Tom Moeller

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026d.jpg" width="353">
The University of Michigan&#39;s full- month reading of consumer sentiment for October fell 3.0% to 80.9. That roughly doubled the 1.7% decline reported for early October; it followed no change in September and a huge 7.7% drop in August. The decline was worse than Consensus expectations, which called for the number to be unchanged from the preliminary October figure of 82.0.
Both major sub-indexes shared in the erosion. Current conditions was lowered from its preliminary value of 98.2 to 97.6 and expectations from 71.6 to 70.1.
By income category, the added decline in overall sentiment reversed the early month pattern: families with greater than $50,000 per year in income had reported a reduction of -16.8% y/y, but it is now down &quot;only&quot; 15.1% while sentiment amongst families with income less than $50,000 per year trimmed some of its earlier m/m recovery and now shows a sizable 11.5% y/y decline.
By age group, it sentiment amongst folks in the 35-54 bracket eroded from the preliminary -17.1% y/y to -17.6%. Younger persons cut their initial assessment from +5.6% y/y to +2.3%.
Expectations about personal finances actually improved a bit from the earlier reading and are now flat with September&#39;s value; interestingly, there are now equal increases in the proportion of survey participants who expect better times ahead for themselves and in those who expect worse times. Expectations for business conditions during the next year fell for the sixth month this year out of ten. Expectations about business conditions out five years remain unattractive, with a decrease in those looking for &quot;good times&quot; and an increase in those expecting &quot;bad times&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026e.jpg" width="353">
The view of the current economic conditions improved due to a slight increase in the view of current personal finances, a conclusion that is unchanged from the preliminary October survey. However, the perspective of current buying conditions turned from up slightly m/m to down slightly.
The assessment of government policy in October recovered the declines during the prior two months. This is not because more people see government doing a &quot;good&quot; job, but that fewer people see it doing a &quot;poor&quot; job; they apparently shifted to an &quot;only fair&quot; assessment.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.
Safety, Soundness, and The Evolution of U.S. Banking Industry from the Federal Reserve Bank of Atlanta can be found <a href="http://www.frbatlanta.org/filelegacydocs/erq107_DeYoung.pdf"> here</a>.
Corporate Access to External Financing from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-31.pdf"> here</a>.</div>

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">October (Final)</th>
<th scope="col">October (Prelim.)</th>
<th scope="col">September</th>
<th scope="col">October&nbsp; 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 Sentiment</td>
<td>80.9</td>
<td>82.0</td>
<td>83.4</td>
<td>-13.6% </td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>97.6</td>
<td>98.2</td>
<td>97.9</td>
<td>-9.0%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>70.1</td>
<td>71.6</td>
<td>74.1</td>
<td>-17.3%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
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The University of Michigan's full- month reading of consumer sentiment for October fell 3.0% to 80.9. That roughly doubled the 1.7% decline reported for early October; it followed no change in September and a huge 7.7% drop in August. [...]

Michigan Consumer Sentiment Added To Decline in Early October

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026d.jpg" width="353">
The University of Michigan&#39;s full- month reading of consumer sentiment for October fell 3.0% to 80.9. That roughly doubled the 1.7% decline reported for early October; it followed no change in September and a huge 7.7% drop in August. The decline was worse than Consensus expectations, which called for the number to be unchanged from the preliminary October figure of 82.0.
Both major sub-indexes shared in the erosion. Current conditions was lowered from its preliminary value of 98.2 to 97.6 and expectations from 71.6 to 70.1.
By income category, the added decline in overall sentiment reversed the early month pattern: families with greater than $50,000 per year in income had reported a reduction of -16.8% y/y, but it is now down &quot;only&quot; 15.1% while sentiment amongst families with income less than $50,000 per year trimmed some of its earlier m/m recovery and now shows a sizable 11.5% y/y decline.
By age group, it sentiment amongst folks in the 35-54 bracket eroded from the preliminary -17.1% y/y to -17.6%. Younger persons cut their initial assessment from +5.6% y/y to +2.3%.
Expectations about personal finances actually improved a bit from the earlier reading and are now flat with September&#39;s value; interestingly, there are now equal increases in the proportion of survey participants who expect better times ahead for themselves and in those who expect worse times. Expectations for business conditions during the next year fell for the sixth month this year out of ten. Expectations about business conditions out five years remain unattractive, with a decrease in those looking for &quot;good times&quot; and an increase in those expecting &quot;bad times&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026e.jpg" width="353">
The view of the current economic conditions improved due to a slight increase in the view of current personal finances, a conclusion that is unchanged from the preliminary October survey. However, the perspective of current buying conditions turned from up slightly m/m to down slightly.
The assessment of government policy in October recovered the declines during the prior two months. This is not because more people see government doing a &quot;good&quot; job, but that fewer people see it doing a &quot;poor&quot; job; they apparently shifted to an &quot;only fair&quot; assessment.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.
Safety, Soundness, and The Evolution of U.S. Banking Industry from the Federal Reserve Bank of Atlanta can be found <a href="http://www.frbatlanta.org/filelegacydocs/erq107_DeYoung.pdf"> here</a>.
Corporate Access to External Financing from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-31.pdf"> here</a>.</div>

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">October (Final)</th>
<th scope="col">October (Prelim.)</th>
<th scope="col">September</th>
<th scope="col">October&nbsp; 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 Sentiment</td>
<td>80.9</td>
<td>82.0</td>
<td>83.4</td>
<td>-13.6% </td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>97.6</td>
<td>98.2</td>
<td>97.9</td>
<td>-9.0%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>70.1</td>
<td>71.6</td>
<td>74.1</td>
<td>-17.3%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
U.S. Help-Wanted Advertising Remained Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 26, 2007


<img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026a.jpg">
The Conference Board indicated that its index of help-wanted advertising did rise slightly last month but only to 24 from 23 in August. The figures are near the record low for the series which dates back to the 1950s.
The index had shown slight improvement during the third quarter but it has since dissipated.
During the last ten years there has been a 57% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.
The proportion of labor markets with rising want-ads improved to 57% from a low 16% in August.
In most regions of the country the index of help-wanted advertising remained low or fell further in September with the exception of the South where moderate improvement occurred. 
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.
Recent Financial Developments and the U.S. Economic Outlook also from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-26-27.pdf"> here</a>. 

<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026b.jpg"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026c.jpg" class="small">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">September 2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>24</td>
<td>23</td>
<td>29</td>
</tr>
</tbody>
</table>
Spain Employment Up 3.1% from Year Ago; Spanish Workers and Immigrants Both Gain 
by <a href="/comment/Stone.html">Carol Stone</a> October 26, 2007


<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026f.jpg" width="353">
Spain&#39;s National Institute of Statistics reported Q3 labor force data today. Their formal term is &quot;Economically Active Population Survey&quot; or EAPS. Employment in this survey rose 143,300 from Q2 to 20.511 million workers, up 3.1% from a year ago. There were notable gains in services, up 4.2% from Q3 2006, and construction, up 4.9%. Employment in industry (mining and manufacturing) is falling off gradually and stood a 3.26 million in Q3 compared to a peak of 3.32 million in Q4 2006. That sector had shown vigorous growth from 1997 through 2003 and has been basically on a plateau since then, so the current reductions would not seem to be a sign of weakness. Construction employment, in contrast, has been growing rapidly since 1997, an average rate of 7.5%; the 4.9% in Q3 is actually the &quot;slowest&quot; since Q4 2005. The service sector, too, has shown vigor, with growth at nearly a 5% pace since 1995.
The Q3 unemployment rate was steady at 8.0%. There was a modest rise in the number of people unemployed, 32,000 from Q1 and 26,000 from a year ago. Unemployment has been restrained, however, in view of a notable advance in the number of economically active population. This rose 175,000 in Q3 and is up 3.0% from Q3 2006. The participation rate stands at a record 59.1% of the population over age 16, up 0.2% from Q2 and 0.7% from a year ago.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026g.jpg" width="353">
Since 2005, the Spanish labor force data have been distinctive in breaking out Spanish nationals and foreign nationals explicitly. Immigrant workers are important in many countries, and it is really worthwhile to have the Spanish statisticians compile this information. Foreign nationals constitute just under 14% of employment in Spain, 2.846 million of the total 20.511 million; their working numbers grew 328,400 in Q3 from the year earlier, 13.0%. They have a high participation rate, 76.2% in Q3, but one assumes that they come to Spain from their home country in order to seek out job opportunities. Not all are successful; their unemployment rate is 11.8%, higher than the year-ago 10.8%, but off from a recent high in Q1 of 12.6%. The participation rate among Spaniards is 57.0%; this is also up 0.2% from Q2. Their unemployment rate is 7.4%; their employment grew 286,500 over the last year, 1.6%. These series by citizenship group are too short still to do much for any precise econometric analysis, but the differential pattern of the two groups may already be helping describe forces on wages and factors that will affect the further expansion of Spanish industry and markets.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071026h.jpg" width="353">
All of these data are in Haver&#39;s SPAIN database, as well as G10. The SPAIN database includes &quot;country-sourced&quot; data. In G10, Haver combines summary data for a number of major countries. Our analysts compile some select ratios and conduct seasonal adjustment on some series where it seems warranted. In that database, Spain&#39;s employment is seen to be up 91,600 from Q2, and the unemployment rate up 0.2% to 8.2%.</div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">SPAIN: &quot;EAPS&quot; Data, NSA</th>
<th scope="col">Q3 2007</th>
<th scope="col">Q2 2007</th>
<th scope="col">Year Ago</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 Employment, Millions</td>
<td>20.51</td>
<td>20.37</td>
<td>19.90</td>
<td>19.75</td>
<td>18.97</td>
<td>17.97</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>3.1</td>
<td>3.4</td>
<td>3.7</td>
<td>4.1</td>
<td>5.6</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>8.0</td>
<td>8.0</td>
<td>8.2</td>
<td>8.5</td>
<td>9.1</td>
<td>11.0</td>
</tr>
<tr>
<td class="firstcol">Spanish Nationals, Millions</td>
<td>17.66</td>
<td>17.61</td>
<td>17.38</td>
<td>17.29</td>
<td>16.90</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate (%)</td>
<td>57.0</td>
<td>56.8</td>
<td>56.4</td>
<td>56.3</td>
<td>55.7</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Foreign Nationals, Millions</td>
<td>2.84</td>
<td>2.75</td>
<td>2.52</td>
<td>2.46</td>
<td>2.07</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate (%)</td>
<td>76.2</td>
<td>76.0</td>
<td>77.1</td>
<td>77.1</td>
<td>75.5</td>
<td>--</td>
</tr>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071025j.jpg" width="353">
&quot;Cost, insurance and freight&quot; is an expression to describe the value of imports. The vast majority of the time, the &quot;insurance and freight&quot; portion amounts to a statistical discrepancy, used, at least by economists, merely to distinguish definitions of each measure of imports. However, the latter item in the expression is no long a trivial matter. The Wall Street Journal on Monday and then a client query called our attention to the Baltic Exchange Freight Indexes, the world&#39;s key gauge of freight charges. These have been soaring.
On October 24, the broadest measure, the Baltic Exchange Dry Index reached 10984 (January 4, 1985 = 1000), up a whopping 20.9% just since September 24. Actually, the most recent few days have seen some moderation, but the week of October 8-12 experienced daily hikes ranging from 1.4% to 3.6% each. The index stands an incredible 177.4% ahead of a year ago.
The Baltic Dry Index is a composite of the Baltic Capesize, Baltic Panamax and Baltic Supramax Indexes. Each covers a different group of sea routes around the world, different size and weight of ship and specialization of freight. The common element in these is that all of this freight is raw materials: grain, iron ore, coal, cement and other building materials, among others. Thus, when it becomes as significant as it is presently, it becomes key because it hits at the beginning of the production chain.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071025k.jpg" width="353">
Several recent press accounts have highlighted the role of demand in China. The other day here, Louise Curley talked about the hints of some slowing in Chinese imports; their growth has tapered somewhat, particularly from neighbors Singapore and Korea. At the same time, detail reported today for September&#39;s imports show continued strength in just the raw materials that the Baltic Indexes cover. &quot;Crude materials&quot; inflows were $10.2 billion, up 36.3% from a year ago; Q3 as a whole saw 42.5% expansion. Within this category -- which excludes fuels so is not impacted by oil prices -- ferrous ores and metal scrap surged 40.9% from September 2006 to $6.2 billion; for those items, Q3 was 54.4% ahead of last year&#39;s period. The anecdotal evidence cites increasing shipments from Brazil as feeding this demand, as well as other producers. Those heavy volumes also feed the freight indexes, since ships must make longer trips and resulting port congestion means they must wait some days to unload, which also increases the cost.
The cause, some reports argue, is a shortage of ships, which, of course, have long building lead-times. By 2009, there will be a number of new freighters and container ships to bring some relief. A long time to wait.
These data are contained in Haver&#39;s BALTIC database, a proprietary database from the London-based Baltic Exchange. The Exchange is a clearinghouse of world shipping information. 

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Oct 24</th>
<th scope="col">Oct 23</th>
<th scope="col">Week&nbsp;Oct 19</th>
<th scope="col">Sept</th>
<th scope="col">June</th>
<th scope="col">Dec 2006</th>
<th scope="col">Year Ago</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Baltic Exchange Dry Index, 01/04/85 =1000</td>
<td>10984</td>
<td>10944</td>
<td>10752</td>
<td>8574</td>
<td>5772</td>
<td>4336</td>
<td>3978</td>
</tr>
<tr>
<td class="firstcol">Baltic Capesize Index, 03/01/99 = 1000</td>
<td>15487</td>
<td>15514</td>
<td>15361</td>
<td>11856</td>
<td>7616</td>
<td>5858</td>
<td>5404</td>
</tr>
<tr class="odd">
<td class="firstcol">China Imports, Mil.$</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>Sept &#39;06</td>
</tr>
<tr>
<td class="firstcol">Crude Materials, Inedible</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>$10212</td>
<td>$9355</td>
<td>$7954</td>
<td>$7492</td>
</tr>
<tr class="odd">
<td class="firstcol">Ferrous Ores &amp; Metal Scrap </td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>$6234</td>
<td>$5408</td>
<td>$4483</td>
<td>$4425</td>
</tr>
</tbody>
</table>
</body>
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"Cost, insurance and freight" is an expression to describe the value of imports. The vast majority of the time, the "insurance and freight" portion amounts to a statistical discrepancy, used, at least by economists, merely to [...]

Freight Charges Skyrocket; Baltic Indexes Surge to Records

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071025i.jpg" width="353">
Domestic inflation is the more nettlesome here&#133; 
The less than one year in duration statistics in the table below are not as meaningful for export and import prices as they are not seasonally adjusted. But overall the trends in the table and in the chart show that inflation is in pretty good shape. Nonpetroleum inflation is keeping its head down. The reference line on the chart drawn at 2% shows that only the nonpetroleum PPI and CPI prices are edging above it. History shows us that when international prices turn lower that does not translate quickly into domestic prices becoming calm. In 2001 when import prices fell sharply it took about one year before the domestic ex-energy CPI responded. 
Of course what happens with oil prices and with food prices does matter. We focus on ex energy prices mostly to rid ourselves of the volatility, but at the same time we see that it provides coherence in the relationships among domestic and international prices of various sorts. 

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<th scope="col" colspan=8>German International and Domestic Inflation Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">SA:</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Export Prices</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>1.3%</td>
<td>1.6%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Import Prices</td>
<td>0.6%</td>
<td>-1.3%</td>
<td>0.1%</td>
<td>-2.6%</td>
<td>3.2%</td>
<td>1.3%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">NSA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Exp excl Petrol</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Imp excl Petrol</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>-2.7%</td>
<td>-0.8%</td>
<td>-0.2%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: SA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">CPI</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>2.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">CPI excl energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.4%</td>
<td>2.0%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">PPI</td>
<td>0.1%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>0.7%</td>
<td>1.7%</td>
<td>1.5%</td>
<td>5.1%</td>
</tr>
<tr>
<td class="firstcol">PPI excl Energy</td>
<td>0.0%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>1.8%</td>
<td>2.7%</td>
<td>2.5%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Domestic inflation is the more nettlesome here The less than one year in duration statistics in the table below are not as meaningful for export and import prices as they are not seasonally adjusted. But overall the trends in the [...]

Germany: Ex-Energy Inflation Trends are Turning Lower International Prices First

Robert Brusca

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071025h.jpg" width="353">
France&#146;s industry survey from its statistical agency INSEE remains quite firm throwing off readings that are at the top one-third or higher of their respective ranges since 1990: Business climate, production, production trends, orders and demand - the whole lot of it remains firm. While the various readings have been slipping recently, in a broader sense, they have steadied at this top one-third of range mark, at a fairly firm level.
What is a touch less firm is INSEE&#146;s assessment of the French MFG sector. A similar survey of just MFG shows the outlook for production at its 64th percentile and its trend at the 60th percentile. These are slightly weaker readings than for overall industry. The recent and likely trends for IP get stronger marks at 68Th percentile and 77TH percentiles, respectively. Orders and demand come in with readings at the 69th and 66th percentiles. On balance the French surveys for Industry and MFG remain on the firm side. MFG shows a touch more slippage than the overall.
Of course, there has been a lot of criticism from France recently over the exchange rate. A report I produced earlier in the week showed that within EMU France had gained competitiveness Vs the general EMU level but was lagging Germany by a significant amount. As the euro remains strong or becomes stronger this positioning could be a factor in how the French economy performs.
The chart at the top reminds us of two things. The first is that the French index is off peak. The second is that the Yr/Yr gain in the index has dissipated almost entirely. That suggests that there is almost no further upward momentum to the growth rate, not that the industry or MFG growth rates themselves will not remain positive.</div>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<th colspan=11 scope="col">INSEE Industry Survey</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Since Jan 1990</td>
<td colspan="4">Since Jan 1990</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>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr>
<td class="firstcol">Climate</td>
<td>108</td>
<td>109</td>
<td>109</td>
<td>110</td>
<td>70.0</td>
<td>49</td>
<td>123</td>
<td>73</td>
<td>50</td>
<td>101</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan=11>Production</td>

</tr>
<tr>
<td class="firstcol">Recent Trend</td>
<td>9</td>
<td>6</td>
<td>11</td>
<td>17</td>
<td>65.7</td>
<td>61</td>
<td>44</td>
<td>-58</td>
<td>102</td>
<td>-6</td>
</tr>
<tr>
<td class="firstcol">Likely Trend</td>
<td>33</td>
<td>32</td>
<td>33</td>
<td>31</td>
<td>68.8</td>
<td>18</td>
<td>63</td>
<td>-33</td>
<td>96</td>
<td>7</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan=11>Orders/Demand</td>

</tr>
<tr>
<td class="firstcol">Orders &amp; Demand</td>
<td>-1</td>
<td>1</td>
<td>1</td>
<td>2</td>
<td>70.1</td>
<td>42</td>
<td>25</td>
<td>-62</td>
<td>87</td>
<td>-15</td>
</tr>
<tr>
<td class="firstcol">Fgn Orders &amp; Demand</td>
<td>4</td>
<td>10</td>
<td>8</td>
<td>6</td>
<td>69.7</td>
<td>51</td>
<td>31</td>
<td>-58</td>
<td>89</td>
<td>-11</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan=11 >Prices</td>

</tr>
<tr>
<td class="firstcol">Likely Sales Prices Trend</td>
<td>9</td>
<td>13</td>
<td>11</td>
<td>9</td>
<td>68.1</td>
<td>30</td>
<td>24</td>
<td>-23</td>
<td>47</td>
<td>0</td>
</tr>
</tbody>
</table>
</body>
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Frances industry survey from its statistical agency INSEE remains quite firm throwing off readings that are at the top one-third or higher of their respective ranges since 1990: Business climate, production, production trends, orders [...]

French Biz Climate Indicator Holds Mostly Steady

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<img align="left" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071025g.jpg" width="353">
The IFO survey shows its various sectors to be well off peak. The overall index did slip again in October from +7.5 to +7.1. MFG, construction, wholesaling and services slipped on the month with only retailing getting a boost, but a big one, from -12.9 to -6.8. The all-sector index still resides at the door step of the top 20th percentile of the range. Among components only MFG is above the 80th percentile at 84.8%. Retail is the relative weakest sector at 56.4% of its range, followed by construction at 59.2% of its range. Wholesaling is at the edge of the top third of its range while the service sector is nearly in the top 25% of its range. The peaking of these indexes occurred around the end of the first quarter of this year. Retailing has hovered just short of neutral since that time. The ongoing rise in the Euro has cast a certain pall over the future.
On balance, these metrics are not bad at all. But they fall short of the strength the IFO report was exuding just a few short months ago&#133; Germany then thought it was on top of the world. And maybe it was, but the world has since rolled over, impacting Germany&#146;s relative position. /p>
The IFO Business climate index is near the top 20% of its range. The current situation is rated in the 82nd percentile (top 20 percent). But business expectations for the next six month are decidedly softer residing only in their 68th percentile.
Now all of these are above 50% and therefore above a point of neutrality. But they date from period back to 1992, a time span in which Germany did not do so well. So a finding of neutral, which would imply &#145;average&#146; for this period, would not be very reassuring. Germany needs to do better than this average.

Risks&#133; The hunter: captured by the game?The clear risk and problem at the moment is the ongoing rise of the euro. Some continue to warn of this current circumstance as putting the dollar at risk to a larger correction. We prefer to point out that the dollar cannot fall unless something else can rise. And the rise of the euro is already crimping German growth and its outlook along with that for other less competitive EMU members.
Let&#146;s remember that since the early 1970s it is the countries where prices and exchange rates went up not down that had the biggest troubles: OPEC (with rising oil prices) and then Japan with the rising yen and still lingering traces of deflation. We wonder if the real risk here is that the euro might rise, more than that the dollar might fall.
The dollar is already at a relative low point and at some point, if it moves lower, buying interest in dollars will develop. But Germany&#146;s economy will be hurt by a much stronger euro and that will prove a more troublesome issue for Germany and for the rest of the export oriented Europe. Whatever, they say, the cross border but within Euro area transactions (intra-union same currency exports and imports) are still vulnerable to international competition especially when the euro becomes overvalued. Germans may speak with the same currency as the French and Italians but their true language and culture is at least as different as is it is to that of Americans and Japanese. Cheap dollars or yen can get over any language barrier or common currency hurdle in a hurry. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th scope="col" colspan="9">Summary of IFO Sector Diffusion readings</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">CLIMATE Sum</td>
<td>Current</td>
<td>Last Mo</td>
<td colspan="6">Since Jan 1991*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Average</td>
<td>Median</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>% Range</td>
</tr>
<tr>
<td class="firstcol">All Sectors</td>
<td>7.1</td>
<td>7.5</td>
<td>-8.7</td>
<td>-9.5</td>
<td>16.6</td>
<td>-30.6</td>
<td>47.2</td>
<td>79.9%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>17.9</td>
<td>18.1</td>
<td>-0.9</td>
<td>0.3</td>
<td>27.5</td>
<td>-35.5</td>
<td>63.0</td>
<td>84.8%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-20.5</td>
<td>-20.8</td>
<td>-29.5</td>
<td>-32.2</td>
<td>0.3</td>
<td>-50.7</td>
<td>51.0</td>
<td>59.2%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>2.3</td>
<td>10.7</td>
<td>-14.8</td>
<td>-16.5</td>
<td>23.4</td>
<td>-39.5</td>
<td>62.9</td>
<td>66.5%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-6.8</td>
<td>-12.9</td>
<td>-15.3</td>
<td>-14.8</td>
<td>19.0</td>
<td>-40.2</td>
<td>59.2</td>
<td>56.4%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>17.2</td>
<td>20.8</td>
<td>8.7</td>
<td>8.2</td>
<td>28.5</td>
<td>-15.7</td>
<td>44.2</td>
<td>74.4%</td>
</tr>
<tr class="grey1">
<td colspan="9" class="firstcol">* May 2001 for Services</td>

</tr>
</tbody>
</table>
</body>
</html>

The IFO survey shows its various sectors to be well off peak. The overall index did slip again in October from +7.5 to +7.1. MFG, construction, wholesaling and services slipped on the month with only retailing getting a boost, but a [...]

IFO Survey Shows Weakness is Still in Train...but at Moderate Pace

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071025e.jpg" width="353">
New single family home sales rose 4.8% last month and recovered much of the prior month&#39;s 7.9% m/m decline. Nevertheless, sales during the latest three months averaged 41.6% below the peak hit in the middle of 2005.
New home sales in July &amp; August were revised down by roughly 8.0%.
In the West, sales recovered 37.7% last month after a 22.9% plunge during August. But the three month average is down an recessive 47.9% from the peak in mid-2005. Sales in the Northeast, which fell in September by 6.6%, are down 40.7% on average from the middle of 2005. Sales in the Midwest also fell in September by 19.5% and they actually led the pack with a 51.8% decline versus the 2005 peak. Sales in the South rose a small 0.5% in September and were off 43.9% from the 2005 peak.
According to CNN, David Seiders, chief economist for the home builders&#39; trade group, indicated Thursday that the latest report has some questionable readings, including a 38 percent rise in sales in the West, which he expects will be revised significantly lower in subsequent months. Without that reported increase, sales would have fallen from the already weak revised level in August.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071025f.jpg" width="353">
All this weakness in sales has done nothing for prices. They rose 2.5% in September but that only made half of the prior month&#39;s decline. It left prices down 9.4% from the peak earlier this year.
The number of homes for sale has surprisingly been falling of late, down 8.6% from the peak last year. But the number still is nearly double the level in early 2001. At the current sales rate, the months&#39; supply of homes on the market rose to 8.3, also about double the low rate in 2005. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US New Homes</th>
<th scope="col">September</th>
<th scope="col">August</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 Sales (SAAR, 000s)</td>
<td>770</td>
<td>735</td>
<td>-23.3%</td>
<td>1,049</td>
<td>1,279</td>
<td>1,201</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA, $)</td>
<td>238,000</td>
<td>232,100</td>
<td>5.0%</td>
<td>243,067</td>
<td>234,208</td>
<td>217,817</td>
</tr>
</tbody>
</table>
</body>
</html>

New single family home sales rose 4.8% last month and recovered much of the prior month's 7.9% m/m decline. Nevertheless, sales during the latest three months averaged 41.6% below the peak hit in the middle of 2005. New home sales in [...]

US Home Sales Stable at Lower Level, Revisions Down

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071025c.jpg" width="353">
Durables goods orders fell sharply in September by 1.7% following a 5.3% drop during in August. That was revised slightly deeper from the initial report. Much of series&#39; volatility is due to orders in the transportation sector. Excluding transportation (which still can be volatile), orders rose a slight 0.3% after an unrevised 1.8% decline during August. 
The very short term trend in the non-transportation series shows some improvement, but that is due to a 3.3% jump back in July for which the latest two months&#39; results can be viewed as a payback. But before that jump the longer term trend in orders growth was down, as was the trend in overall orders for durable goods. 
Weakness in orders for electrical equipment, appliances and components most assuredly reflects weakness in the consumer sector. That also is true of computers where the latest three month growth recovered to a bare 1.6%, up from negative growth in the prior two periods and down from the peak in orders growth of 15.3% early his year. 
To a limited degree, orders for nondefense capital goods less the very volatile aircraft component are holding up. These orders rose 0.4% last month after a 0.1% August decline. Three month growth of 0.4% is up from negative growth just recently and is a big recovery from the excessive declines between 1% and 2% early this year. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071025d.jpg" width="353">
Machinery orders led that relative strength and rose 4.3% last month and the three month average growth is 5.5%. Orders for primary metals rose 1.6% and the average rise over the last three months also is an average 1.6%, up from negative growth earlier 
Growth in shipments, however have weakened even more. Overall shipments growth is down to -0.0% on average over the last three months and less transportation it&#39;s +0.1%. That&#39;s versus growth rates over 1% earlier this year. </div><div align="left">
Inventories are lean. Average growth over the last three months totals only 0.1% versus average growth rates in excess of 1% late last year. 
Unfilled orders also have picked somewhat to a recent average growth rate of 0.9% but that&#39; down from 14.1% during all of 2006. </div> 

<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/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">September </th>
<th scope="col">August</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">Durable Goods Orders</td>
<td>-1.7%</td>
<td>-5.3%</td>
<td>-6.6%</td>
<td>6.3%</td>
<td>9.9%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>0.3%</td>
<td>-1.8%</td>
<td>0.1%</td>
<td>7.6%</td>
<td>8.8%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>4.4%</td>
<td>-10.2%</td>
<td>-11.4%</td>
<td>10.6%</td>
<td>17.1%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>.2%</td>
<td>8.5%</td>
<td>11.1%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
</body>
</html>

Durables goods orders fell sharply in September by 1.7% following a 5.3% drop during in August. That was revised slightly deeper from the initial report. Much of series' volatility is due to orders in the transportation sector. [...]

U.S. Durable Goods Orders Down Big for Second Month

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.

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**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.

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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).

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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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