that pace is only a tick below the
12-month pace at 3.1%. All of these speeds are above the 2% mark and
therefore excessive. 
 

These sorts of &#8216;cost pressures&#8217; in turn feed into the CPI in a
way that is unhealthy. It is hard for the CPI (HICP) to maintain a sub
2% pace if the things that go into it, or that underlie it, are
speeding ahead faster. Consumer goods inflation is a major culprit with
inflation on a steady sequential acceleration and a three-month pace of
6.4%. Of course energy and all its pressures are embodied in that
measure. Intermediate goods inflation has been quieting down with the
opposite tendency, revealing deceleration with inflation below 2% over
the recent three months at 1.7%. Capital goods inflation is at 1.1% and
also has been decelerating, but not uniformly. 
 

Among the larger EU countries, Germany shows overall and
Ee-energy PPI inflation that is excessive and accelerating. Italy shows
an excessive and accelerating PPI and an ex-energy inflation that is
over the 2% mark but not worsening. The UK shows a greatly accelerating
headline PPI while ex-energy producer price pressures are clear but a
bit less strident. 
 

On balance, the ECB has a PPI report that will give it little
sense of relief. The EMU PPI components make inflation appear a bit
more like it is a consumer sector problem in the main. That is curious
since that has been such a weak sector in EMU while the capital goods
sector has been vibrant and yet there inflation remains tame and is
ensconced well within its preferred range. All this leave the ECB in a
quandary that only worsens when you look at the foreign exchange market
and consider, too, the loss of momentum growth has been seeing in the
region. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Euro area and UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Ezone-13</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">Total excl Construction</td>
<td>0.6%</td>
<td>0.4%</td>
<td style="color: red;">4.5%</td>
<td style="color: red;">3.7%</td>
<td>3.3%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td style="color: red;">0.4%</td>
<td style="color: red;">0.2%</td>
<td style="color: red;">3.4%</td>
<td style="color: red;">3.0%</td>
<td style="color: red;">3.1%</td>
<td style="color: red;">3.6%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.1%</td>
<td>0.1%</td>
<td style="color: red;">1.1%</td>
<td>0.9%</td>
<td>1.5%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.6%</td>
<td>0.5%</td>
<td style="color: red;">6.4%</td>
<td style="color: red;">4.8%</td>
<td style="color: red;">3.4%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Intermediate &amp; Capital
Goods</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.7%</td>
<td>2.0%</td>
<td>3.0%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>1.7%</td>
<td>1.0%</td>
<td style="color: red;">9.1%</td>
<td style="color: red;">6.7%</td>
<td>4.0%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.0%</td>
<td style="color: red;">4.0%</td>
<td style="color: red;">3.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.4%</td>
<td>0.2%</td>
<td style="color: red;">2.7%</td>
<td style="color: red;">2.2%</td>
<td>1.7%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">Germany ex Energy</td>
<td style="color: red;">0.4%</td>
<td style="color: red;">0.0%</td>
<td style="color: red;">2.9%</td>
<td style="color: red;">2.4%</td>
<td style="color: red;">2.4%</td>
<td style="color: red;">3.0%</td>
</tr>
<tr>
<td class="firstcol">Itlay</td>
<td>0.4%</td>
<td>0.5%</td>
<td style="color: red;">4.7%</td>
<td style="color: red;">4.0%</td>
<td>3.6%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Italy ex Energy</td>
<td style="color: red;">0.2%</td>
<td style="color: red;">0.2%</td>
<td style="color: red;">2.4%</td>
<td style="color: red;">2.4%</td>
<td style="color: red;">3.1%</td>
<td style="color: red;">4.4%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>2.2%</td>
<td>1.2%</td>
<td style="color: red;">14.3%</td>
<td style="color: red;">9.7%</td>
<td>3.9%</td>
<td>5.4%</td>
</tr>
<tr>
<td class="firstcol">UK ex Energy</td>
<td style="color: red;">0.4%</td>
<td style="color: red;">0.2%</td>
<td style="color: red;">3.2%</td>
<td style="color: red;">2.9%</td>
<td style="color: red;">3.2%</td>
<td style="color: red;">3.3%</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">E-zone 13 Harmonized PPI excluding
Construction</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">The EA 13 countries are Austria,
Belgium, Finland, France, Germany,</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
</body></html>

The EMU ex construction PPI chart shows a clear pattern of acceleration. The PPI (excluding construction) has a 3-month rate in excess of its six-month pace that is, in turn, above the Yr/Yr pace. That is acceleration by definition. [...]

Uh, oh and Away …PPI Sails Well Above 2% Pace

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071204c.jpg" width="353">
U.S. sales of light vehicles nudged up 0.9% last month to a 16.20M unit annual selling rate, according to the Autodata Corporation. The uptick followed declines in four of the prior five months. Nevertheless, sales so far in 4Q are running slightly ahead of the 3Q average due to an abysmal start to that quarter.
Sales of domestically made light vehicles improved 1.0% m/m to 12.20M units (0.1% y/y). The gain came as sales of U.S. made cars jumped 9.9% to 5.47M units and that more than offset a 4.8% m/m drop in sales of domestic light trucks, still feeling the effects of higher gas prices. It was the third sharp m/m decline in U.S. made light truck sales. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071204d.jpg" width="353">
Sales of imported light vehicles inched up 0.4% after firm gains during the prior two months. The rise to 4.00M units (1.4% y/y) was to the highest level since June. The increase was due to a 1.5% gain in sales of imported autos which was the third strong gain in as many months. Sales of imported light trucks fell a moderate 1.4% after a like increase in October.
Import&#39;s share of the U.S. light vehicle market remained stable m/m at 24.7% versus an average 23.1% for all of last year.
U.S. Economic Growth Will Be Somewhat Below Potential in 2008 according to participants of the Chicago Fed Economic Outlook Symposium and the news release is available <a href="http://www.chicagofed.org/economic_research_and_data/2007_eos_release.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">November</th>
<th scope="col">&nbsp;October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.20</td>
<td>16.05</td>
<td>0.4%</td>
<td>16.55</td>
<td>16.96</td>
<td>16.87</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.97</td>
<td>7.47</td>
<td>7.0%</td>
<td>7.77</td>
<td>7.65</td>
<td>7.49</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>5.47</td>
<td>5.01</td>
<td>9.9%</td>
<td>5.31</td>
<td>5.40</td>
<td>5.36</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>2.50</td>
<td>2.46</td>
<td>1.2%</td>
<td>2.45</td>
<td>2.25</td>
<td>2.14</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>8.22</td>
<td>8.59</td>
<td>-5.3%</td>
<td>8.78</td>
<td>9.32</td>
<td>9.37</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>6.73</td>
<td>7.07</td>
<td>-6.8%</td>
<td>7.42</td>
<td>8.12</td>
<td>8.15</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.49</td>
<td>1.52</td>
<td>1.9%</td>
<td>1.37</td>
<td>1.20</td>
<td>1.23</td>
</tr>
</tbody>
</table>
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U.S. sales of light vehicles nudged up 0.9% last month to a 16.20M unit annual selling rate, according to the Autodata Corporation. The uptick followed declines in four of the prior five months. Nevertheless, sales so far in 4Q are [...]

U.S. Vehicle Sales Still Driven By Gasoline Prices

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071204b.jpg">
In the biggest weekly decline since 2006, chain store sales collapsed 2.0% w/w in the final period of this year, according to the International Council of Shopping Centers (ICSC)-UBS.
The decline probably is not indicative, however, of the true extent of a weakening in consumer demand. The variable timing of the Thanksgiving holiday has created similar downdrafts in this seasonally adjusted measure during the last several years. Sales in the next week, each year, have bounced back sharply.
Sales during all of November fell 0.2% from the October average which fell 0.1% from September. The latest m/m decline was the sixth in the last seven months.
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 fell 0.1% (-1.6% y/y) for the third consecutive weekly decline.
Market Bailouts and the &quot;Fed Put&quot; is last week&#39;s speech by William Poole, President of the Federal Reserve Bank of St. Louis and it is available <a href="http://www.stlouisfed.org/news/speeches/2007/11_30_07.html"> here</a>.
What Do You Get for &quot;Sixteen Tons&quot;? is analysis from the Federal Reserve Bank of St. Louis of average hourly earnings and labor income. It can be found <a href="http://research.stlouisfed.org/publications/net/20071201/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/011/07</th>
<th scope="col">11/24/07</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>468.5</td>
<td>478.2</td>
<td>3.1%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


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In the biggest weekly decline since 2006, chain store sales collapsed 2.0% w/w in the final period of this year, according to the International Council of Shopping Centers (ICSC)-UBS. The decline probably is not indicative, however, [...]

U.S. Chain Store Sales Collapsed, But Did They?

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071204a.jpg" align="left" border="0">
EU unemployment was steady in October as EMU unemployment
notched down one tenth of one percentage point. The chart shows that
the long steady drop in the rate of EU unemployment has hit a slowing
phase. The current rates available for the largest EMU countries show
that the tendency of the unemployment rate to drop may be slowing.
While Germany, France and Spain all post rates at 8.1%, Spain&#8217;s rate
has barely fallen in the last 12 months. Still, each of these countries
has seen some unemployment reduction in the past several months. It is
too soon to say that the drop in unemployment in Europe has stopped.
For France the drop over the past year is significant; for Germany it
has been a rather sharp drop. Spain shows signs of stalling. 
 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Unemployment Rate and Changes </th>

</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Level</td>
<td colspan="3">Simple Changes</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>Oct</td>
<td>Sept</td>
<td>Aug</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">&nbsp; EU</td>
<td>7.0</td>
<td>7.0</td>
<td>7.1</td>
<td>-0.1</td>
<td>-0.2</td>
<td>-0.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; EMU</td>
<td>7.2</td>
<td>7.3</td>
<td>7.4</td>
<td>-0.2</td>
<td>-0.3</td>
<td>-0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (000s)</td>
<td colspan="3">m/m%</td>
<td colspan="3">% changes (AR)</td>
</tr>
<tr>
<td class="firstcol">&nbsp; EU</td>
<td>-0.6%</td>
<td>-0.8%</td>
<td>-0.5%</td>
<td>-1.9%</td>
<td>-3.6%</td>
<td>-10.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; EMU</td>
<td>-0.7%</td>
<td>-0.7%</td>
<td>-0.3%</td>
<td>-1.7%</td>
<td>-2.7%</td>
<td>-8.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rates</td>
<td>Oct</td>
<td>Sept</td>
<td>Aug</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>8.1</td>
<td>8.2</td>
<td>8.3</td>
<td>-0.3</td>
<td>-0.4</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>8.1</td>
<td>8.2</td>
<td>8.3</td>
<td>-0.2</td>
<td>-0.4</td>
<td>-0.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Spain</td>
<td>8.1</td>
<td>8.2</td>
<td>8.2</td>
<td>-0.1</td>
<td>0</td>
<td>-0.2</td>
</tr>
</tbody>
</table>

</body></html>

EU unemployment was steady in October as EMU unemployment notched down one tenth of one percentage point. The chart shows that the long steady drop in the rate of EU unemployment has hit a slowing phase. The current rates available [...]

EU Unemployment is Stable

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203d.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203e.jpg" height="265" width="312">

Profits of all nonfinancial Japanese corporations declined
0.7%, in the third quarter, the first year to year decline since the
second quarter of 2002. Spending on plant and equipment declined 1.2%
after having declined 4.9% in the previous quarter. Current profits and
spending on plant and equipment for all corporations are shown in the
first chart.
While total profits declined, the big loss was felt among the
mid sized corporations whose profits declined by almost 17%. Large
corporations eked out a 1.3% increase and profits among small
corporations were up almost 4%. Profits by size of corporations are
shown in the second chart.
Both mid sized and small corporations have reduced spending on
plant and equipment during the last three quarters while large
corporation have continued to report increases ever since the first
quarter of 2003, as can be seen in the third chart. Plant and equipment
spending declined 13% from a year ago in the non manufacturing
industries in the second quarter and 5% in the second quarter.
Meanwhile capital spending continued to rise in the manufacturing
industry. A comparison of year to year changes in capital spending in
the manufacturing and non manufacturing industries is shown in the
fourth chart.Note: The Quarterly Report on Incorporated Enterprises
from which these data have been taken, contain additional information
from the balance sheets and income statements of non financial
corporations. The full report is shown in Haver's JAPAN
data base under Financial.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203f.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203g.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">JAPAN:&nbsp;
Quarterly Report on INCORPORATED ENTERPRISES 
&nbsp; Y/Y % Chg</th>
<th scope="col">Q3 07 %</th>
<th scope="col">Q2 07 %&nbsp;</th>
<th scope="col">Q1 07 %</th>
<th scope="col">Q4 06 %</th>
<th scope="col">2006 %</th>
<th scope="col">2005 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current
Profits:&nbsp; All&nbsp;</td>
<td>-0.7</td>
<td>12.0</td>
<td>7.4</td>
<td>5.3</td>
<td>9.1</td>
<td>11.8</td>
<td>27.7</td>
<td>12.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
Large&nbsp; (Over 1 bil Yen)</td>
<td>1.3</td>
<td>14.0</td>
<td>7.0</td>
<td>8.9</td>
<td>15.7</td>
<td>12.37</td>
<td>28.22</td>
<td>12.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;
Mid Size (100mil&nbsp; to 1 bil Yen)</td>
<td>-16.9</td>
<td>-1.2</td>
<td>14.6</td>
<td>23.9</td>
<td>15.7</td>
<td>12.9</td>
<td>20.8</td>
<td>19.0</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;&nbsp;
Small Size ( 10 to 100mil Yen)</td>
<td>3.9</td>
<td>13.48</td>
<td>5.27</td>
<td>-0.0</td>
<td>-4.0</td>
<td>10.4</td>
<td>29.6</td>
<td>9.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Plant &amp;
Equipment Spending</td>
<td>-1.2</td>
<td>-4.9</td>
<td>13.6</td>
<td>16.8</td>
<td>14.7</td>
<td>8.4</td>
<td>9.6</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
Large&nbsp; (Over 1 bil Yen)</td>
<td>6.8</td>
<td>2.5</td>
<td>8.3</td>
<td>9.2</td>
<td>10.7</td>
<td>13.0</td>
<td>6.2</td>
<td>1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;
Mid Size (100mil&nbsp; to 1 bil Yen)</td>
<td>-13.7</td>
<td>-3.7</td>
<td>12.6</td>
<td>19.0</td>
<td>17.5</td>
<td>5.8</td>
<td>8.5</td>
<td>-1.5</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;&nbsp;
Small Size ( 10 to 100mil Yen)</td>
<td>-11.7</td>
<td>-19.9</td>
<td>30.4</td>
<td>35.0</td>
<td>23.2</td>
<td>-0.4</td>
<td>18.8</td>
<td>8.0</td>
</tr>
<tr class="odd">
<td class="firstcol">
&nbsp;Manufacturing</td>
<td>6.1</td>
<td>11.7</td>
<td>12.7</td>
<td>15.4</td>
<td>13.8</td>
<td>15.1</td>
<td>15.0</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Non
Manufacturing</td>
<td>-5.12</td>
<td>-13.1</td>
<td>14.1</td>
<td>17.7</td>
<td>15.1</td>
<td>15.2</td>
<td>8.4</td>
<td>1.8</td>
</tr>
</tbody>
</table>
</body></html>

Profits of all nonfinancial Japanese corporations declined 0.7%, in the third quarter, the first year to year decline since the second quarter of 2002. Spending on plant and equipment declined 1.2% after having declined 4.9% in the [...]

Japanese Corporations Report Lower Profits and Capital Spending

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203a.jpg" align="left" border="0">
For November, the Institute of Supply Management (ISM)
reported that its Composite Index of Manufacturing Sector Activity was
about unchanged from the October level. The figure of 50.8 essentially
met Consensus expectations for a reading of 50.7. Data points above 50
indicates growth in factory sector activity.
Last month's PMI figure remained the lowest since January when
industrial production in the factory sector fell 0.6% and the three
month % change in factory sector output fell to 0.4%.
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three month growth in
factory sector industrial production.
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by being constructed using all
of the absolute positive changes in activity added to one half of the
no change in activity measures.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203b.jpg" align="right" border="0">
New orders, vendor deliveries &amp; inventories, three of
the index's five components, remained near the October level. The
employment index, however, fell sharply in November to its lowest since
2003. During the last twenty years there has been a 67% correlation
between the level of the ISM employment Index and the three month
growth in factory sector employment.
Some of that decline in employment was offset by a rise in
production.
The index of new export orders rose sharply m/m to 58.5, its
highest level since this past May. The import index conversely remained
at the October level (47.5), the lowest level since 2001. That suggests
imports declined last month.
The Unsustainable US Current Account Position
Revisited* is a 2005 National Bureau of Economic Research
working paper by Maurice Obtsfeld &amp; Kenneth Rogoff and the
abstract from it can be found <a href="http://elsa.berkeley.edu/%7Eobstfeld/NBER_final.pdf">
here</a>.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203c.jpg" align="left" border="0">
The prices paid index again moved much higher, reflecting the
near $11 m/m surge in Brent crude oil costs, to the highest level since
July. During the last twenty years there has been a 77% correlation
between the price index and the three month change in the PPI for
intermediate goods.
Asian nations driving world oil prices
from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2007/b/pages/oil_prices.html">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th></th>
<th scope="col"> November</th>
<th scope="col">October</th>
<th scope="col">October'06</th>
<th scope="col"> 2006</th>
<th scope="col"> 2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td>Composite Index</td>
<td>50.8</td>
<td>50.9</td>
<td>49.9</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td>&nbsp; New Orders Index</td>
<td>52.6</td>
<td>52.5</td>
<td>49.7</td>
<td>55.4</td>
<td>57.4</td>
<td>63.5</td>
</tr>
<tr class="odd">
<td>Prices Paid Index (NSA)</td>
<td>67.5</td>
<td>63.0</td>
<td>53.5</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>
</body></html>

For November, the Institute of Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity was about unchanged from the October level. The figure of 50.8 essentially met Consensus expectations for a [...]

ISM Index Still Low at an Expected 50.8

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203a.jpg" align="left" border="0">
For November, the Institute of Supply Management (ISM)
reported that its Composite Index of Manufacturing Sector Activity was
about unchanged from the October level. The figure of 50.8 essentially
met Consensus expectations for a reading of 50.7. Data points above 50
indicates growth in factory sector activity.
Last month's PMI figure remained the lowest since January when
industrial production in the factory sector fell 0.6% and the three
month % change in factory sector output fell to 0.4%.
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three month growth in
factory sector industrial production.
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by being constructed using all
of the absolute positive changes in activity added to one half of the
no change in activity measures.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203b.jpg" align="right" border="0">
New orders, vendor deliveries &amp; inventories, three of
the index's five components, remained near the October level. The
employment index, however, fell sharply in November to its lowest since
2003. During the last twenty years there has been a 67% correlation
between the level of the ISM employment Index and the three month
growth in factory sector employment.
Some of that decline in employment was offset by a rise in
production.
The index of new export orders rose sharply m/m to 58.5, its
highest level since this past May. The import index conversely remained
at the October level (47.5), the lowest level since 2001. That suggests
imports declined last month.
The Unsustainable US Current Account Position
Revisited* is a 2005 National Bureau of Economic Research
working paper by Maurice Obtsfeld &amp; Kenneth Rogoff and the
abstract from it can be found <a href="http://elsa.berkeley.edu/%7Eobstfeld/NBER_final.pdf">
here</a>.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203c.jpg" align="left" border="0">
The prices paid index again moved much higher, reflecting the
near $11 m/m surge in Brent crude oil costs, to the highest level since
July. During the last twenty years there has been a 77% correlation
between the price index and the three month change in the PPI for
intermediate goods.
Asian nations driving world oil prices
from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2007/b/pages/oil_prices.html">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th></th>
<th scope="col"> November</th>
<th scope="col">October</th>
<th scope="col">October'06</th>
<th scope="col"> 2006</th>
<th scope="col"> 2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td>Composite Index</td>
<td>50.8</td>
<td>50.9</td>
<td>49.9</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td>&nbsp; New Orders Index</td>
<td>52.6</td>
<td>52.5</td>
<td>49.7</td>
<td>55.4</td>
<td>57.4</td>
<td>63.5</td>
</tr>
<tr class="odd">
<td>Prices Paid Index (NSA)</td>
<td>67.5</td>
<td>63.0</td>
<td>53.5</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>
&nbsp;Japanese Corporations
Report Lower Profits and Capital Spending&nbsp; 
by <a href="/comment/Curley.html">Louise
Curley</a> December 3, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203d.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203e.jpg" height="265" width="312">

Profits of all nonfinancial Japanese corporations declined
0.7%, in the third quarter, the first year to year decline since the
second quarter of 2002. Spending on plant and equipment declined 1.2%
after having declined 4.9% in the previous quarter. Current profits and
spending on plant and equipment for all corporations are shown in the
first chart.
While total profits declined, the big loss was felt among the
mid sized corporations whose profits declined by almost 17%. Large
corporations eked out a 1.3% increase and profits among small
corporations were up almost 4%. Profits by size of corporations are
shown in the second chart.
Both mid sized and small corporations have reduced spending on
plant and equipment during the last three quarters while large
corporation have continued to report increases ever since the first
quarter of 2003, as can be seen in the third chart. Plant and equipment
spending declined 13% from a year ago in the non manufacturing
industries in the second quarter and 5% in the second quarter.
Meanwhile capital spending continued to rise in the manufacturing
industry. A comparison of year to year changes in capital spending in
the manufacturing and non manufacturing industries is shown in the
fourth chart.Note: The Quarterly Report on Incorporated Enterprises
from which these data have been taken, contain additional information
from the balance sheets and income statements of non financial
corporations. The full report is shown in Haver's JAPAN
data base under Financial.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203f.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071203g.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">JAPAN:&nbsp;
Quarterly Report on INCORPORATED ENTERPRISES 
&nbsp; Y/Y % Chg</th>
<th scope="col">Q3 07 %</th>
<th scope="col">Q2 07 %&nbsp;</th>
<th scope="col">Q1 07 %</th>
<th scope="col">Q4 06 %</th>
<th scope="col">2006 %</th>
<th scope="col">2005 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current
Profits:&nbsp; All&nbsp;</td>
<td>-0.7</td>
<td>12.0</td>
<td>7.4</td>
<td>5.3</td>
<td>9.1</td>
<td>11.8</td>
<td>27.7</td>
<td>12.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
Large&nbsp; (Over 1 bil Yen)</td>
<td>1.3</td>
<td>14.0</td>
<td>7.0</td>
<td>8.9</td>
<td>15.7</td>
<td>12.37</td>
<td>28.22</td>
<td>12.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;
Mid Size (100mil&nbsp; to 1 bil Yen)</td>
<td>-16.9</td>
<td>-1.2</td>
<td>14.6</td>
<td>23.9</td>
<td>15.7</td>
<td>12.9</td>
<td>20.8</td>
<td>19.0</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;&nbsp;
Small Size ( 10 to 100mil Yen)</td>
<td>3.9</td>
<td>13.48</td>
<td>5.27</td>
<td>-0.0</td>
<td>-4.0</td>
<td>10.4</td>
<td>29.6</td>
<td>9.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Plant &amp;
Equipment Spending</td>
<td>-1.2</td>
<td>-4.9</td>
<td>13.6</td>
<td>16.8</td>
<td>14.7</td>
<td>8.4</td>
<td>9.6</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
Large&nbsp; (Over 1 bil Yen)</td>
<td>6.8</td>
<td>2.5</td>
<td>8.3</td>
<td>9.2</td>
<td>10.7</td>
<td>13.0</td>
<td>6.2</td>
<td>1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;
Mid Size (100mil&nbsp; to 1 bil Yen)</td>
<td>-13.7</td>
<td>-3.7</td>
<td>12.6</td>
<td>19.0</td>
<td>17.5</td>
<td>5.8</td>
<td>8.5</td>
<td>-1.5</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;&nbsp;
Small Size ( 10 to 100mil Yen)</td>
<td>-11.7</td>
<td>-19.9</td>
<td>30.4</td>
<td>35.0</td>
<td>23.2</td>
<td>-0.4</td>
<td>18.8</td>
<td>8.0</td>
</tr>
<tr class="odd">
<td class="firstcol">
&nbsp;Manufacturing</td>
<td>6.1</td>
<td>11.7</td>
<td>12.7</td>
<td>15.4</td>
<td>13.8</td>
<td>15.1</td>
<td>15.0</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Non
Manufacturing</td>
<td>-5.12</td>
<td>-13.1</td>
<td>14.1</td>
<td>17.7</td>
<td>15.1</td>
<td>15.2</td>
<td>8.4</td>
<td>1.8</td>
</tr>
</tbody>
</table>
</body></html>

ISM Index Still Low at an Expected50.8

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

260617V1.jpg

260617W1.jpg

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**.

260617X1.jpg

260617Y1.jpg

- 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

260617A49.jpg

260617B49.jpg

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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