Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031h.jpg" align="left" class="large">
EU readings still strong&#8230;but countries and sectors are slowing 
 

The accompanying chart shows the diminished lift in the
aggregate EU sentiment index and the same result for the largest EMU
nations. Only France is still showing Yr/Yr gains in sentiment; the
rest have crossed the line to reveal Yr/Yr contraction. Not
surprisingly Italy, probably the least competitive of the large EMU
countries, is showing the sharpest contraction. Surprisingly France is
the most resilient, but the chart also tells why. France did not enjoy
the same degree of upswing that the others did. The EU and EMU members
plotted had Yr/Yr gains of 12% or more at some point. France&#8217;s peak
Yr/Yr gain came later and only amounted to 8%. In this way France seems
to be a laggard that is prospering off the growth of others. That
suggests that France&#8217;s decline will come later too. It does not promise
that France&#8217;s decline when it comes will be shallower. 
 

The top panel in the table below shows the relative strength
of the individual sectors within EU. Construction is the relative
strongest in that it is at the highest relative point in its own range
at the 93.3 percentile. That is followed by the industrial and retail
sectors at about a percentile reading of 85, consumer confidence at
75.9 and services at 65.8. 
 

In terms of the major EMU nations plus the UK, France as we
saw above is the relative strongest in EMU but, standing in the 88th
percentile of its range, the non-EMU UK is stronger still. The EMU
itself stands in the 73rd percentile of its range and the other major
EMU countries are below that with Germany in the 63rd percentile, Italy
in the 61st and Spain in the 50th. Over the last four months all of
these are showing slippage. Europe is slowing down. Is it the strong
euro or something else? With the spike in the inflation is the ECB
still going to hikes rates? All interesting questions to stay in touch
with, aren&#8217;t they? 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="12" scope="col"> EU
Sectors and Country level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-SQ 
w/ 
overall</td>
</tr>
<tr>
<td class="firstcol">Overall</td>
<td>109.5</td>
<td>110.6</td>
<td>113.1</td>
<td>113.3</td>
<td>82.9</td>
<td>48</td>
<td>117</td>
<td>74</td>
<td>43</td>
<td>100</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>2</td>
<td>3</td>
<td>5</td>
<td>5</td>
<td>85.3</td>
<td>27</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td>0.89</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-5</td>
<td>-4</td>
<td>-3</td>
<td>-2</td>
<td>75.9</td>
<td>42</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-10</td>
<td>0.82</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>2</td>
<td>1</td>
<td>6</td>
<td>5</td>
<td>85.2</td>
<td>14</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td>0.47</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>0</td>
<td>1</td>
<td>0</td>
<td>0</td>
<td>93.3</td>
<td>14</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-18</td>
<td>0.44</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>19</td>
<td>19</td>
<td>22</td>
<td>20</td>
<td>65.8</td>
<td>61</td>
<td>32</td>
<td>-6</td>
<td>38</td>
<td>17</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>% m/m</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Based on 
Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-2.8%</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-0.6%</td>
<td>73.7</td>
<td>70</td>
<td>117</td>
<td>74</td>
<td>44</td>
<td>100</td>
<td>0.94</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td style="color: red;">-0.6%</td>
<td style="color: red;">-3.3%</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-0.5%</td>
<td>63.7</td>
<td>64</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>100</td>
<td>0.62</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.1%</td>
<td style="color: red;">-1.5%</td>
<td style="color: red;">-1.2%</td>
<td>0.6%</td>
<td>81.4</td>
<td>26</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.80</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td style="color: red;">-0.2%</td>
<td style="color: red;">-0.8%</td>
<td style="color: red;">-3.0%</td>
<td style="color: red;">-0.9%</td>
<td>61.5</td>
<td>90</td>
<td>121</td>
<td>72</td>
<td>49</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td style="color: red;">-2.7%</td>
<td style="color: red;">-3.4%</td>
<td>1.1%</td>
<td style="color: red;">-0.9%</td>
<td>50.4</td>
<td>178</td>
<td>118</td>
<td>67</td>
<td>50</td>
<td>100</td>
<td>0.66</td>
</tr>
<tr>
<td class="firstcol">Memo: UK</td>
<td style="color: red;">-2.0%</td>
<td>1.1%</td>
<td>4.5%</td>
<td style="color: red;">-5.7%</td>
<td>88.3</td>
<td>15</td>
<td>119</td>
<td>69</td>
<td>50</td>
<td>101</td>
<td>0.39</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">since 1990
except services (Oct
1996)208</td>
<td colspan="2">-count</td>
<td colspan="2">services:</td>
<td>126</td>
<td colspan="2">-count</td>
</tr>
<tr class="grey1">
<td colspan="12" class="firstcol">Sentiment
is
an index, sector
readings are net balance diffusion measures</td>
</tr>
</tbody>
</table>
</body></html>

EU readings still strong…but countries and sectors are slowing The accompanying chart shows the diminished lift in the aggregate EU sentiment index and the same result for the largest EMU nations. Only France is still showing Yr/Yr [...]

EU Readings Still Strong…but FADING

Tom Moeller

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<img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031d.jpg">
The ADP National Employment Report, reported by the payroll processor, found that private nonfarm payrolls rose a much improved 106,000 during October versus a 61,000 rise during September.
The U.S. Bureau of Labor Statistics employment figure for October will be published this Friday.
Last month, ADP&#39;s measure of private nonfarm payrolls for September indicated an upwardly revised 61,000 increase in jobs that was followed by a 73,000 increase in private nonfarm payrolls.
The sub-index for small payrolls, rose 63,000.
The sub-index for large payrolls, conversely, fell 7,000.
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_October2007.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">October</th>
<th scope="col">September</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>106,000</td>
<td>61,000</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, found that private nonfarm payrolls rose a much improved 106,000 during October versus a 61,000 rise during September. The U.S. Bureau of Labor Statistics [...]

ADP Report: Private Payroll Growth Much Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031a.jpg" width="353">
U.S. real GDP growth last quarter of 3.9% (AR), in the advance report from the Commerce Department, was higher than expectations for 3.2% growth.
The contribution to growth from net export improvement was another 0.9 percentage points after the 1.3 percentage point contribution during 2Q. Exports boomed at a 16.2% annual rate (9.6% y/y) while import growth of 5.2% (2.9% y/y) reflected the slowdown in U.S. final demand growth.
Growth in final sales to domestic purchasers at 2.5% (AR) wasn&#39;t bad following 2.1% 2Q growth and 1.7% growth in 1Q, but the likely increase for all of this year around 2.0% will lag last year&#39;s advance of 2.7% and 3.3% in 2004.
The shortfall in domestic demand growth was led by a whopping 20.1% AR (-16.4% y/y) decline in residential investment. It was near the top quarterly rate of decrease during this down cycle in the housing sector.
Firm growth in business fixed investment was again a mainstay of overall domestic demand. It rose 7.9% AR (4.8% y/y) rate after an 11.0% surge in 2Q. Spending on structures, in late cycle fashion, led that increase and rose 12.4% AR (12.8% y/y). Spending on equipment &amp; software also was firm at 5.9% (AR), the strongest since 1Q &#39;06, but the y/y gain of 1.4% was reduced by weak growth or q/q declines from 2Q &#39;06 to 1Q &#39;07.
Growth in real personal consumption expenditures also wasn&#39;t bad at 3.0% (3.0% y/y) which was double growth during 2Q. Growth in spending on durable goods amounted to 4.4% (4.7% y/y) as 11.8% growth in spending on furniture &amp; appliances offset a 5.4% drop in spending on motor vehicles. Spending on other durable goods boomed at an 11.7% rate. Nondurable goods spending turned in a 2.7% (2.4% y/y) advance and services spending growth was steady at 2.9% (3.0% y/y).
Inventories added just 0.4 percentage points to GDP growth after a 0.2 point contribution during 2Q. That contribution has been negative this year.
The GDP chain price index rose just 0.8% led by declines in both the nonresidential and residential price indexes. Consumer prices rose only 1.7%, held back by the decline in gasoline prices, while less food &amp; energy it rose just 1.8% (1.9% y/y).
<img align="right" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031b.jpg"><img align="left" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031c.jpg">

<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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39; 07 Advance</th>
<th scope="col">2Q &#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">GDP</td>
<td>3.9</td>
<td>3.8</td>
<td>2.6</td>
<td>2.9</td>
<td>3.1</td>
<td>3.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.4</td>
<td>0.2</td>
<td>-0.4</td>
<td>0.1</td>
<td>-0.2</td>
<td>0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>3.5</td>
<td>3.6</td>
<td>3.0</td>
<td>2.8</td>
<td>3.3</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>0.9</td>
<td>1.3</td>
<td>0.9</td>
<td>-0.1</td>
<td>-0.2</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>2.5</td>
<td>2.1</td>
<td>2.1</td>
<td>2.7</td>
<td>3.3</td>
<td>3.8</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>0.8</td>
<td>2.6</td>
<td>2.3</td>
<td>2.6</td>
<td>1.7</td>
<td>2.1</td>
</tr>
</tbody>
</table>


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U.S. real GDP growth last quarter of 3.9% (AR), in the advance report from the Commerce Department, was higher than expectations for 3.2% growth. The contribution to growth from net export improvement was another 0.9 percentage points [...]

US GDP Growth Boosted Again by Improved Trade Deficit

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071030d.jpg" width="353">
Both Germany and Japan released labor force data for September today. Labor market conditions were weaker than expected in Japan and slightly stronger in Germany. The data are likely to restrain policy moves by both the Bank of Japan and the European Central Bank. In the case of Japan, the data suggest that the Bank may, once again, be thwarted in its desire to raise rates. In the case of Germany, the data are a reason for the European Central Bank to resist pressure to lower rates.
The Japanese unemployment rate rose to 4.0% from 3.8% in September while the German unemployment rate fell to 8.1% from 8.3%. Expectations had been for a decline in the Japanese rate and no change in the German rate. The unemployment rates for the two countries are shown in the first chart.
Even though the Japanese data are seasonally adjusted, they still exhibit a fair degree of volatility. To show a less busy picture we have used quarterly averages in the second and third charts showing the year to year percentage changes in total employment and unemployment in the two countries. The decline of 3% in Japanese employment in September from August led not only to an increase in the unemployed but also a 0.2% decline in the labor force. In Germany there was no change in the labor force and the increase in employment led to an equivalent decline in unemployment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071030e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071030f.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">LABOR MARKET DATA&nbsp;</th>
<th scope="col">Sep 07</th>
<th scope="col">Aug&nbsp;07&nbsp;</th>
<th scope="col">Sep 06&nbsp;</th>
<th scope="col">M/M % chg&nbsp;</th>
<th scope="col">Y/Y % chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GERMANY</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Employment&nbsp; (millions)</td>
<td>39.8</td>
<td>39.7</td>
<td>39.1</td>
<td>0.09</td>
<td>1.71</td>
<td>39.0</td>
<td>38.7</td>
<td>38.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Unemployment (millions)</td>
<td>3.5</td>
<td>3.6</td>
<td>4.1</td>
<td>-1.40</td>
<td>-14.6</td>
<td>4.2</td>
<td>4.6</td>
<td>4.2</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Labor Force (millions) </td>
<td>43.3</td>
<td>43.3</td>
<td>43.2</td>
<td>0.0</td>
<td>0.2</td>
<td>43.2</td>
<td>43.2</td>
<td>43.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Unemployment Rate (%)</td>
<td>8.1</td>
<td>8.3</td>
<td>9.6</td>
<td>-0.2*</td>
<td>-1.5*</td>
<td>9.8</td>
<td>10.6</td>
<td>9.8</td>
</tr>
<tr class="odd">
<td class="firstcol">JAPAN</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Employment&nbsp; (millions)</td>
<td>63.7</td>
<td>64.0</td>
<td>63.8</td>
<td>-0.3</td>
<td>-0.1</td>
<td>63.8</td>
<td>63.6</td>
<td>63.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Unemployment (millions)</td>
<td>2.7</td>
<td>2.5</td>
<td>2.8</td>
<td>0.2</td>
<td>-0.1</td>
<td>2.8</td>
<td>2.9</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Labor Force (millions)</td>
<td>66.4</td>
<td>66.5</td>
<td>66.6</td>
<td>-0.2</td>
<td>-0.3</td>
<td>66.6</td>
<td>66.5</td>
<td>66.3</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Unemployment Rate (%) </td>
<td>4.0</td>
<td>3.8</td>
<td>4.2</td>
<td>0.2*</td>
<td>-0.2*</td>
<td>4.1</td>
<td>4.4</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">*Difference</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
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Both Germany and Japan released labor force data for September today. Labor market conditions were weaker than expected in Japan and slightly stronger in Germany. The data are likely to restrain policy moves by both the Bank of Japan [...]

September Unemployment Rates in Japan and in Germany Pose Problems for Central Banks

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071030g.jpg" width="353">
German real ex-auto wholesale sales fell by 0.3% in September after dropping by 0.8% in August. These declines blunted the sharp 1.3% gain in July that followed a rise of 0.6% in June. Around mid-year German wholesale sales seemed to be breaking out of their early in the year slump believed to have been induced by the turn-of-the year hike in the VAT. However, the past two months have discredited that view. Nonetheless, the mid-year strength was enough to boost real ex-auto wholesales sales to solid positive quarterly rate of growth. Real wholesale sales are up at a 3.3% annual rate in Q3 with nominal sales up at a pace of 3.9%. These readings are up from a year ago by 1.5% in real terms and by 1.8% in nominal terms. It is growth but is far from robust growth. And lest the quarterly result seem too strong recall that this rise in Q3 offsets a similar drop of 3% (annualized) in real ex-auto wholesale sales in Q2. The graph clearly shows no lasting boost to wholesale sales growth.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<th scope="col" colspan=4>Quarter Complete</th>
</tr>
<tr>
<th scope="col" colspan="4">Quarterly showing</th>
</tr>
</thead><tbody>


<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>% Q/Q</td>
<td>%-Saar</td>
<td>% Q/Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>1.0%</td>
<td>3.9%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>0.8%</td>
<td>3.3%</td>
<td>1.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

German real ex-auto wholesale sales fell by 0.3% in September after dropping by 0.8% in August. These declines blunted the sharp 1.3% gain in July that followed a rise of 0.6% in June. Around mid-year German wholesale sales seemed to [...]

German Wholesale Sales Falter Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071030h.jpg" align="left" class="large">
The IFO indexes from Germany provide us with detail to their
earlier
release. The chart on the left shows that the EU indexes for Germany&#8217;s
MFG sector track the result for the IFO. Both indexes are pointing
lower with the IFO index more up-to-date. The climate gauge is closing
in on a level that is near its position when Germany&#8217;s economy was
still struggling with EU debt limits and growth before the recent run
up in growth and optimism came to pass. The table below documents some
of the more worrisome elements of the new IFO survey 
 

The percentile column (the last column) and red highlights
provide
the best overview for this table. While the strong and rising euro
seems to be one of the main risk factors to German growth, foreign
orders on hand continue to be buoyant (last listing in the table).
Foreign orders on hand rank high in terms of the individual sector
percentile readings. The foreign order series is just beginning to show
decline in its monthly measures (not encroaching red highlights)
whereas the more inclusive &#8216;orders on hand&#8217; category has been dropping
for some time and shows percentile ranks for current readings that are
at or below the midpoint mark except for capital goods. We know that
capital goods is one area of strength for Germany That may be one of
the reason its export demand or orders are holding up better that
orders in general. But that is not all of it since all export orders
are holding up better than orders in general. With the euro so strong
that has to be viewed as a curiosity. Even though many German &#8216;foreign&#8217;
orders do not cross the exchange market at some point they are still
exports and subject to competition from weak currencies. 
 

Capital goods also tend to work on longer lags and the longer
the
Euro remains high the greater the prospect for Germany to lose orders
to capital goods competitors like Japan and the US even though it does
not appear to have happened yet. 
 

Percentiles for activity measures also have slipped to mid
range or
weaker except for capital goods. Despite this, expectations for the
next six months are generally upbeat even for consumer goods. The
percentile readings are generally around the 60% mark or higher with a
few exceptions. As for current conditions, the percentile sector
readings are solid to strong. 
 

Today&#8217;s German survey on consumer optimism, a poll by the
Forsa
institute, was commissioned by Germany's RTL television. It was carried
out among 2,503 respondents from October 22 to 26. Some 43% of those
surveyed said they expected the state of the economy to worsen, up from
28% in the previous Forsa survey conducted in May. Only 26% in the
current survey said they expected the economy to pick up further, down
from 41% in the May survey. Clearly, conditions and expectations are in
flux in Germany. The IFO components are only beginning to show some of
the ill effects of these shifts. The optimism of past success seems to
weigh heavily on new assessments for the future among the IFO
respondents.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="10" scope="col"> IFO
Survey: Germany</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Percent: Yr/Yr</td>
<td colspan="4">Index Numbers</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
07</td>
<td>Jun 
07</td>
<td>Current</td>
<td>Average</td>
<td>Curr/ 
Avg</td>
<td>%tile</td>
</tr>
<tr>
<td class="firstcol">Biz Climate</td>
<td style="color: red;">-1.5%</td>
<td style="color: red;">-0.9%</td>
<td>0.7%</td>
<td>0.8%</td>
<td>0.2%</td>
<td>103.9</td>
<td>95.7</td>
<td>108.5%</td>
<td>79.7%</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td style="color: red;">-2.1%</td>
<td style="color: red;">-1.3%</td>
<td>2.5%</td>
<td>2.4%</td>
<td>1.6%</td>
<td>109.6</td>
<td>94.8</td>
<td>115.6%</td>
<td>82.3%</td>
</tr>
<tr>
<td class="firstcol">Biz Expectations</td>
<td style="color: red;">-0.7%</td>
<td style="color: red;">-0.4%</td>
<td style="color: red;">-1.1%</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-1.2%</td>
<td>98.6</td>
<td>96.7</td>
<td>102.0%</td>
<td>68.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
07</td>
<td>Jun 
07</td>
<td>Current</td>
<td>Average</td>
<td>Curr/ 
Avg</td>
<td>%tile</td>
</tr>
<tr>
<td class="firstcol">Biz Climate</td>
<td style="color: red;">-1.5%</td>
<td style="color: red;">-0.9%</td>
<td>0.7%</td>
<td>0.8%</td>
<td>0.2%</td>
<td>103.9</td>
<td>95.7</td>
<td>108.5%</td>
<td>79.7%</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td style="color: red;">-2.1%</td>
<td style="color: red;">-1.3%</td>
<td>2.5%</td>
<td>2.4%</td>
<td>1.6%</td>
<td>109.6</td>
<td>94.8</td>
<td>115.6%</td>
<td>82.3%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.0%</td>
<td>0.8%</td>
<td>4.4%</td>
<td>4.4%</td>
<td>4.4%</td>
<td>109.5</td>
<td>92.4</td>
<td>118.5%</td>
<td>90.8%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td style="color: red;">-1.6%</td>
<td style="color: red;">-0.5%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>4.3%</td>
<td>109.0</td>
<td>91.0</td>
<td>119.8%</td>
<td>86.6%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td>2.9%</td>
<td style="color: red;">-0.4%</td>
<td>5.5%</td>
<td>4.8%</td>
<td>5.1%</td>
<td>113.1</td>
<td>92.1</td>
<td>122.7%</td>
<td>97.1%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>1.0%</td>
<td>4.3%</td>
<td>5.4%</td>
<td>5.3%</td>
<td>5.3%</td>
<td>105.5</td>
<td>95.9</td>
<td>110.0%</td>
<td>81.3%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td style="color: red;">-5.9%</td>
<td style="color: red;">-6.0%</td>
<td style="color: red;">-2.2%</td>
<td style="color: red;">-3.1%</td>
<td style="color: red;">-4.0%</td>
<td>112.3</td>
<td>103.0</td>
<td>109.0%</td>
<td>64.0%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td style="color: red;">-5.9%</td>
<td style="color: red;">-2.2%</td>
<td style="color: red;">-1.9%</td>
<td style="color: red;">-0.8%</td>
<td>0.0%</td>
<td>114.4</td>
<td>99.3</td>
<td>115.2%</td>
<td>68.7%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td style="color: red;">-4.4%</td>
<td style="color: red;">-6.6%</td>
<td>2.1%</td>
<td>1.1%</td>
<td style="color: red;">-4.1%</td>
<td>103.3</td>
<td>95.4</td>
<td>108.3%</td>
<td>77.7%</td>
</tr>
<tr>
<td colspan="10" rowspan="1" class="firstcol">Next
6 Mos&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Biz Expectations</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
07</td>
<td>Jun 
07</td>
<td>Current</td>
<td>Average</td>
<td>Curr/ 
Avg</td>
<td>%tile</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color: red;">-2.4%</td>
<td style="color: red;">-1.5%</td>
<td style="color: red;">-1.9%</td>
<td style="color: red;">-0.5%</td>
<td style="color: red;">-2.8%</td>
<td>97.4</td>
<td>96.5</td>
<td>100.9%</td>
<td>67.4%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td style="color: red;">-6.5%</td>
<td style="color: red;">-4.8%</td>
<td style="color: red;">-2.8%</td>
<td style="color: red;">-2.3%</td>
<td style="color: red;">-4.2%</td>
<td>94.2</td>
<td>96.0</td>
<td>98.2%</td>
<td>51.7%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td>2.4%</td>
<td>2.1%</td>
<td style="color: red;">-1.4%</td>
<td>4.4%</td>
<td style="color: red;">-2.7%</td>
<td>100.6</td>
<td>96.4</td>
<td>104.4%</td>
<td>75.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td style="color: red;">-0.5%</td>
<td>1.0%</td>
<td>0.5%</td>
<td style="color: red;">-2.3%</td>
<td>0.9%</td>
<td>99.1</td>
<td>97.8</td>
<td>101.3%</td>
<td>62.6%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>3.4%</td>
<td>3.4%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>101.3</td>
<td>98.2</td>
<td>103.1%</td>
<td>57.4%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td style="color: red;">-3.4%</td>
<td>3.5%</td>
<td>0.5%</td>
<td style="color: red;">-3.8%</td>
<td>2.8%</td>
<td>101.3</td>
<td>97.0</td>
<td>104.4%</td>
<td>63.5%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>5.5%</td>
<td style="color: red;">-3.0%</td>
<td style="color: red;">-0.5%</td>
<td style="color: red;">-0.5%</td>
<td style="color: red;">-0.5%</td>
<td>98.4</td>
<td>96.0</td>
<td>102.5%</td>
<td>70.1%</td>
</tr>
<tr>
<td colspan="10" rowspan="1" class="firstcol">(m/m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Activty(m/m)</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
-07</td>
<td>Jun 
07</td>
<td>Current</td>
<td>Average</td>
<td>Curr/ 
Avg</td>
<td>%tile</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color: red;">-5.3%</td>
<td style="color: red;">-4.5%</td>
<td>1.0%</td>
<td style="color: red;">-1.8%</td>
<td style="color: red;">-3.6%</td>
<td>96.9</td>
<td>97.0</td>
<td>99.9%</td>
<td>52.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td style="color: red;">-8.6%</td>
<td style="color: red;">-5.8%</td>
<td>0.5%</td>
<td style="color: red;">-5.9%</td>
<td style="color: red;">-4.6%</td>
<td>93.2</td>
<td>96.3</td>
<td>96.8%</td>
<td>42.4%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td style="color: red;">-3.3%</td>
<td style="color: red;">-2.3%</td>
<td>0.0%</td>
<td>0.5%</td>
<td style="color: red;">-2.7%</td>
<td>99.0</td>
<td>97.1</td>
<td>102.0%</td>
<td>63.8%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td style="color: red;">-3.9%</td>
<td style="color: red;">-3.3%</td>
<td>3.5%</td>
<td style="color: red;">-0.5%</td>
<td style="color: red;">-2.4%</td>
<td>99.3</td>
<td>98.4</td>
<td>100.9%</td>
<td>50.9%</td>
</tr>
<tr>
<td colspan="10" rowspan="1" class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Demand M/M</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
07</td>
<td>Jun 
07</td>
<td>Current</td>
<td>Average</td>
<td>Curr/ 
Avg</td>
<td>%tile</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color: red;">-8.4%</td>
<td style="color: red;">-6.4%</td>
<td style="color: red;">-2.8%</td>
<td style="color: red;">-3.3%</td>
<td style="color: red;">-7.1%</td>
<td>95.3</td>
<td>97.1</td>
<td>98.2%</td>
<td>48.5%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td style="color: red;">-13.8%</td>
<td style="color: red;">-9.2%</td>
<td style="color: red;">-3.8%</td>
<td style="color: red;">-6.8%</td>
<td style="color: red;">-10.3%</td>
<td>91.5</td>
<td>97.5</td>
<td>93.8%</td>
<td>33.0%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td style="color: red;">-3.7%</td>
<td style="color: red;">-4.2%</td>
<td style="color: red;">-1.9%</td>
<td style="color: red;">-3.2%</td>
<td style="color: red;">-4.9%</td>
<td>98.8</td>
<td>96.0</td>
<td>102.9%</td>
<td>72.5%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td style="color: red;">-9.5%</td>
<td style="color: red;">-6.4%</td>
<td style="color: red;">-2.8%</td>
<td>6.0%</td>
<td style="color: red;">-7.4%</td>
<td>93.3</td>
<td>96.6</td>
<td>96.6%</td>
<td>35.2%</td>
</tr>
<tr>
<td colspan="10" rowspan="1" class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Orders on hand</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
07</td>
<td>Jun 
07</td>
<td>Current</td>
<td>Average</td>
<td>Curr/ 
Avg</td>
<td>%tile</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color: red;">-7.9%</td>
<td style="color: red;">-4.6%</td>
<td style="color: red;">-2.3%</td>
<td style="color: red;">-2.7%</td>
<td style="color: red;">-3.6%</td>
<td>97.4</td>
<td>96.5</td>
<td>101.0%</td>
<td>55.7%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td style="color: red;">-13.3%</td>
<td style="color: red;">-9.6%</td>
<td style="color: red;">-5.2%</td>
<td style="color: red;">-8.4%</td>
<td style="color: red;">-6.7%</td>
<td>93.5</td>
<td>96.5</td>
<td>96.8%</td>
<td>39.9%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td style="color: red;">-1.8%</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-0.5%</td>
<td>1.0%</td>
<td>0.8%</td>
<td>101.5</td>
<td>95.7</td>
<td>106.1%</td>
<td>77.1%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td style="color: red;">-6.3%</td>
<td style="color: red;">-2.4%</td>
<td>0.5%</td>
<td>1.0%</td>
<td style="color: red;">-5.1%</td>
<td>98.2</td>
<td>98.5</td>
<td>99.7%</td>
<td>40.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Fgn orders on hand</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
07</td>
<td>Jun 
07</td>
<td>Current</td>
<td>Average</td>
<td>Curr/ 
Avg</td>
<td>%tile</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color: red;">-0.4%</td>
<td>0.5%</td>
<td>2.4%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>111.0</td>
<td>94.6</td>
<td>117.3%</td>
<td>95.2%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td style="color: red;">-3.4%</td>
<td>-2.0%</td>
<td>0.0%</td>
<td style="color: black;">-0.5%</td>
<td>0.0%</td>
<td>107.2</td>
<td>93.7</td>
<td>114.3%</td>
<td>83.3%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td>3.2%</td>
<td>2.9%</td>
<td>6.1%</td>
<td>5.3%</td>
<td>6.3%</td>
<td>114.7</td>
<td>93.5</td>
<td>122.6%</td>
<td>97.6%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td style="color: red;">-0.4%</td>
<td>2.1%</td>
<td>1.6%</td>
<td>0.0%</td>
<td style="color: red;">-0.5%</td>
<td>112.2</td>
<td>98.5</td>
<td>113.9%</td>
<td>93.7%</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">Yr/Yr percentage changes in
underlying Indices</td>
</tr>
</tbody>
</table>
</body></html>

The IFO indexes from Germany provide us with detail to their earlier release. The chart on the left shows that the EU indexes for Germany’s MFG sector track the result for the IFO. Both indexes are pointing lower with the IFO index [...]

IFO Details Begin to Show Cracks…

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071030b.jpg" width="353">
Consumer confidence fell in October according to the Conference Board Survey. The 3.9% m/m decline was preceded by declines of 5.8% and 5.6% during the prior two months.
The decline in the index to 95.6, in fact, was to the lowest level since October 2005. Economists generally had expected a lesser decline to 99.0.
The present conditions fell 2.0% after declines of 6.8% and 5.9% during the prior two months. The decline also was to the lowest level in about two years.
The percentage of respondents who viewed business conditions as good dropped sharply for the third consecutive month while the percentage who viewed jobs as plentiful also fell hard for the third month. Those who felt jobs were hard to get rose to the highest since late 2005.
The expectations index similarly fell sharply by 5.8% m/m to the lowest in two years. Expectations about business conditions and income both fell but expectations about employment rose slightly. <img align="right" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071030c.jpg">
Plans to buy major appliances fell most sharply to the lowest in two years while plans to buy carpet held steady at a low level. The percentage of respondents who would buy a new car fell to the lowest since July.
The expected inflation rate in twelve months remained at 5.1%, equal to expectations during all of last year for inflation in twelve months.
U.S. home prices fell 0.8% m/m in August for the 14th consecutive month, according to the S&amp;P/Case-Shiller home price index composite 10.
The index of just 10 U.S. cities and their surrounding areas is not adjusted for the quality or the size of the home. It fell five percent in August from a year ago.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Conference Board &nbsp;(SA, 1985=100)</th>
<th scope="col">October</th>
<th scope="col">September</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">Consumer Confidence Index</td>
<td>95.6</td>
<td>99.5</td>
<td>-9.0%</td>
<td>105.9</td>
<td>100.3</td>
<td>96.1</td>
</tr>
<tr>
<td class="firstcol">Present Conditions</td>
<td>118.8</td>
<td>121.2</td>
<td>-5.0%</td>
<td>130.2</td>
<td>116.1</td>
<td>94.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>80.1</td>
<td>85.0</td>
<td>-12.8%</td>
<td>89.7</td>
<td>89.7</td>
<td>96.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer confidence fell in October according to the Conference Board Survey. The 3.9% m/m decline was preceded by declines of 5.8% and 5.6% during the prior two months. The decline in the index to 95.6, in fact, was to the lowest [...]

Consumer Confidence Tanked as Gasoline Prices Rose & Home Prices Fell

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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Andrew Cates

**US Outperformance Holds; Europe and China Continue to Disappoint**
One of the most persistent features of the global macro landscape in 2026 has been the widening divergence between growth outcomes in the United States and those in Europe and China. Citigroup’s global growth surprise indices—which measure the gap between actual economic releases and consensus expectations—capture this divergence with unusual clarity. US data have continued to surprise on the upside, supported by resilient consumer spending, a stronger-than-expected labour market and the ongoing AI-driven capital spending boom. The picture elsewhere is less encouraging. Growth surprises have turned negative across the euro area, reflecting the cumulative toll of elevated energy costs, weak industrial activity and subdued business confidence. And China's growth surprise index has also fallen sharply in recent weeks, with weaker-than-expected retail sales and fixed asset investment data for May this week reinforcing concerns that domestic demand remains fragile and that policy support is yet to gain meaningful traction.

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**The Oil Risk Premium in the UK Has Been Fading**
One of the more notable features of UK markets this year has been the close relationship between oil prices and two-year gilt yields. The link is not mechanical, but in an economy heavily exposed to imported energy, swings in oil prices can materially alter the inflation outlook and, by extension, expectations for Bank of England policy. That relationship was on display again this week. A softer-than-expected UK CPI reading for May—helped in part by easing energy price pressures—led investors to scale back expectations that inflation would remain persistently above target, pushing two-year gilt yields to their lowest level in six weeks. The question now is whether this marks the start of a more sustained easing in inflation pressures or merely a temporary reprieve. Much will depend on whether the recent decline in oil prices following the US-Iran ceasefire agreement proves durable.

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**The AI Investment Boom Is Rewriting the Rule Book for the Chip Industry**
If the divergence in global growth surprises noted above tells a story of a world economy under strain, the semiconductor sales data tell a very different one — of a technology-driven investment cycle that is accelerating almost regardless of the broader macro environment. Global semiconductor sales have surged to record levels over the past twelve months, driven primarily by insatiable demand for the chips that underpin AI infrastructure: graphics processing units, high-bandwidth memory, and advanced logic chips. Data centre capital expenditure from the hyperscalers continues to exceed even the most optimistic forecasts from a year ago, and the investment pipeline shows no sign of moderating. The gains are concentrated in AI-adjacent products; legacy chips for consumer electronics and industrial applications remain relatively soft.

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**Copper Holds Firm As Oil Retreats**
The commodity markets are telling two quite different stories this week, and the contrast is instructive. Oil has moved sharply lower on the US-Iran MoU news as investors trim the conflict risk premium that has been embedded in energy markets since March — a welcome development for inflation and central bank optionality alike. But the three commodities shown in this chart tell a different story. Copper, one of the most reliable proxies for global electricity infrastructure investment, remains near multi-year highs, reflecting the extraordinary volume of data centre construction, grid expansion and electrification spending flowing through the global economy. Aluminium — energy-intensive to produce and increasingly in demand for the structural components of both data centres and electric vehicles — has, until quite recently, held its ground. Lithium hydroxide, the battery-grade refining product that sits at the heart of the energy storage supply chain, has seen some cyclical softness but remains structurally underpinned by the scale of demand being projected for grid-scale storage and electric mobility over the next decade.

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**Is Energy Availability a Binding Constraint on Growth?**
This next chart is a scatter plot that maps electricity generation per capita against GDP growth per capita across a broad sample of countries over the past five years. The positive relationship is striking. Economies with higher electricity generation per capita, including the United States, have generally delivered stronger GDP growth, while those with more constrained electricity systems have tended to lag. The obvious objection is reverse causality: richer economies generate more electricity because they have more to power. That is partly true. But the broader evidence is difficult to dismiss. The US shale revolution delivered an abundance of cheap energy that supported a sustained period of industrial outperformance relative to many advanced economies. Mainstream commentary often attributed this advantage to factors such as labour market flexibility or technological innovation, but energy costs were arguably at least as important.

260618Z5.jpg

**Corporate America Is Investing from a Position of Unusual Financial Strength**
The surge in US corporate investment—particularly in AI infrastructure, data centres and semiconductors—has inevitably drawn comparisons with the late-1990s dot-com boom. Yet the financial balance data suggest an important difference. During the dot-com era, US non-financial corporates moved into a financial deficit approaching 4% of GDP, relying heavily on external financing to fund investment. Today, despite another ambitious investment cycle, the sector remains in surplus, currently around 1.8% of GDP. Corporate America is investing aggressively, but it is still generating more cash than it is spending. The boom is being financed largely through profits rather than debt. Risks remain—not least the growing fiscal burden on the federal government—but the balance-sheet fragilities that turned previous investment booms into systemic crises appear far less pronounced. If a major constraint emerges in the years ahead, it may be energy and resources rather than leverage.

260618Z6.jpg

The signing of a Memorandum of Understanding (MoU) between the United States and Iran earlier this week has offered financial markets their most significant moment of geopolitical relief since the Middle East conflict escalated in early March. Oil prices fell sharply on the news, short-dated bond yields moved lower across several major economies, and risk assets recovered ground. But relief, as investors have learnt repeatedly over the past three months, is arguably not the same as resolution. The MoU sets a framework for negotiations rather than a final settlement, and the history of US-Iran diplomacy is not one that encourages complacency. Meanwhile, the Federal Reserve — concluding its June meeting yesterday under new chair Kevin Warsh — held rates steady but delivered a distinctly hawkish dot plot that shifted the median year-end projection from a cut to a hike, a reminder that the easing cycle the market had been pricing is no longer the base case. Against this backdrop, this week's charts take stock of where the global economy presently stands — and what the underlying data, beneath the geopolitical noise, are telling us. The picture that emerges is one of divergence. The United States continues to outperform consensus growth expectations while Europe and China disappoint (chart 1). UK short-dated yields have tracked oil prices with unusual consistency this year, and today's softer-than-expected CPI print for May — arriving just as the MoU has knocked crude lower — potentially changes the policy calculus for the Bank of England (chart 2). Global semiconductor sales, meanwhile, are storming ahead regardless of the geopolitical noise, powered by AI infrastructure spending that shows no sign of fatigue (chart 3). A cross-section of commodity prices tells two stories simultaneously: the geopolitical risk premium is draining out of oil, but the metals and materials the AI economy actually needs — copper, uranium, critical minerals — are holding firm (chart 4). Meanwhile a cross-country scatter of electricity generation and GDP growth over the past five years raises a question that deserves more attention than it typically gets: is energy availability a constraint on growth, or merely a consequence of it? The evidence, we would argue, points firmly in one direction (chart 5). And finally, for all the comparisons being drawn between the current investment boom and the late 1990s, the financial balance of the US corporate sector tells a rather different story — one that matters for how any correction might unfold (chart 6).

Charts of the Week: Between Relief and Reality

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

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It's an interesting time for the Bank of England to be meeting; it has its next policy meeting on June 18. Top money center central banks have been meeting, and the European Central Bank delivered a rate hike, with what is believed to be a likelihood of another hike before the end of the year. The Bank of Japan as just met and executed a 25-basis-point rate hike that brought the overnight interest rate up to 1% for the first time in 31 years. The Federal Reserve meets today and although the Fed is not expected to make an interest rate change, it is widely expected to remove the language that implies the next rate change is likely to be a reduction. Against that background, there is a pending deal to be signed on Friday between the United States and Iran to end the hostilities, to open the Strait of Hormuz, and to allow a normalization—or at least a transition toward normalization—of traffic flow through the Strait of Hormuz and the restoration of the delivery of the world's oil supplies.

Against this background, the Bank of England will be making its rate decision. Part of this background shows other central banks having taken steps to become less accommodative or more vigilant against inflation risks and what have been ongoing overshoots of inflation targets by monetary policy globally. The Bank of England is part of this phenomenon as its rate of inflation, measured by the CPIH, is 3% year-over-year, a full percentage point above where it's supposed to be. However, both the CPIH and the HICP treatments for measuring U.K. inflation show inflation edging slightly lower—from 3% for the CPIH over 12 months to 2.7% over three months annualized. For the HICP, it moves from 2.9% over 12 months to a 2.7% annual rate over three months. Both of these are small moves but in the right direction. In addition, the CPIH core measure, excluding food, energy, alcohol, and tobacco, shows inflation declining from 2.9% over 12 months to 2.6% at an annual rate over six months, and to 1.7% at an annual rate over three months.

In short, inflation progress in the U.K. is very much in gear for the headline; inflation is quite moderately easing, however. For the core, the move lower is impressive and considerable. The question is whether the MPC at the Bank of England will find these movements sufficient in and of themselves to stay their hand and hold interest rate policy, or whether the Committee will join the ranks of central banks hiking interest rates to make sure that inflation makes that turn lower.

The situation in the Strait of Hormuz is hopeful, but not definitive, and there have been a number of ceasefires in the Middle East that have been called and then broken up relatively quickly. This time, markets are reacting to this particular announcement much more decisively and treating it as if this one is the ‘Real McCoy’ with oil prices having fallen down into the mid $70/barrel range and other indicators showing that markets are convinced that prices are moving lower too. Are the Bank of England's MPC members buying onto this as well? Or are they going to treat this as perhaps one last opportunity to get interest rates up and to make sure that the inflation rate goes down?

U.K. inflation on a monthly basis shows a slight tendency to accelerate in May, with inflation diffusion measuring inflation acceleration month-to-month at 58.3%, above the neutral reading of 50. However, diffusion had been at 50% in April and at 41.7% in March. Acceleration has been broadly blunted. In addition, the May increase in the CPIH was only 0.1%, the same as in April, with March having posted a much stronger increase of 0.4%.

Looking at trends sequentially over 12 months, six months and three months, diffusion is only 25% over 12 months; it is 50% over six months and 25% over three months. These metrics reinforce the view that inflation is not broadly accelerating but rather decelerating and moving back into line.

Taking the year-over-year inflation rate, it's a ranking of overall inflation rates back to January 2000. The headline CPIH is still high at a 74.4 percentile standing; that means it has been higher than 3% about 25% of the time and lower about 75% of the time. The average ranking across the various metrics in the table is 61%. That's above a ranking of 50% that delineates the median for the period. And despite the fast fall in the CPIH core rate, the year-over-year core is at 2.9% and has an 81.2 percentile ranking, meaning it has been higher since January 2000, less than 20% of the time. However, that 12-month rate of 2.9% is now down to 1.7% over three months. There are too many ways to look at inflation, at the environment, at what other central banks have done, and at trends to know with any certainty what the BOE will do.

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The Bank of England has had a long period of overshooting its inflation target. It certainly will want to make sure that it's on a clear path toward getting inflation back to 2%. There's a question here about how much the Bank of England will want to trust the trend that it sees, how much it wants to trust the fast drop in the core rate, and then how much it wants to believe that the deal struck with Iran to open the Strait of Hormuz is going to prove durable. There are no real answers to these questions; they're going to be based upon opinions and perceptions, and they're also going to be based upon the pressure that the Bank of England feels about needing to make sure that it gets inflation back to 2% after its long period of intransigence. We'll find this out tomorrow.

United Kingdom

U.K. Inflation Dips and Shows Progress

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.

Economy in Brief

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EU Readings Still Strong…but FADING

ADP Report: Private Payroll Growth Much Improved

US GDP Growth Boosted Again by Improved Trade Deficit

US GDP Growth Boosted Again by Improved Trade Deficit

September Unemployment Rates in Japan and in Germany Pose Problems for Central Banks

German Wholesale Sales Falter Again

IFO Details Begin to Show Cracks…

Consumer Confidence Tanked as Gasoline Prices Rose & Home Prices Fell