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/070921g.jpg" width="353">
Construction sector is on its LIFETIME LOW &#150; since 1993. 
The chart on the left shows the 12-month momentum in Japan&#146;s various key sectors. Among them, only construction is contracting and it has been doing that since mid -2006. Construction is at the its lifetime low point. Other sectors are relatively high in their respective ranges &#150; in their 90th percentiles. But momentum is fading across these sectors. MFG is only gradually losing momentum while the tertiary sector (services) has less momentum to start and is also losing it faster. The all industry measure tracks the tertiary sector closely. </div>

<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">Japan Main Industry Surveys</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes: Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Jul 2007</td>
<td>Jun 2007</td>
<td>May 2007</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">All Industry</td>
<td>107.1</td>
<td>107.5</td>
<td>107.3</td>
<td>107.3</td>
<td>107.2</td>
<td>106.9</td>
<td>107.6</td>
<td>93.1</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>78.7</td>
<td>80</td>
<td>81.6</td>
<td>80.1</td>
<td>80.3</td>
<td>80.4</td>
<td>124.6</td>
<td>78.7</td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>108.1</td>
<td>108.5</td>
<td>107.1</td>
<td>107.9</td>
<td>107.8</td>
<td>107.9</td>
<td>109.6</td>
<td>87.7</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary</td>
<td>109.7</td>
<td>110.3</td>
<td>110.2</td>
<td>110.1</td>
<td>110.0</td>
<td>109.5</td>
<td>110.7</td>
<td>91</td>
<td>0.9</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
</body>
</html>

Construction sector is on its LIFETIME LOW  since 1993. The chart on the left shows the 12-month momentum in Japans various key sectors. Among them, only construction is contracting and it has been doing that since mid -2006. [...]

Japan is Losing Momentum Across Sectors

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921c.jpg" width="353">
Slip-slidin&#146; away&#133;
The chart on the left tells the story. The table below gives the perspective on the trend with more precision. Anyway you slice it, the release of the Reuters NTC PMI FLASH! readings for the Euro area tell a grim story&#133;the weakest readings in 21 months. That is since its inception for the services measure taking the MFG PMI back to January 2000, so as to include a recession, raises the range ranking of the MFG PMI to the 70th percentile or the top 30%. That is better but it falls short of being called &#145;strong&#146; or robust. If we were grading papers a 70 would be a C-minus.
And this is a September reading that predates the recent push up in the Euro. We have heard Germany&#146;s wise man Bofinger talk of the potential for FX intervention. Intervention was a topic of the speech to today by the ECBs Bini Smaghi. Airbus has warned of adverse strong-euro effects. The currency game is in full swing.
Who&#146;s at risk: Who Da man?While everyone gnashes their teeth for the poor, poor dollar let&#146;s remember that it&#146;s the strong currency country that really get hurt.
Look at Japan&#146;s decade-long torpor after the too-strong yen. Maybe Europe should spend more time worrying about its own polices instead of the US. Since the US has been denied any control of some its most important FX rates as Japan has wallowed in weak growth and borrowing that cheapie has mushroomed into a cottage industry of massive proportions and since China has asserted its right to commandeer its bilateral peg with the dollar, stress has been left fall elsewhere. Euro anyone?
From jubilation to frustration. We have watched with interest as Europe has chortled over the rise of the euro and as that has segued into a view of the literal invincibility of its growth even as the termites have set about their work on those wooden arguments.
Some have talked of switching reserves into euro. Well be careful what you wish for. Now Europe looks in horror at what is happening. This is a continent based on exporting. Exports are typically high; 40% of GDP in Germany and higher in other countries there. A too-high exchange rate is not the sort of collateral problem for Europe that it has been in the US with export more like 10% to 15% of GDP. And, as we have written before, the trouble with being a reserve center currency is that you need a lot of flexibility in your economy to deal with the swing in capital flows that might arise. So despite the fact that those who have shifted into euro may now be happy the real question is this: for how long?
A one-two punch? For Europe the FX rise is taking its toll in concert with the impact from the financial situation everyone said would not spread. The Bank of England was for a while stubborn about its own building crisis (a gathering storm?). But it has had to cave and offer so much assistance that Mr. King is now being crowned (in the pejorative sense) by the Select Committee looking into those matters.
One in repair, one in despair. The ECB is now taking blasts from its favorite critic, Mr Sarcastic, err Sarkozy. While the dollar is floundering, it is in shallow water. As I remind people of this key question: from here how far can the dollar fall and against what? Meanwhile, back at the Euro-ranch, real trouble is brewing and it does not have a good solution. Talk of FX intervention is a pea shooter against a charging elephant. No trained Mahoot would stand in the way of that charging beast, let alone with a pea shooter for a weapon. It is fair to say that the US is in state of repair and Europe is in a state of despair. So much for the fate of the poor dollar&#133; Dollar rules! Euro drools! Why? Because the dollar and US economy can survive this sort of things since IT IS A REAL RESERVE UNIT with all the trappings. The euro, sadly, is not.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th colspan=3 scope="col">FLASH Readings</th>
</tr>
<tr>
<th colspan="3" scope="col">NTC PMIs for the Euro area 13</th>
</tr>
</thead>
<tbody>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>MFG</td>
<td>Services</td>
</tr>
<tr>
<td class="firstcol">Sep-07</td>
<td>53.23</td>
<td>54.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Aug-07</td>
<td>54.16</td>
<td>57.91</td>
</tr>
<tr class="grey2">
<td colspan="3" class="firstcol">Averages</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>54.08</td>
<td>56.68</td>
</tr>
<tr class="odd">
<td class="firstcol">6-Mo</td>
<td>54.67</td>
<td>57.01</td>
</tr>
<tr>
<td class="firstcol">12-Mo</td>
<td>55.41</td>
<td>57.14</td>
</tr>
<tr class="grey2">
<td colspan="3" class="firstcol">21-Mo Range</td>
</tr>
<tr>
<td class="firstcol">High</td>
<td>57.61</td>
<td>61.21</td>
</tr>
<tr class="odd">
<td class="firstcol">Low</td>
<td>53.23</td>
<td>54.04</td>
</tr>
<tr>
<td class="firstcol">% Range</td>
<td>0</td>
<td>0</td>
</tr>
</tbody>
</table>
</body>
</html>

Slip-slidin away The chart on the left tells the story. The table below gives the perspective on the trend with more precision. Anyway you slice it, the release of the Reuters NTC PMI FLASH! readings for the Euro area tell a grim [...]

NTC Measures Plunge in September-Back to Central Banking School?

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921a.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector improved sharply this month. The rise to 10.9 more than reversed the deterioration down to 0.0 during August.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three-month growth in factory sector industrial production. There has been a 43% correlation with q/q growth in real GDP.
The sub indexes for new orders and inventories accounted for most of the rise in the overall index. Shipments improved only marginally while the indexes for unfilled orders and employment both fell. During the last ten years there has been a 75% correlation between the employment index and the three-month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921b.jpg" width="353">
The prices paid index reversed some of its deterioration in August but remained near its low since February. During the last ten years there has been a 76% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell slightly but remained near its best level since late in 2004. Expectations for new orders were quite firm and though expectations for the number of employees fell from its recent high, it remained firm.
Subprime Side Effects in the Federal Funds Market from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20071001/cover.pdf"> here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">September</th>
<th scope="col">August &nbsp;</th>
<th scope="col">Sept. &#145;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>10.9&nbsp;</td>
<td>0.0</td>
<td>2.3&nbsp;</td>
<td>8.1</td>
<td>11.5</td>
<td>28.1</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>23.1&nbsp;</td>
<td>15.4&nbsp;</td>
<td>46.6&nbsp;</td>
<td>36.6</td>
<td>40.1</td>
<td>51.2</td>
</tr>
</tbody>
</table>
</body>
</html>

The Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector improved sharply this month. The rise to 10.9 more than reversed the deterioration down to 0.0 during August. During the last ten [...]

Philadelphia Fed Index Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921a.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector improved sharply this month. The rise to 10.9 more than reversed the deterioration down to 0.0 during August.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three-month growth in factory sector industrial production. There has been a 43% correlation with q/q growth in real GDP.
The sub indexes for new orders and inventories accounted for most of the rise in the overall index. Shipments improved only marginally while the indexes for unfilled orders and employment both fell. During the last ten years there has been a 75% correlation between the employment index and the three-month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921b.jpg" width="353">
The prices paid index reversed some of its deterioration in August but remained near its low since February. During the last ten years there has been a 76% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell slightly but remained near its best level since late in 2004. Expectations for new orders were quite firm and though expectations for the number of employees fell from its recent high, it remained firm.
Subprime Side Effects in the Federal Funds Market from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20071001/cover.pdf"> here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">September</th>
<th scope="col">August &nbsp;</th>
<th scope="col">Sept. &#145;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>10.9&nbsp;</td>
<td>0.0</td>
<td>2.3&nbsp;</td>
<td>8.1</td>
<td>11.5</td>
<td>28.1</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>23.1&nbsp;</td>
<td>15.4&nbsp;</td>
<td>46.6&nbsp;</td>
<td>36.6</td>
<td>40.1</td>
<td>51.2</td>
</tr>
</tbody>
</table>
NTC Measures Plunge in September-Back to Central Banking School? 
by <a href="/comment/Brusca.html">Robert Brusca</a> September 21, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921c.jpg" width="353">
Slip-slidin&#146; away&#133;
The chart on the left tells the story. The table below gives the perspective on the trend with more precision. Anyway you slice it, the release of the Reuters NTC PMI FLASH! readings for the Euro area tell a grim story&#133;the weakest readings in 21 months. That is since its inception for the services measure taking the MFG PMI back to January 2000, so as to include a recession, raises the range ranking of the MFG PMI to the 70th percentile or the top 30%. That is better but it falls short of being called &#145;strong&#146; or robust. If we were grading papers a 70 would be a C-minus.
And this is a September reading that predates the recent push up in the Euro. We have heard Germany&#146;s wise man Bofinger talk of the potential for FX intervention. Intervention was a topic of the speech to today by the ECBs Bini Smaghi. Airbus has warned of adverse strong-euro effects. The currency game is in full swing.
Who&#146;s at risk: Who Da man?While everyone gnashes their teeth for the poor, poor dollar let&#146;s remember that it&#146;s the strong currency country that really get hurt.
Look at Japan&#146;s decade-long torpor after the too-strong yen. Maybe Europe should spend more time worrying about its own polices instead of the US. Since the US has been denied any control of some its most important FX rates as Japan has wallowed in weak growth and borrowing that cheapie has mushroomed into a cottage industry of massive proportions and since China has asserted its right to commandeer its bilateral peg with the dollar, stress has been left fall elsewhere. Euro anyone?
From jubilation to frustration. We have watched with interest as Europe has chortled over the rise of the euro and as that has segued into a view of the literal invincibility of its growth even as the termites have set about their work on those wooden arguments.
Some have talked of switching reserves into euro. Well be careful what you wish for. Now Europe looks in horror at what is happening. This is a continent based on exporting. Exports are typically high; 40% of GDP in Germany and higher in other countries there. A too-high exchange rate is not the sort of collateral problem for Europe that it has been in the US with export more like 10% to 15% of GDP. And, as we have written before, the trouble with being a reserve center currency is that you need a lot of flexibility in your economy to deal with the swing in capital flows that might arise. So despite the fact that those who have shifted into euro may now be happy the real question is this: for how long?
A one-two punch? For Europe the FX rise is taking its toll in concert with the impact from the financial situation everyone said would not spread. The Bank of England was for a while stubborn about its own building crisis (a gathering storm?). But it has had to cave and offer so much assistance that Mr. King is now being crowned (in the pejorative sense) by the Select Committee looking into those matters.
One in repair, one in despair. The ECB is now taking blasts from its favorite critic, Mr Sarcastic, err Sarkozy. While the dollar is floundering, it is in shallow water. As I remind people of this key question: from here how far can the dollar fall and against what? Meanwhile, back at the Euro-ranch, real trouble is brewing and it does not have a good solution. Talk of FX intervention is a pea shooter against a charging elephant. No trained Mahoot would stand in the way of that charging beast, let alone with a pea shooter for a weapon. It is fair to say that the US is in state of repair and Europe is in a state of despair. So much for the fate of the poor dollar&#133; Dollar rules! Euro drools! Why? Because the dollar and US economy can survive this sort of things since IT IS A REAL RESERVE UNIT with all the trappings. The euro, sadly, is not.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th colspan=3 scope="col">FLASH Readings</th>
</tr>
<tr>
<th colspan="3" scope="col">NTC PMIs for the Euro area 13</th>
</tr>
</thead>
<tbody>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>MFG</td>
<td>Services</td>
</tr>
<tr>
<td class="firstcol">Sep-07</td>
<td>53.23</td>
<td>54.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Aug-07</td>
<td>54.16</td>
<td>57.91</td>
</tr>
<tr class="grey2">
<td colspan="3" class="firstcol">Averages</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>54.08</td>
<td>56.68</td>
</tr>
<tr class="odd">
<td class="firstcol">6-Mo</td>
<td>54.67</td>
<td>57.01</td>
</tr>
<tr>
<td class="firstcol">12-Mo</td>
<td>55.41</td>
<td>57.14</td>
</tr>
<tr class="grey2">
<td colspan="3" class="firstcol">21-Mo Range</td>
</tr>
<tr>
<td class="firstcol">High</td>
<td>57.61</td>
<td>61.21</td>
</tr>
<tr class="odd">
<td class="firstcol">Low</td>
<td>53.23</td>
<td>54.04</td>
</tr>
<tr>
<td class="firstcol">% Range</td>
<td>0</td>
<td>0</td>
</tr>
</tbody>
</table>
Japan is Losing Momentum Across Sectors 
by <a href="/comment/Brusca.html">Robert Brusca</a> September 21, 2007


<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921g.jpg" width="353">
Construction sector is on its LIFETIME LOW &#150; since 1993. 
The chart on the left shows the 12-month momentum in Japan&#146;s various key sectors. Among them, only construction is contracting and it has been doing that since mid -2006. Construction is at the its lifetime low point. Other sectors are relatively high in their respective ranges &#150; in their 90th percentiles. But momentum is fading across these sectors. MFG is only gradually losing momentum while the tertiary sector (services) has less momentum to start and is also losing it faster. The all industry measure tracks the tertiary sector closely. </div>

<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">Japan Main Industry Surveys</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes: Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Jul 2007</td>
<td>Jun 2007</td>
<td>May 2007</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">All Industry</td>
<td>107.1</td>
<td>107.5</td>
<td>107.3</td>
<td>107.3</td>
<td>107.2</td>
<td>106.9</td>
<td>107.6</td>
<td>93.1</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>78.7</td>
<td>80</td>
<td>81.6</td>
<td>80.1</td>
<td>80.3</td>
<td>80.4</td>
<td>124.6</td>
<td>78.7</td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>108.1</td>
<td>108.5</td>
<td>107.1</td>
<td>107.9</td>
<td>107.8</td>
<td>107.9</td>
<td>109.6</td>
<td>87.7</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary</td>
<td>109.7</td>
<td>110.3</td>
<td>110.2</td>
<td>110.1</td>
<td>110.0</td>
<td>109.5</td>
<td>110.7</td>
<td>91</td>
<td>0.9</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
Canada's Retail Trade Falls 0.8% in July, But Could Be Simple Offset to Earlier Strength 
by <a href="/comment/Stone.html">Carol Stone</a> September 21, 2007


<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921d.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921e.jpg">
Retail trade in Canada fell 0.8% in July following on a 1.1% drop in June. May had been stronger, with a 2.8% increase. The July result year-on-year was up 3.8%. This was the weakest y/y increase since October 2005, although the monthly swings in these growth rates make it a bit misleading to characterize the one month; the y/y change in a 3-month moving average, by contrast, was 6.6%, roughly in line with recent experience.
Several store groups shared the pattern of a strong May followed by decreases in June and July. The automotive sector, which accounts for about 34% of retail sales in Canada, gained 4.3% in May, but then fell 2.9% in June and 1.3% in July. But others duplicated this: home centers and hardware stores, clothing, and general merchandise, as examples.
The strength in May&#39;s sales was believed by Statistics Canada and private analysts to be largely attributable to a government-worker pay settlement received by women in Quebec, one of a series of &quot;pay equity&quot; settlements achieved by unions and/or reflecting national legislation concerning salaries of women and men. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921f.jpg" width="353">Sales in Quebec then were up 5.0% in May and they fell 4.1% in June and 0.7% in July. Sales among all the other Provinces, though, still rose 2.2% in May, so not all of the push was due to the payout to Quebec&#39;s workers.
Among other of the big Provinces, Ontario saw 2.1% growth in May and then declines of 0.5% in June and 1.9% in July. Alberta sales rose 2.9% in May and 0.6% in June; they edged down 0.2% in July. 
On a volume basis, sales showed the same monthly pattern. In chained 2000 C$, they rose 2.5% in May and fell back 0.7% in June and 0.8% in July. Prices were thus not the major reason for the swing in nominal sales. In May, the retail trade price index rose just 0.3%; it declined 0.4% in June and was flat in July.
As we noted at the outset, while these sales look to be slowing if July alone is compared to year-ago figures, it really does seem too early to conclude that the trend is shifting. However, the trend in the Canadian economy looks to be quite sensitive to the path of this key measure of consumer demand over the next month or two.
The national data for Canada are contained in Haver&#39;s CANSIM database, with that for the Provinces in CANSIMR.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">CANADA (% Chg)</th>
<th scope="col">Jul 2007*</th>
<th scope="col">Jun 2007*</th>
<th scope="col">May 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">Retail Trade: All Groups</td>
<td>-0.8</td>
<td>-1.1</td>
<td>2.8</td>
<td>3.8</td>
<td>6.4</td>
<td>5.6</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">All Motor Vehicles &amp; Parts Dealers</td>
<td>-2.3</td>
<td>-3.6</td>
<td>5.0</td>
<td>3.7</td>
<td>6.0</td>
<td>5.0</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less MV &amp; P</td>
<td>0.3</td>
<td>1.9</td>
<td>0.1</td>
<td>4.7</td>
<td>6.4</td>
<td>6.5</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stations</td>
<td>-3.5</td>
<td>4.7</td>
<td>5.3</td>
<td>0.2</td>
<td>9.1</td>
<td>15.4</td>
<td>11.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less MV &amp; P and Gasoline</td>
<td>0.9</td>
<td>1.5</td>
<td>-0.6</td>
<td>5.4</td>
<td>5.9</td>
<td>5.2</td>
<td>5.5</td>
</tr>
</tbody>
</table>
</body>
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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/070920g.jpg" width="353">
Today, the BEA reported personal income by state for Q2. This sizable body of data, carried in Haver&#39;s PIQR database, shows the composition of aggregate personal income for each state by type of income and earnings by industry. In Q2 total personal income for the country grew 1.2%, following 2.5% in Q1. Q1 had included the payment of large bonuses covering year-end 2006, and these enlarged the income growth reported for Q1 and the apparent slowdown in Q2. The year-on-year growth in Q2 personal income, though, was 6.4%, well in line with the performance of the last three years. Similarly, earnings rose 1.0% in Q2 compared with 2.2% in Q1; the year-on-year growth was 5.9%, also running about average with recent years&#39; experience. These data levels are given in seasonally adjusted annual rates, but the % changes are cited as quarterly rates by BEA.
By state, personal income grew as much as 2.0% in Q2 in Utah and it declined outright in New York -- by 0.1%. New York workers had received the biggest part of the Q1 bonus money and income there then expanded by 4.8%. So the decline in Q2 should be seen as weak only relative to the bulge in Q1 growth. In Utah, the big Q2 gains income came in earnings, with outsized gains in professional and technical industries, durable goods manufacturing and construction.
This report highlights a special feature of state income data. Income is measure according to residence; I live and work in New York, for instance, so all of my income occurs in New York. But earnings are compiled from establishment data, so they represent earnings were people work, which is not necessarily the state they they live in. Adjustment is needed to reconcile these differences Our data table below shows two states with a noticeable impact from commuters. Many New Jerseyans work in New York. So earnings (defined here as wages and salaries net of contributions for social insurance) defined by residence are larger in New Jersey than those reported for workers. So we see that the &quot;worker&quot; data are increased by a positive factor, which was $35.9 billion in Q2, or 11.7% of earnings of residents.
In contrast, many people who work in Missouri live in Kansas or Illinois. So Missouri has a negative &quot;residence adjustment&quot;. In Q2 it was $4.3 billion, or 2.8% of earnings reported for workers in the state. That is, 2.8% of earnings earned in Missouri was transferred to other states where the workers actually reside.
Most states have a negligible residence adjustment since nearly everyone lives and works in the same state. But all states have even a small amount. And the country as a whole has a tiny but negative residence adjustment, since some people who work in the US live in another country.[Note that these personal income data are compiled separately from the personal income reported in the National Income Accounts. The differences would be the subject of another commentary, but for now, it is enough to say that the sum of the states need not equal the total of personal income in the more familiar national data. It are quite close, however.] 
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920h.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920i.jpg">
<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Personal Income by State</th>
<th scope="col">Q2 2007</th>
<th scope="col">Q1 2007</th>
<th scope="col">Q4 2006</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>
<td class="firstcol">Personal Income, Total US</td>
<td>11,595</td>
<td>11,459</td>
<td>11,181</td>
<td>10,902</td>
<td>10,967</td>
<td>10,284</td>
<td>9,711</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>1.2</td>
<td>2.5</td>
<td>1.5</td>
<td>6.4</td>
<td>6.6</td>
<td>5.9</td>
<td>6.1</td>
</tr>
<tr>
<td class="firstcol">Net Earnings by Residence</td>
<td>7,893</td>
<td>7,812</td>
<td>7,646</td>
<td>7,453</td>
<td>7,504</td>
<td>7,104</td>
<td>6,739</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>1.0</td>
<td>2.2</td>
<td>1.9</td>
<td>5.9</td>
<td>5.6</td>
<td>5.4</td>
<td>6.5</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">Earnings by State</td>
</tr>
<tr>
<td class="firstcol">New Jersey</td>
<td>307</td>
<td>305</td>
<td>296</td>
<td>291</td>
<td>291</td>
<td>276</td>
<td>263</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>3.0</td>
<td>2.3</td>
<td>5.2</td>
<td>5.7</td>
<td>4.8</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">Residence Adjustment</td>
<td>35.9</td>
<td>36.7</td>
<td>33.7</td>
<td>31.7</td>
<td>32.5</td>
<td>29.1</td>
<td>26.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Missouri</td>
<td>132</td>
<td>131</td>
<td>129</td>
<td>127</td>
<td>127</td>
<td>121</td>
<td>117</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>1.3</td>
<td>1.5</td>
<td>1.7</td>
<td>4.5</td>
<td>4.4</td>
<td>4.1</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Residence Adjustment</td>
<td>-4.3</td>
<td>-4.3</td>
<td>-4.2</td>
<td>-4.3</td>
<td>-4.2</td>
<td>-4.2</td>
<td>-3.8</td>
</tr>
</tbody>
</table>
</body>
</html>

Today, the BEA reported personal income by state for Q2. This sizable body of data, carried in Haver's PIQR database, shows the composition of aggregate personal income for each state by type of income and earnings by industry. In Q2 [...]

Personal Income Growth Slows in Most States in Q2 after Bonuses Paid in Q1; Commuting Patterns Require Adjustment [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920f.jpg" width="353">
The CBI survey presents its data in net balance form like the Philadelphia Fed survey and NFIB survey. Values above unity denote increases, below unity they show declines. The ratings are about the breadth of the trend rather that the strength, although strength is usually inferred from breadth. The reading this month shows that orders are still rising but that the breadth of the reading is diminishing. More broadly the chart on the left shows that the trend toward narrowing gains is in place over long and short horizons. Export orders are on the decline; we have previously seen weakening in German orders for July and in other EMU countries. Output for the moment is holding up and is not reflecting any of the weakness in order trends. Prices are still showing upward pressure with a net positive reading of 16 in the current month but that is barely changed since the 12-month average is +17. Still UK inflation data have been good and the prospects for inflation are considered excellent.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK Industrial volume data CBI Survey
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Reported:</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>12Mo Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>6</td>
<td>9</td>
<td>-6</td>
<td>8</td>
<td>0</td>
<td>94%</td>
<td>9</td>
<td>-40</td>
<td>49</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>-2</td>
<td>-3</td>
<td>-8</td>
<td>0</td>
<td>-4</td>
<td>91%</td>
<td>3</td>
<td>-50</td>
<td>53</td>
</tr>
<tr>
<td class="firstcol">Stocks: Final Goods</td>
<td>7</td>
<td>9</td>
<td>6</td>
<td>-2</td>
<td>9</td>
<td>32%</td>
<td>26</td>
<td>-2</td>
<td>28</td>
</tr>
<tr>
<td class="firstcol">Output Volume: Next 3M</td>
<td>17</td>
<td>13</td>
<td>10</td>
<td>25</td>
<td>16</td>
<td>80%</td>
<td>28</td>
<td>-28</td>
<td>56</td>
</tr>
<tr>
<td class="firstcol">Avg Prices 4 Next 3M</td>
<td>16</td>
<td>16</td>
<td>11</td>
<td>16</td>
<td>17</td>
<td>84%</td>
<td>25</td>
<td>-30</td>
<td>55</td>
</tr>
</tbody>
</table>
</body>
</html>

The CBI survey presents its data in net balance form like the Philadelphia Fed survey and NFIB survey. Values above unity denote increases, below unity they show declines. The ratings are about the breadth of the trend rather that the [...]

In the UK, CBI Orders are Fading Over All Major Horizons

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920e.jpg" width="353">
Manufacturing orders are sharply lower in France in July following a pattern we have seen among previous European reports of industrial orders in July. Like those reported earlier, French new orders, which dropped sharply in July, merely offset a similarly strong rise in June. France&#146;s Yr/Yr trend remains firmly higher with Yr/Yr rates of growth of 15.5% overall and 14.8% for foreign orders. Despite the drop in July, the three-month growth is strong and accelerating compared to the six-month rate. However, in the new quarter (Q3) orders are growing at a pace of only 1.3% annualized. This could be the start of a slowing in orders as the euro has climbed and has just recently broken to a new all-time high above $1.40. This is what will bear watching in the months ahead. As &#145;current&#146; data are for July, and the Euro&#146;s new peak is in mid-September.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<th colspan="7" scope="class">French Orders</th>
</tr>
</thead>
<tbody>
<tr class="grey2">
<td class="firstcol">Saar exept m/m</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-2.9%</td>
<td>3.4%</td>
<td>3.1%</td>
<td>14.6%</td>
<td>4.9%</td>
<td>15.5%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>-2.0%</td>
<td>2.2%</td>
<td>3.5%</td>
<td>16.0%</td>
<td>4.8%</td>
<td>14.8%</td>
</tr>
</tbody>
</table>
</body>
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Manufacturing orders are sharply lower in France in July following a pattern we have seen among previous European reports of industrial orders in July. Like those reported earlier, French new orders, which dropped sharply in July, [...]

French Orders Continue to Rise Year-Over-Year

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920c.jpg" width="353">
The composite index of leading economic indicators fell nearly twice expectations and declined 0.6% last month, fully reversing all of the prior month&#39;s increase, according to the Conference Board.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators index and the lagged change in real GDP.
The breadth of one month gains amongst the 10 components of the leading index plunged to 15% in August from 70% in July.
All of the components of the leading indicators index made a negative contribution except the money supply. Declining building permits have made a negative contribution for six out of the last eight months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920d.jpg" width="353">
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.1% after a 0.2% rise during July. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging index rose 0.3% during August. As a result, the ratio of coincident to lagging indicators (a measure of economic excess) fell slightly and has been roughly unchanged all year.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">August</th>
<th scope="col">July</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">Leading</td>
<td>-0.6%</td>
<td>0.7%</td>
<td>0.6%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.7%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.5%</td>
<td>3.0%</td>
<td>3.5%</td>
<td>0.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

The composite index of leading economic indicators fell nearly twice expectations and declined 0.6% last month, fully reversing all of the prior month's increase, according to the Conference Board. During the last ten years there has [...]

U.S. Leading Economic Indicators Fell Sharply

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

Winnie Tapasanun

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The current general activity diffusion index rebounded to a slightly stronger-than-expected 10.3 in June following a 27.1-point drop to -0.4 in May, the latest Manufacturing Business Outlook Survey (MBOS) from the Federal Reserve Bank of Philadelphia showed, indicating a return to expansion in manufacturing activity in the Third Federal Reserve District this month. A reading of 10.0 for June had been expected by the Action Economics Forecast Survey. June marked the fifth m/m increase in six months, showing a sharp improvement from -1.4 in June 2025. In June, 32.1% of firms reported increases in current general activity (up from 22.5% in May), while 21.9% reported decreases (down from 22.9%); 45.4% reported no change (down from 54.6%). Survey responses were collected from June 8 to June 15.

Haver Analytics calculates an ISM-adjusted current activity diffusion index from five key components using the methodology along the lines of the national ISM index. The index rose to 53.1 in June after a 4.8-point decline to a contraction-level 49.7 in May, indicating manufacturing activity expanded for the third time in four months; it was slightly above 51.0 in June 2025.

In the latest survey, the new orders index surged to 27.3 in June following a 34.7-point plunge to -1.7 in May, signaling new orders expanded for the sixth time in seven months. The shipments index rebounded to 14.9 this month from 4.9 in May, registering the seventh consecutive expansion. The unfilled orders index advanced to 10.5 from -2.5, indicating expansion for the first time since July 2025 and the highest level since January 2025. In contrast, the inventories index dropped to -8.5 in June from 6.6 in May, showing inventories contracted for the second time in three months and at the lowest level since July 2024. Meanwhile, the delivery times index increased to -2.6 this month from -10.4 in May (the lowest reading since March 2024).

On the labor front, the number of employees index climbed to 7.9 in June from -2.8 in May, indicating employment expanded for the first time in three months and at the highest level since January. In June, a higher 17.0% of respondents reported increases in employment, while 9.2% reported declines; 73.8% reported no change in employment levels. The average employee workweek index fell to -6.5 this month, the first negative reading and lowest since February, from 1.2 in May.

Inflation indicators were mixed in June. The prices paid index rose to 53.2 this month following an 11.4-point drop to 47.9 in May. A higher 53.5% of respondents reported increases in input prices in June, while only 0.4% reported decreases. The prices received index fell to 20.3, a four-month low, after a 7.2-point May decline to 26.3. In June, 20.3% of respondents reported increases in prices received, while 0.0% reported decreases.

The future indexes remained in positive territory, signaling continued overall growth over the next six months, with most future indicators rising. The future general activity diffusion index edged down to 50.2 in June from 53.2 in May, staying positive since February 2024. Future indexes for new orders (60.8 vs. 53.5) and shipments (60.3 vs. 45.7) increased in June (vs. May) and remained positive. Notably, the future capital expenditures index rose to 41.2 this month, the highest level since June 2021, from 30.9 in May. The following future indexes slipped in June (vs. May) but stayed in positive territory: employment (30.8 vs. 31.7), unfilled orders (17.3 vs. 19.2), and inventories (10.0 vs. 11.8). Prices continued to increase, with the future prices paid index easing to a still-elevated 63.2 in June from 70.0 in May and the future prices received index rising to 67.2, the highest level since August 2021, from 60.5.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The indexes range from -100 to +100 with positive values indicating an increase in activity. The series from the survey dating back to May 1968 can be found in Haver’s **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Current General Activity Index up 10.7 pts. to 10.3 in June; fifth rise in six months.
- New Orders (27.3), sixth expansion in seven mths.; Shipments (14.9), seventh straight expansion; Unfilled Orders (10.5), first expansion since July ’25.
- Employment (7.9), a five-month high after two mths. of contraction.
- Inflation indicators: Prices Paid up (53.2); Prices Received down (20.3, a four-month low).
- Future General Activity Index down to a still-expansion-level 50.2; most subindexes up and positive; future price indexes remaining above long-run avgs.

U.S. Philadelphia Fed Index Returns to Positive Territory in June

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Unemployment in the European Monetary Union stayed at 6.3% in April, just a tick above its all-time low. In the more inclusive EU, the unemployment rate hovered at 6%, just two tenths of a percentage point above its all-time low. Unemployment conditions in the monetary union remain low without many signs of acceleration.

The unemployment rate in April fell in Italy, Ireland, Greece, Portugal, and the Netherlands. The unemployment rate increased month-to-month in Finland.

In March, the unemployment rate declined in Austria, Belgium, Germany, Finland, Italy, and the Netherlands. It rose month-to-month in Greece and Luxembourg.

Over three months, the unemployment rate in these 12-early reporting monetary union members fell in five countries: Belgium, Germany, Italy, Ireland, and the Netherlands. In contrast, unemployment rose in five countries: Portugal, Greece, France, Finland, and Austria.

Over six months, unemployment rates fell in six countries: the Netherlands, Portugal, Italy, Germany, Belgium, and Austria. This was against increases in six countries: Greece, Finland, France, Luxembourg, Spain, and Ireland.

Year over year, the degree of inflation progress is much thinner, with the unemployment rates falling in only three countries Italy, Spain, and Portugal with increases in unemployment for all the other countries in the table.

Unemployment rates continue to rank low in the monetary union, with only three monetary union countries having their unemployment rates ranked above 50%, putting them above their respective medians on data back to the year 2000. Those three countries are Luxembourg, Finland, and Austria. For the remaining countries, the rankings of their unemployment rates over this period are not even as high as their 30th percentiles. Italy, at present, is experiencing its lowest unemployment rate of the period.

Unemployment conditions in the monetary union remain solid. The past two weeks were significant for monetary policy and global economics, with the ECB raising rates, Japan raising rates, and the United States keeping rates unchanged but moving away from an easing bias in policy that had been in effect for quite a number of months. Today the Bank of England, after experiencing some significant inflation progress, decided to keep its policy on hold for another session. An agreement between the U.S. and Iran securing an opening of the Strait of Hormuz was signed, paving the way for potentially improved oil flows, lower inflation, and less uncertainty in the period ahead.

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EMU Unemployment Remains Low

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

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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.

Economy in Brief

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