Robert Brusca

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<p></p>
<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803i.jpg" width="353"></p>
<p>With Q2 data complete, at least preliminarily, Euro area retail sales are continuing to show lethargy. For the quarter as a whole, retail sales volumes are up by only 0.6% at an annual rate over Q1. This follows a 0.2% result in Q1. Food purchases are off by 0.1% at an annual rate in Q2. Nonfood is doing somewhat better with a Q/Q annual rate gain of 1.4%. Still, this is no growth leader.</p>
<p>Germany is poised for a normal &#145;German recovery&#146; to take hold &#150; or so officials continue to say. This means that after a trade-led rebound with a strong capital goods sector, the consumer joins the party late. So far there is little evidence that Germany has turned that corner. The VAT hike at year end has surely been a part of the reason. But we are now at mid-year and German sales in Q2 are compared to a VAT distorted and weak Q1. And while Germany&#146;s retail volumes are up at a strong-seeming 6.5% annual rate in Q2/Q1 that compares to a -15.8% drop in Q1, it isn&#146;t really much of a rebound. Year-over-year German sales volumes are off by 0.7%. For all of the Euro area the Y/Y sales gain is 1.0%; nearly twice that for nonfoods at a 1.8% annual rate.</p>
<p>Within Europe the UK (not an EMU member but an EU member and one with a still strong exchange rate) continues to show strong retail sales results. The UK housing market is still strong. The Bank of England, like the ECB, is still warning about inflation pressures and probably is headed for another rate hike. But the UK consumer has been much more active that the typical Euro area consumer. In EMU, unemployment rates are still high, but they have been falling steadily. The proximity to low cost Eastern Europe may be one factor holding back consumer optimism. But one thing is clear, as surely as Europe has had a solid recovery underway, the consumer has been left behind. If Euro area job market improvement continues, this should change, but so far there is little evidence of it and leading economic barometers are showing that a tendency to slow is in the pipeline.</p>
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<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<b> Euro area&nbsp; Retail Sales Volume</b>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td><b>Jun-07</b></td>
<td><b>May-07</b></td>
<td><b>Apr-07</b></td>
<td><b>3-Mo</b></td>
<td><b>6-MO</b></td>
<td><b>12-Mo</b></td>
</tr>
<tr class="grey3">
<td class="firstcol">Euro area 13 Total</td>
<td>0.4%</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>-1.3%</td>
<td>-0.6%</td>
<td>0.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Food</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>-3.3%</td>
<td>-0.5%</td>
<td>-0.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Nonfood</td>
<td>0.8%</td>
<td>-0.7%</td>
<td>0.1%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>2.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Textiles</td>
<td>#N/A</td>
<td>-3.1%</td>
<td>1.4%</td>
<td>-6.5%</td>
<td>-1.3%</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">HH Goods</td>
<td>#N/A</td>
<td>-0.4%</td>
<td>-1.0%</td>
<td>-1.8%</td>
<td>-2.5%</td>
<td>1.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Books news, etc</td>
<td>#N/A</td>
<td>-0.7%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>-0.6%</td>
<td>0.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Pharma</td>
<td>#N/A</td>
<td>0.5%</td>
<td>0.1%</td>
<td>3.7%</td>
<td>3.4%</td>
<td>3.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Other NonSpec</td>
<td>#N/A</td>
<td>-0.7%</td>
<td>-0.8%</td>
<td>-3.3%</td>
<td>-2.1%</td>
<td>-1.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Mail Order</td>
<td>#N/A</td>
<td>1.4%</td>
<td>0.7%</td>
<td>1.7%</td>
<td>3.1%</td>
<td>0.0%</td>
</tr>
<tr class="grey2">
<td colspan="7">NonFood Country detail;Volume</td>
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<tr class="grey1">
<td class="firstcol">Germany</td>
<td>1.6%</td>
<td>-3.4%</td>
<td>2.2%</td>
<td>1.2%</td>
<td>-10.0%</td>
<td>-1.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.0%</td>
<td>0.1%</td>
<td>3.6%</td>
<td>4.3%</td>
<td>4.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy (Total; Value)</td>
<td>#N/A</td>
<td>-0.2%</td>
<td>-0.5%</td>
<td>-2.1%</td>
<td>-2.2%</td>
<td>-1.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK (EU)</td>
<td>0.9%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>4.7%</td>
<td>5.2%</td>
<td>6.4%</td>
</tr>
<tr class="grey3">
<td colspan="7">Shaded areas calculated on a one-month lag due to lagging data.</td>
</tr>
<tr class="grey3">
<td colspan="7">The EA 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain.</td>
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<td class="firstcol">7COLSPAN</td>
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</tbody>
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With Q2 data complete, at least preliminarily, Euro area retail sales are continuing to show lethargy. For the quarter as a whole, retail sales volumes are up by only 0.6% at an annual rate over Q1. This follows a 0.2% result in Q1. [...]

Euro Area Retail Sales Stay in Slowdown Mode

Tom Moeller

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<p></p>
<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803d.jpg" width="353"></p>
<p>The non-manufacturing sector Business Activity Index for July fell back to 55.8 from an unrevised 60.7 during the prior month according to the Institute for Supply Management.</p>
<p>Since the series&#39; inception in 1997 there has been a 46% correlation between the level of the Business Activity Index and the Q/Q change in real GDP for services plus construction.</p>
<p>The employment sub index also fell to 51.7 from the high of 55.0 in June. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.</p>
<p>The new orders index also fell m/m to 52.8 from 56.9 in June, down for the second month in a row but the latest still indicates growth in new orders.</p>
<p>Pricing power also slipped for the second month, but by a hard 4.2 points to 61.3, the lowest level since February. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.</p>
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
<p>Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components..  <br></p>

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><b><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></b></th>
<th scope="col"><b><u>July</u></b></th>
<th scope="col"><b><u>June</u></b></th>
<th scope="col"><b><u>July &#39;06</u></b></th>
<th scope="col"><b><u>2006</u></b></th>
<th scope="col"><b><u>2005</u></b></th>
<th scope="col"><b><u>2004</u></b></th>
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</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>55.8</td>
<td>60.7</td>
<td>55.7</td>
<td>58.0</td>
<td>60.2</td>
<td>62.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>61.3</td>
<td>65.5</td>
<td>72.1</td>
<td>65.2</td>
<td>68.0</td>
<td>68.8</td>
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</tbody>
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The non-manufacturing sector Business Activity Index for July fell back to 55.8 from an unrevised 60.7 during the prior month according to the Institute for Supply Management. Since the series' inception in 1997 there has been a 46% [...]

ISM Nonmanufacturing July Index Below Forecasts

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803c.jpg" width="353"></p>
<p><b>Nonfarm payrolls</b> grew 92,000 during July. The increase was a bit below the Consensus forecast for a 128,000 rise and the prior two months&#39; gains were revised slightly downward.</p>
<p>The three month change in payrolls slowed to 135,000 on average. That&#39;s about equal to the 136,000 average change so far this year but below the average of 189,000 last year and 212,000 during 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803a.jpg" width="353"></p>
<p>The <b>unemployment rate </b>moved up to 4.6% last month from 4.5% during June. Household employment fell 30,000 (+1.2%) following a 197,000 rise during June. The labor force jumped another 159,000 (1.1% y/y). The labor force participation rate held steady at 66.1%.</p>
<p>From the establishment survey, private service sector jobs posted a 132,000 (2.0%) gain after a 114,000 June rise which was revised slightly higher. Last year&#146;s average gain was 159,000 per month. Retail employment actually fell a modest 1,200 (+0.5% y/y) during July and the average this year has been just 8,000 per month after an outright decline of 2,700 per month during 2006. In the financial sector, jobs recovered from the prior month&#39;s 2,000 decline and grew 27,000 (1.4% y/y) for an average gain of 7,000 this year versus 16,000 last year. Professional &amp; business services employment rose 26,000 after June&#39;s upwardly revised 7,000 increase. The average gain this year has been 19,000 per month, off from last year&#39;s average of 42,000.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803b.jpg" width="353"></p>
<p>Factory sector payrolls fell 2,000 (-1.2 y/y) and jobs have fallen in every month during the last twelve. Construction employment reversed the prior month&#39;s downwardly revised 3,000 increase with a 12,000 (-0.7% y/y) decline. Construction jobs have fallen 5,000 per month this year versus an average 11,000 increase per month during 2006.</p>
<p>Government payrolls fell 28,000 (+1.1% y/y) and in 2007 have risen an average 16,000, near the per month average last year of 20,000.</p>
<p><b>Average hourly earnings</b> increased 0.3% and the 0.4% gain in June was upwardly revised. Factory sector earnings rose 0.3% (3.0% y/y) and private service producing earnings rose a firm 0.4% (4.1% y/y) after June&#39;s upwardly revised 0.5% increase. The monthly average increase in overall average hourly earnings this year has been 0.3% versus, down from 0.4% per month last year.</p>
<p><b>Phillips Curve Instability and Optimal Monetary Policy</b> from the Federal Reserve Bank Of Kansas City is available <a href="http://www.kansascityfed.org/Publicat/Reswkpap/PDF/RWP07-04.pdf"> here</a>. <span style="mso-spacerun: yes"></span></p>
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<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM"><b>Employment</b></a></th>
<th scope="col"><b><u>July</u></b></th>
<th scope="col"><b><u>June</u></b></th>
<th scope="col"><b><u>Y/Y</u></b></th>
<th scope="col"><b><u>2006</u></b></th>
<th scope="col"><b><u>2005</u></b></th>
<th scope="col"><b><u>2004</u></b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>92,000</td>
<td>126,000</td>
<td>1.4%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-2,000</td>
<td>-13,000</td>
<td>-1.2%</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.9</td>
<td>33.9 (July &#39;06)</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.9%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.6%</td>
<td>4.5%</td>
<td>4.8% (July &#39;06)</td>
<td>4.6%</td>
<td>5.1%</td>
<td>5.5%</td>
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Nonfarm payrolls grew 92,000 during July. The increase was a bit below the Consensus forecast for a 128,000 rise and the prior two months' gains were revised slightly downward. The three month change in payrolls slowed to 135,000 on [...]

July Payrolls a Bit Light, Revisions Minor

Carol Stone, CBE

Higher crude oil prices were a contributing factor in the recent stock price gyrations, as West Texas Intermediate (WTI) looked to be approaching $80/barrel. The high spot price came Tuesday, July 31, at $78.22; by yesterday, it had [...]

Gasoline Prices Ease Further; Refining Margins Reduced

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070803l.jpg" width="353"></p>
<p>The NTC MFG survey shows that among EMU members in the table only Austria and Greece saw their MFG sectors improve month to month in July. Over three months you can add The Netherlands to that list. Over six months while EMU-wide MFG conditions eased in terms of the NTC index, only four EMU countries in the table saw their MFG sectors weaken (Germany, Italy, Spain and Austria). Over 12-months, however, all EMU members in this table except Greece are weaker. To be sure the slowdown in the EMU MFG sector is real and is widespread.<span style="mso-spacerun: yes"> </span>It is also one that is in slow motion so that the overall MFG reading is still a relatively strong reading in the top 32 percent of its range (range since March of 2000). Previously the average EMU-wide drop in the NTC MFG index 13-months from its peak was 8%. In 2007 the drop 13-months after its peak is just 4.8%, the smallest by far. And although other cycles had peaked at a higher point (in 2000, for example) since 2000 this is still the highest index reading for Euro MFG 13 months after it had peaked. So the Euro-economy is proving itself to be very resilient even though the MFG slowing is quite widespread.</p>
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<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<b>NTC MFG Indexes</b>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td><b>Jul-07</b></td>
<td><b>Jun-07</b></td>
<td><b>3-Mo</b></td>
<td><b>6-Mo</b></td>
<td><b>12-Mo</b></td>
<td><b>Percentile*</b></td>
</tr>
<tr>
<td class="firstcol"><b>Euro-13</b></td>
<td><b>54.90</b></td>
<td><b>55.56</b></td>
<td><b>55.16</b></td>
<td><b>55.31</b></td>
<td><b>55.89</b></td>
<td>68.2%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>56.75</td>
<td>57.33</td>
<td>56.71</td>
<td>56.88</td>
<td>57.71</td>
<td>78.0%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>53.34</td>
<td>53.75</td>
<td>53.80</td>
<td>53.75</td>
<td>54.50</td>
<td>49.6%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>53.34</td>
<td>53.98</td>
<td>54.11</td>
<td>54.05</td>
<td>54.44</td>
<td>60.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>53.22</td>
<td>55.05</td>
<td>53.86</td>
<td>54.87</td>
<td>55.50</td>
<td>69.6%</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>53.81</td>
<td>53.54</td>
<td>53.80</td>
<td>54.61</td>
<td>56.07</td>
<td>67.5%</td>
</tr>
<tr>
<td class="firstcol">Greece</td>
<td>53.95</td>
<td>53.48</td>
<td>53.84</td>
<td>53.76</td>
<td>53.04</td>
<td>54.3%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>53.09</td>
<td>53.98</td>
<td>53.00</td>
<td>52.89</td>
<td>52.98</td>
<td>69.2%</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td>58.19</td>
<td>58.84</td>
<td>57.72</td>
<td>57.66</td>
<td>57.09</td>
<td>90.3%</td>
</tr>
<tr>
<td class="firstcol"><b>EU</b></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>55.74</td>
<td>54.74</td>
<td>55.11</td>
<td>54.85</td>
<td>54.00</td>
<td>95.2%</td>
</tr>
<tr>
<td colspan="5">*Percentile is over range since March 2000</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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</tbody>
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The NTC MFG survey shows that among EMU members in the table only Austria and Greece saw their MFG sectors improve month to month in July. Over three months you can add The Netherlands to that list. Over six months while EMU-wide MFG [...]

NTC Shows Euro MFG is Slowing… but oh so slowly

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<p></p><div align="left"> <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070802i.jpg" width="353">
<p>Sweden&#39;s GDP expanded by a 1.0% quarterly amount in Q2, Statistics Sweden reported this morning, a pickup from 0.7% in Q1. Year-on-year growth was 3.5%, compared to 3.0% in Q1. The gain during 2006 was 4.2%.</p>
<p>Two demand sectors dominated: fixed investment and exports of services. Investment actually slowed a bit from Q1, but at 2.0%, still had a sizable gain; Q1 had been 3.2%. The later figure is 9.2% ahead of the year earlier. The growth was concentrated in the private sector, which saw a 10.2% gain from Q2 2006. Consumer spending by households rose 0.6% in both Q1 and Q2 and was ahead of early 2006 by 2.5%, in line with the last several years. In the graph here, the &quot;recession shading&quot; covers periods of recession in Sweden, one of 17 countries besides the United States included in the &quot;recession country&quot; feature of DLXVG3; this item is not new, it&#39;s been part of Haver&#39;sa software for several years. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070802j.jpg" width="353"></p>
<p>Sweden is a very &quot;open&quot; economy; its exports and imports added together made 97% of GDP in Q1, measured in nominal terms. For comparison, the EA-13 countries together have just over 80% of GDP involved with exports or imports, and in the US, the figure is a modest 28%. [All of these shares are calculated using nominal data in local currency.] So Sweden&#39;s trade is important. We see that the performance of exports during the first half of this year is divided: goods exports fell, by 0.2% in Q1 and 0.6% in Q2 [growth rates compare values in chained 2000 Swedish Kronor], while services surged by 3.1% in Q1 and 4.4% in Q2. These strong gains put Q2&#39;s volume of services exports more than 13% ahead of a year ago. They have increased at a double-digit year-on-year pace continuously since Q4 2003. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070802k.jpg" width="353"></p>
<p>On the import side, goods imports also fell in Q2, by 0.6%, although they had expanded 2.1% in Q1. Imports of services have also been growing, but not nearly as fast as exports. Their annualized growth has averaged 8.7% since the first quarter of 2005.</p>
<p>The detail in this early GDP report does not permit us to see which services exports are making for the category&#39;s strength. However, the data on value added by industry do show that the transportation &amp; communications sector and the hotel-restaurant sector have seen sizable increases. So have the construction and business services industries. So Swedish firms working abroad or working for international clients are adding significantly to growth in Sweden, and it looks that travel and tourism in Sweden are also on the rise. Notably, unlike a number of other countries&#39; economies, the finance and insurance sector has not experienced particularly vigorous expansion. It is keeping up, as seen in the last graph here, but it is not the growth leader as it is elsewhere. Sweden&#39;s comparative advantages lie in other areas. </p></div>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><b>SWEDEN</b></th>
<b>Q2 2007</b>
<b>Q1 2007</b>
<th scope="col"><b>2006</b></th>
<th scope="col"><b>2005</b></th>
<th scope="col"><b>2004</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Qtr/Qtr*</b></td>
<td><b>Yr/Yr</b></td>
<td><b>Qtr/Qtr*</b></td>
<td><b>Yr/Yr</b></td>
</tr>
<tr>
<td class="firstcol"><b>Total GDP</b>, Bil.SEK</td>
<td colspan="2">668.2</td>
<td colspan="2">661.9</td>
<td>2595.6</td>
<td>2848.6</td>
<td>2415.1</td>
</tr>
<tr>
<td class="firstcol">1.0</td>
<td>3.5</td>
<td>0.7</td>
<td>3.0</td>
<td>4.2</td>
<td>2.9</td>
<td>4.1</td>
</tr>
<tr>
<td class="firstcol"><b>Household Consumption</b></td>
<td>0.6</td>
<td>2.5</td>
<td>0.6</td>
<td>2.5</td>
<td>2.8</td>
<td>2.4</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol"><b>Gross Fixed Investment</b></td>
<td>2.0</td>
<td>9.2</td>
<td>3.2</td>
<td>12.7</td>
<td>7.9</td>
<td>8.1</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol"><b>Exports: Goods</b></td>
<td>-0.6</td>
<td>3.4</td>
<td>-0.2</td>
<td>3.8</td>
<td>8.0</td>
<td>5.1</td>
<td>10.2</td>
</tr>
<tr>
<td class="firstcol"><b>Exports: Services</b></td>
<td>4.4</td>
<td>13.2</td>
<td>3.1</td>
<td>10.7</td>
<td>10.7</td>
<td>11.5</td>
<td>14.4</td>
</tr>
<tr>
<td class="firstcol"><b>Imports: Goods</b></td>
<td>-0.6</td>
<td>7.4</td>
<td>2.1</td>
<td>10.6</td>
<td>7.7</td>
<td>7.9</td>
<td>7.6</td>
</tr>
<tr>
<td class="firstcol"><b>Imports: Services</b></td>
<td>1.7</td>
<td>9.1</td>
<td>3.2</td>
<td>10.8</td>
<td>8.5</td>
<td>4.0</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol"><b>GVA: Industry</b></td>
<td>1.3</td>
<td>3.9</td>
<td>0.6</td>
<td>3.1</td>
<td>4.9</td>
<td>3.5</td>
<td>9.3</td>
</tr>
<tr>
<td class="firstcol"><b>GVA: Services</b></td>
<td>1.6</td>
<td>4.3</td>
<td>0.7</td>
<td>3.8</td>
<td>5.5</td>
<td>3.8</td>
<td>2.7</td>
</tr>
</tbody>
</table>
</body>
</html>


Sweden's GDP expanded by a 1.0% quarterly amount in Q2, Statistics Sweden reported this morning, a pickup from 0.7% in Q1. Year-on-year growth was 3.5%, compared to 3.0% in Q1. The gain during 2006 was 4.2%. Two demand sectors [...]

Swedish GDP Grows 1.0% in Q2, Led by Fixed Investment and Exports of Services

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<span id="articletext">
<p></p>
<p></p><div align="left"> <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070802g.jpg" width="353">
<p>Factory inventories rose 0.3% during June following a 0.4% gain during May. While moderate, the increases are up from the 0.1% three month average growth ended February.</p>
<p>Growth in primary metals inventories picked up during the past three months as did growth in light truck inventories. Growth in inventories of nondefense aircraft &amp; parts also has soared. In most other durable goods categories, however, growth in inventories has slowed recently. Many industries have seen outright decumulation such as in furniture and computers &amp; electronic products. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070802h.jpg" width="353"></p>
<p>A slowdown in growth of factory shipments caused the recent inventory back-up. Shipments have fallen in three of this year&rsquo;s months. For June the three month growth rate fell to 1.2%, helped by a 0.6% decline in June. The same pattern of recovery then a fall in growth is evident in shipments less the transportation sector.</p>
<p>Total factory orders rose 0.6% in June and that reversed the prior month&rsquo;s 0.5% decline. Durable goods orders jumped 1.3%. The rise, however, only recovered some of the prior month&rsquo;s 2.4% decline. Factory orders less transportation fell 0.5% (-1.3% y/y) while orders (shipments really) to petroleum refineries were unchanged (-5.5% y/y.</p>
<p>Unfilled orders continued their rise with a 1.4% gain during June. Less the transportation sector, where backlogs of civilian aircraft are up 43.3% y/y, backlogs rose 0.1% (9.6% y/y). </p></div>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><strong><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</strong></th>
<th scope="col"><strong><u>June</u></strong></th>
<th scope="col"><strong><u>May</u></strong></th>
<th scope="col"><strong><u>Y/Y</u></strong></th>
<th scope="col"><strong><u>2006</u></strong></th>
<th scope="col"><strong><u>2005</u></strong></th>
<th scope="col"><strong><u>2004</u></strong></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.7%</td>
<td>6.4%</td>
<td>8.9%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.6%</td>
<td>-0.5%</td>
<td>-0.7%</td>
<td>5.1%</td>
<td>11.6%</td>
<td>6.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.6%</td>
<td>0.8%</td>
<td>-0.9%</td>
<td>4.3%</td>
<td>10.3%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.4%</td>
<td>0.9%</td>
<td>19.6%</td>
<td>20.0%</td>
<td>15.0%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
</body>
</html>


Factory inventories rose 0.3% during June following a 0.4% gain during May. While moderate, the increases are up from the 0.1% three month average growth ended February. Growth in primary metals inventories picked up during the past [...]

U.S. Factory Inventory Growth Recovered

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

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

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Sandy Batten

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This monthly report contains a wealth of information concerning the state of the consumer. The anticipation ahead of today’s report centered on how much the surge in energy prices since the escalation of the US-Iran conflict in early March would push up overall PCE inflation. Prices of energy goods and services jumped 11.6% m/m not annualized in March. This was the largest monthly increase since September 2005. As a result, the headline PCE price index increased 0.7% m/m (3.5% y/y versus 2.8% y/y in February), the largest monthly gain since July 2022 but in line with expectations of the Action Economics Forecast Survey.

The core index (that is, excluding food and energy prices) rose by a more modest 0.3% m/m in March, down from a 0.4% monthly increase in February and in line with expectations. However, the yearly rate rose further to 3.2% y/y in March from 3.0% in February, well above and moving away from the Fed’s 2% target. The FOMC left its fed funds rate target unchanged at yesterday’s meeting, but some committee members dissented, opposing the implied easing bias contained in the statement. Chair Powell, in his press conference, noted that a number of members have become more concerned over the inflation outlook and the possible need for a Fed response.

Nominal personal income posted a solid 0.6% m/m (3.7% y/y) increase in March following an upwardly revised unchanged reading in February (previously -0.1% m/m). The March increase was twice the 0.3% monthly gain expected by the Action Economics Forecast Survey. However, after adjusting for inflation, real personal income slipped 0.1% m/m in March on top of a 0.4% m/m decline in February.

Employee compensation continued to be a major driver of personal income in March. It rose 0.4% m/m (4.1% y/y) in March after a 0.2% monthly increase in February. In March, proprietors’ income jumped 2.8%. This outsized increase reflected payments to farmers from the federal government’s Farmer Bridge Assistance Program. Rental income rose a solid 0.7% m/m, the same gain as in February. Income from financial assets increased 0.4% m/m following a 0.9% m/m decline in February. Personal current transfer payments edged up 0.1% m/m versus a 0.3% m/m decline in February.

Nominal consumption expenditures jumped 0.9% m/m (5.7% y/y) in March following an upwardly revised 0.6% monthly gain in February (previously +0.5% m/m). Spending on goods rose 2.0% m/m (4.5% y/y) while spending on services increased 0.4% m/m (6.3% y/y). As for overall inflation, the surge in energy prices also accounted for a large portion of the March gain in nominal spending. After adjusting for overall inflation, real PCE rose a more modest 0.2% m/m following an upwardly revised 0.3% m/m increase in February (previously +0.1% m/m). Still, the solid gains in February and March provide a strong starting point for Q2. The March level is 1.5% at an annual rate above the Q1 average. For all of Q1, real PCE rose 1.6% q/q saar.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- The PCE price index jumped 0.7%, reflecting an 11.6% m/m surge in energy prices.
- The core index was up 0.3%, in line with expectations but still well above the Fed’s target.
- Personal income increased 0.6% m/m, led by a 0.4% m/m rise in compensation.
- Personal consumption jumped 0.9% m/m with a slight upward revision to February.
- However, much of the March gain in nominal consumption also reflected the jump in energy prices.
- Real consumption rose by a more modest 0.2% m/m.

Surging Energy Prices Push Up PCE Prices and Consumption in March

Michael J. Moran

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Real GDP grew at an annual rate of 2.0% in the first quarter of 2026, almost identical to the expected advance of 2.1%. The latest change was comfortably within the range of recent observations and close to the economy’s potential rate of growth. The year-over-year change totaled 2.7%, but that shift reflected what might be viewed as a special factor (robust growth in the second and third quarters that offset a trade-tariff-induced drop in 2025-Q1 GDP).

Business fixed investment was the star of the show in the first quarter, registering growth of 10.4%. Outlays for information processing equipment and software were especially strong, while outlays for industrial equipment and Research & Development contributed positively as well. Outlays for structures remained decidedly soft, dropping for the ninth consecutive quarter. Building of data centers have been vigorous, but softness in offices and manufacturing facilities has dwarfed the strength in this new area.

Federal spending surged 9.4% in Q1, but the rise reflected the reopening of most federal agencies after their closure during much of the fourth quarter. Excluding this noise, support from the federal government has been softening. Nondefense outlays peaked in the fourth quarter of 2024, and they were 6.9% shy of that total in the first quarter. Defense spending also peaked in 2024-Q4 and has eased 2.4% since then. Defense spending most likely will grow in coming quarters because of the efforts in the Middle East. Orders for defense goods have already started to rise.

Consumer spending rose 1.5% in the first quarter, a bit shy of the 2.1% pace over the four quarters of last year and less than half the rates in 2023 and 2024. Consumer spending showed signs of softening in late 2025 and January of this year, but activity picked up in February and March. Firm tax refunds might have provided a boost to household spending in the latest months. Some of the tax cuts from the One Big Beautiful Bill were applied retroactively to 2025, but withholding schedules were not adjusted last year. Thus, many households are receiving larger-than-normal tax refunds.

International trade acted as a drag on economic growth in Q1, with net exports subtracting 1.3 percentage points from the GDP increase. Exports did well in the first quarter with growth of 12.9%, but imports were even stronger with a jump of 21.4%. The real trade deficit of $1.1 trillion was noticeably smaller than the shortfall of $1.4 trillion in 2025-Q1 when importers were rushing to get goods into the US before the imposition of tariffs. Still, the trade shortfall was sizeable and its effect on growth noticeable.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Robust business investment led the advance; moderate support from consumers.
- Government spending jumped with the reopening of most federal agencies.
- The trade sector remained volatile, making a sizeable negative contribution in Q1.

Q1 GDP: Weathering the Challenges; Trend-Like Growth

Andrew Cates

**Front-End Yields Reflect Policy Reassessment**
Against a backdrop of key central bank meetings either having just taken place or imminent, short-dated government bond yields have moved decisively higher across most major economies since the escalation of the Middle East conflict, with the sharpest increase seen in the UK. The rise in 2-year yields reflects a repricing of near-term monetary policy expectations, as markets respond to the inflationary implications of higher energy prices and the growing likelihood that central banks will delay easing cycles. Moves have been most pronounced in economies where inflation is expected to be more persistent—most notably the UK—while increases have been more modest in the US and particularly Japan, where policy normalisation remains gradual. In effect, the front end of the curve is signalling a shift away from the “rate cuts soon” narrative that prevailed earlier in the year toward a more cautious, higher-for-longer policy outlook.

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**US Recession Risks Remain Contained—For Now**
Despite the recent deterioration in the macro backdrop, real-time recession risk indicators for the US remain relatively subdued. This is notable given the combination of softer growth momentum, higher bond yields and heightened geopolitical risk. The nowcast—derived from a blend of high-frequency activity data and financial stress measures—has historically tended to move sharply when conditions turn, rather than drift higher gradually. That asymmetry is important in the current environment. While recession risks are not yet flashing red, past cycles suggest they can reprice abruptly, and arguably at present if energy-driven inflation were to feed much more forcefully into financial conditions or begin to weigh more materially on demand.

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**Consumer Confidence Diverges: Europe and UK Slide, US Stabilises**
Consumer confidence has weakened across the major economies, but the deterioration has been more pronounced in the euro area and the UK than in the US. While sentiment in the US has recently edged up, it remains at relatively subdued levels. By contrast, confidence in Europe and the UK has fallen more sharply, reflecting greater exposure to higher energy costs and a more direct squeeze on real household incomes. This divergence is consistent with broader macro trends, suggesting that demand in Europe may prove more sensitive to the current shock, with weaker sentiment feeding more quickly into consumption.

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**Euro area Credit Conditions Turn More Restrictive**
The latest ECB lending survey points to a clear tightening in credit conditions across the euro area, with banks raising lending standards for both firms and households while loan demand weakens. This combination—more restrictive supply alongside softer demand—is typically associated with a cooling in activity, particularly in interest-sensitive sectors. Recent evidence suggests that higher perceived risks, rising funding costs and geopolitical uncertainty are all weighing on banks’ willingness to lend, while weaker confidence and reduced investment appetite are dampening borrowing needs. The result is a tightening in financial conditions that is likely to amplify the broader slowdown already evident in survey data, reinforcing the more fragile growth dynamics now emerging across the region.

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**An Intensifying AI Boom with Supply-Side Undercurrents**
Against the backdrop of surging AI-related investment, semiconductor prices are not just high—they are rising at an increasingly rapid pace. This chart shows a clear acceleration in both prices and export values, pointing to an intensifying boom in global chip demand. While this is in part a reflection of strong, structural demand, supply-side factors may also be playing a growing role. Although the Middle East is not a direct source of key chip-making minerals, it is central to the energy and petrochemical inputs that underpin semiconductor production. Ongoing geopolitical tensions are therefore likely feeding into higher costs and renewed frictions across supply chains. The combination of accelerating demand and tightening supply conditions suggests that semiconductor inflation could prove more persistent—and more globally consequential—than currently assumed.

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**Labour Markets Reflect the AI Acceleration**
Our final chart this week highlights the extent to which the current AI boom is now feeding through into labour markets. This high-frequency indicator—based on the share of job listings containing AI-related keywords—shows a sharp and sustained increase since the widespread adoption of generative AI tools in late 2022. What began as a more traditional build-out in machine learning roles has evolved into a broader and more intense wave of hiring tied to generative AI capabilities, with demand accelerating markedly across multiple economies. The scale and persistence of this trend point to a structural shift rather than a cyclical upswing, reinforcing the view that AI is becoming an increasingly important driver of investment, productivity expectations and, potentially, broader macroeconomic dynamics.

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Against a backdrop of persistent geopolitical tensions, firmer energy prices and a busy week of central bank meetings—including the Fed, ECB, BoE and BoJ—financial markets have remained notably resilient, even as the macro narrative has softened at the margin. The message from this week’s charts is one of growing tension beneath that surface calm. Front-end bond yields have moved higher, signalling a shift toward a more cautious, “higher-for-longer” policy outlook (chart 1). At the same time, real-time recession indicators for the United States suggest risks remain contained for now (chart 2). Consumer confidence data paint a more uneven picture, with sharper declines in the euro area and UK than in the US, highlighting regional vulnerabilities to the current energy shock (chart 3). The ECB’s latest bank lending survey reinforces this, pointing to tighter credit conditions and weaker demand—factors that are likely to weigh further on European growth (chart 4). By contrast, developments in the semiconductor sector underline a different dynamic: an intensifying global boom, with accelerating price pressures reflecting both strong AI-driven demand and emerging supply-side constraints linked indirectly to energy and logistics disruptions (chart 5). Finally, labour market data confirm that the AI surge is not merely a market narrative but a tangible structural shift, with hiring for AI-related roles accelerating across economies (chart 6). Taken together, these signals point to a more complex macro environment—one in which resilient markets coexist with softening growth, more persistent inflation risks and increasingly delicate policy trade-offs.

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Charts of the Week: Tension Beneath the Surface

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped by 26,000 to 189,000 in the week ending April 25, from 215,000 in the week ending April 18, revised from 214,000. The four-week average declined by 3,500 to 207,500 in the week ending April 25, from 211,000 the April 18 week, revised from 210,750. The Action Economics/Haver Analytics Survey looked for 214,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—dropped by 23,000 to 1.785 million in the week ending April 18, from 1.808 million in the week ending April 11, revised from 1.821 million. The four-week moving average declined to 1.797 million in the latest week from 1.809 million in the April 11 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 11, the highest unemployment rates were in New Jersey (2.51%), Washington (2.25%), Massachusetts (2.21%), Rhode Island (2.10%), and California (2.06%). The lowest rates were in Florida (0.31%), Louisiana (0.32%), Arkansas, North Carolina and Mississippi (all 0.35%), Alabama (0.36%), South Dakota (0.41%) and Tennessee (0.43%). Rates in other notable states include New York (1.96%), Illinois (1.77%), Pennsylvania (1.40%), and Texas (1.04%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims dropped by 26,000 to 189,000.
- Continuing claims declined by 23,000 to 1.785 million.
- The insured unemployment rate remained at 1.2%.

U.S. Initial Unemployment Claims dropped in the Week of April 25

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Housing starts and permits data were released for both February and March today. Release of these data has been delayed by the federal government shutdown in October 2025. Total starts fell 3.0% m/m in February to 1.356 million units from a downwardly revised 1.398 million in January (previously 1.487 million) but then rebounded to 1.502 million (+10.8% m/m) in March. The March level was the highest since December 2024 and 10.8% higher than a year earlier. The Action Economics Forecast Survey expected a 5.9% decline in March from January to a level of 1.4 million units. The 7.2% q/q increase in starts in Q1 is the first quarterly increase since Q1 2025. Residential investment has been a drag on overall GDP growth over the past year. The sharp Q1 increase raises hope that residential investment could make a small contribution to Q1 GDP growth in tomorrow’s report.

Single-family starts rose 4.8% m/m in February and 9.7% m/m in March to be 8.9% higher than a year ago. Multi-family starts plunged 17.0% m/m in February following an 18.2% monthly surge in January. They rebounded in March, rising 13.2% m/m to be up 15.5% y/y. The strong performance of starts in March following weakness earlier this year most likely reflects some catch-up as building conditions improved in March after having been very challenging in January and February.

Across the four major geographic regions, starts in the Northeast increased 24.8% m/m in March but fell 21.2% m/m in February. They were up 18.9% y/y. In the Midwest, starts increased 12.2% m/m in Mach on top of a 20.9% monthly gain in February. The March figure was down 0.9% from a year ago. In the South, starts rose 9.1% m/m in March but fell 3.6% m/m in February. In March they were up 14.1% from a year ago. In the West, starts rose 7.2% m/m in March after monthly declines of 7.7% in January and 3.7% in February. Compared with a year ago, they were up 8.0%.

The performance of building permits in February and March mirrored that of starts. Total permits rose 11.0% m/m in February but fell 10.8% m/m in March to be down 7.4% from a year ago. Single-family permits rose 6.2% m/m in February and then fell 3.8% m/m in March. They were 7.9% lower than a year ago. Multi-family permits rebounded 19.2% m/m in February after an 11.1% m/m fall in January. In March, they plunged 21.5% m/m and were down 6.3% from a year earlier.

In March, permits fell in each of the four major regions. In the Northeast, permits plunged 29.0% m/m in March following a 5.9% monthly gain in February. In the Midwest, permits declined 3.1% m/m in February and another 2.3% m/m in March. In the South, permits slumped 7.7% m/m in March but this following a 11.8% monthly jump in February. The March decline was the third in the past four months. In the West, permits fell 14.2% m/m in March following a 21.8% monthly surge in February and a 13.8% m/m slump in January.

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

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- Data for both February and March were included in today’s report to catch up from delays due to the federal government shutdown last October.
- Starts fell 3.0% m/m in February but rebounded 10.8% m/m in March.
- The 7.2% q/q increase in Q1 was the largest quarterly gain since the economy reopened after the pandemic shutdown in 2020.
- In contrast, permits jumped 11.0% m/m in February but fell 10.8% m/m in March and were up only 1.0% q/q in Q1.

Economy in Brief

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