Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627a.jpg" width="353">
The upswing in durable goods trends is still in progress although the weakness in May has reduced much of its clout and blunted the Yr/Yr gain. 
Durable goods orders are down by a sharp 2.8% m/m in May after gains of 1.1% in April and 5.1% in March. For non-transportation the May loss is -1% and compares to gains of 2.5% in April and 1.6% in March. The accompanying chars plot the trends from this series and they are still turning higher. Inventory growth is being cut to zero and order backlog growth is slowing, but still strong.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627b.jpg" width="353"> 
Inventory-to-sales ratios are being cut across sectors as shipment growth surpasses inventory growth in six of seven major industry groups over the past 3 months. That result holds for five of seven industries over a six month horizon as well. Yr/Yr, however, inventory growth has still surpassed the growth in shipments for ALL seven industries, indicating why stock-paring is still going on. Over three months inventories were cut outright in three of seven industries. 
These statistics describe a sort of running correction in the durable goods sector. Shipment growth rates are extremely strong (annualized) over the past three months. Six-month growth in shipments is mostly firm to strong across sectors, but much more varied. Yr/Yr shipment growth is mostly modest to weak. So the recent strength has not vaulted trends into a strong positive reading. 
Regional MFG surveys released this month carrying data for the month of JUNE have been strong for the most part: NY, Philadelphia and Richmond (the Dallas report that is new and not seasonally adjusted was an exception) were all strong. 
Reliability diminished? The monthly pull back in orders is in keeping with the usual volatility of the sector although volatility has grown beyond what has been normal in recent months. Out of 170 observations of 12-month volatility (standard deviation of m/m % changes over a moving 12-month period) the 4.7% volatility reading in May ranks 20th which puts it in the top 12% of all volatility rankings in the past 14 years. And the high volatility is not just &#145;May&#146; it is a result that is shared among recent months. While m/m ex transportation orders do not seem to have become more volatile, the volatility of Yr/Yr ex-transportation orders series is quite high. We have no choice but to admit that the orders series has been blasted with volatility from several sources and has become LESS RELIABLE. There is some evidence that shipments may also have been afflicted with extra volatility. 
While the ISM reports and other regional MFG surveys continue to be upbeat, they map into the durable goods data rather too-poorly to assess any change in pattern there. Suffice it so say that with the regional MFG surveys for a more current month so strong it is reasonable to think that the downshift in durable goods orders in May is not some step back but is still part of what erratic orders do in an expanding cycle. Still, with this sort of sharp drop in May orders, all eyes will be more firmly glued on what happens in June. 

<table border="0" cellspacing="0" width="100%">
<tr>
<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627c.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627d.jpg" width="353"> </td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
Inventory-Shipment Balance By Major MFG Sector and Tenor
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007.May</td>
<td colspan="2">3-months</td>
<td colspan="2">6-months</td>
<td colspan="2">12-months</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Sectors</td>
<td>Shipments</td>
<td>Inventory</td>
<td>Shipments</td>
<td>Inventory</td>
<td>Shipments</td>
<td>Inventory</td>
</tr>
<tr>
<td class="firstcol">Primary metals</td>
<td>36.5%</td>
<td>6.7%</td>
<td>14.9%</td>
<td>1.5%</td>
<td>4.1%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">Fabricated Metal Products</td>
<td>10.9%</td>
<td>1.5%</td>
<td>7.9%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Machinery</td>
<td>24.2%</td>
<td>2.5%</td>
<td>3.3%</td>
<td>7.9%</td>
<td>2.2%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Computers and Electronics</td>
<td>25.3%</td>
<td>-4.0%</td>
<td>6.5%</td>
<td>-1.5%</td>
<td>3.6%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Electrical Equipment, Appliances &amp; Computers</td>
<td>9.2%</td>
<td>-1.1%</td>
<td>13.6%</td>
<td>2.0%</td>
<td>4.0%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">Transportation Equipment</td>
<td>10.4%</td>
<td>12.0%</td>
<td>0.6%</td>
<td>7.4%</td>
<td>-2.1%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">All Other Durables</td>
<td>8.2%</td>
<td>-3.6%</td>
<td>1.3%</td>
<td>-1.0%</td>
<td>-4.0%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">% Sectors with rising I/S Ratio:</td>
<td>14.29%</td>
<td>--</td>
<td>28.57%</td>
<td>--</td>
<td>100.00%</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
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The upswing in durable goods trends is still in progress although the weakness in May has reduced much of its clout and blunted the Yr/Yr gain. Durable goods orders are down by a sharp 2.8% m/m in May after gains of 1.1% in April and [...]

U.S. Durable Goods Month Down, Trends Still Up - but for How Long?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627a.jpg" width="353">
The upswing in durable goods trends is still in progress although the weakness in May has reduced much of its clout and blunted the Yr/Yr gain. 
Durable goods orders are down by a sharp 2.8% m/m in May after gains of 1.1% in April and 5.1% in March. For non-transportation the May loss is -1% and compares to gains of 2.5% in April and 1.6% in March. The accompanying chars plot the trends from this series and they are still turning higher. Inventory growth is being cut to zero and order backlog growth is slowing, but still strong.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627b.jpg" width="353"> 
Inventory-to-sales ratios are being cut across sectors as shipment growth surpasses inventory growth in six of seven major industry groups over the past 3 months. That result holds for five of seven industries over a six month horizon as well. Yr/Yr, however, inventory growth has still surpassed the growth in shipments for ALL seven industries, indicating why stock-paring is still going on. Over three months inventories were cut outright in three of seven industries. 
These statistics describe a sort of running correction in the durable goods sector. Shipment growth rates are extremely strong (annualized) over the past three months. Six-month growth in shipments is mostly firm to strong across sectors, but much more varied. Yr/Yr shipment growth is mostly modest to weak. So the recent strength has not vaulted trends into a strong positive reading. 
Regional MFG surveys released this month carrying data for the month of JUNE have been strong for the most part: NY, Philadelphia and Richmond (the Dallas report that is new and not seasonally adjusted was an exception) were all strong. 
Reliability diminished? The monthly pull back in orders is in keeping with the usual volatility of the sector although volatility has grown beyond what has been normal in recent months. Out of 170 observations of 12-month volatility (standard deviation of m/m % changes over a moving 12-month period) the 4.7% volatility reading in May ranks 20th which puts it in the top 12% of all volatility rankings in the past 14 years. And the high volatility is not just &#145;May&#146; it is a result that is shared among recent months. While m/m ex transportation orders do not seem to have become more volatile, the volatility of Yr/Yr ex-transportation orders series is quite high. We have no choice but to admit that the orders series has been blasted with volatility from several sources and has become LESS RELIABLE. There is some evidence that shipments may also have been afflicted with extra volatility. 
While the ISM reports and other regional MFG surveys continue to be upbeat, they map into the durable goods data rather too-poorly to assess any change in pattern there. Suffice it so say that with the regional MFG surveys for a more current month so strong it is reasonable to think that the downshift in durable goods orders in May is not some step back but is still part of what erratic orders do in an expanding cycle. Still, with this sort of sharp drop in May orders, all eyes will be more firmly glued on what happens in June. 

<table border="0" cellspacing="0" width="100%">
<tr>
<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627c.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627d.jpg" width="353"> </td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
Inventory-Shipment Balance By Major MFG Sector and Tenor
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007.May</td>
<td colspan="2">3-months</td>
<td colspan="2">6-months</td>
<td colspan="2">12-months</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Sectors</td>
<td>Shipments</td>
<td>Inventory</td>
<td>Shipments</td>
<td>Inventory</td>
<td>Shipments</td>
<td>Inventory</td>
</tr>
<tr>
<td class="firstcol">Primary metals</td>
<td>36.5%</td>
<td>6.7%</td>
<td>14.9%</td>
<td>1.5%</td>
<td>4.1%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">Fabricated Metal Products</td>
<td>10.9%</td>
<td>1.5%</td>
<td>7.9%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Machinery</td>
<td>24.2%</td>
<td>2.5%</td>
<td>3.3%</td>
<td>7.9%</td>
<td>2.2%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Computers and Electronics</td>
<td>25.3%</td>
<td>-4.0%</td>
<td>6.5%</td>
<td>-1.5%</td>
<td>3.6%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Electrical Equipment, Appliances &amp; Computers</td>
<td>9.2%</td>
<td>-1.1%</td>
<td>13.6%</td>
<td>2.0%</td>
<td>4.0%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">Transportation Equipment</td>
<td>10.4%</td>
<td>12.0%</td>
<td>0.6%</td>
<td>7.4%</td>
<td>-2.1%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">All Other Durables</td>
<td>8.2%</td>
<td>-3.6%</td>
<td>1.3%</td>
<td>-1.0%</td>
<td>-4.0%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">% Sectors with rising I/S Ratio:</td>
<td>14.29%</td>
<td>--</td>
<td>28.57%</td>
<td>--</td>
<td>100.00%</td>
<td>--</td>
</tr>
</tbody>
</table>
France’s Service and Industry Sector Outlook Strong 
by <a href="/comment/Brusca.html">Robert Brusca</a> June 27, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627e.jpg" width="353">
French climate and outlook are on a strong improving trend.
The services sector is still doing well. The climate and outlook indicators are strong in their respective ranges. Observed and expected sales are still strong but both are off peak. Observed and expected employment indicators are also off peak. The expected responses for these two indicators are sharply lower in June. Expected series are firm but only in about the 60th percentile of their respective ranges.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627f.jpg" width="353">
The second table below summarizes France&#146;s Industry survey for June. The report scrapped and got back two of the four points it lost in May. The trends are still firm with climate nearly in the upper 25 percentile of its range. Recent and likely trend assessments spurted in June. Foreign and also domestic orders are slipping slightly with both having peaks in April. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
France INSEE Services Survey Jan 2000-date
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr>
<td class="firstcol">Climate Indicator</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>109</td>
<td>78.8</td>
<td>8</td>
<td>116</td>
<td>83</td>
<td>33</td>
<td>102</td>
</tr>
<tr>
<td class="firstcol">Climate: 3-Mo MAV</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>108</td>
<td>81.6</td>
<td>14</td>
<td>114</td>
<td>85</td>
<td>29</td>
<td>102</td>
</tr>
<tr>
<td class="firstcol">Climate: 12-Mo MAV</td>
<td>109</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>92.4</td>
<td>3</td>
<td>110</td>
<td>91</td>
<td>20</td>
<td>101</td>
</tr>
<tr>
<td class="firstcol">Outlook</td>
<td>9</td>
<td>8</td>
<td>8</td>
<td>6</td>
<td>86.1</td>
<td>6</td>
<td>14</td>
<td>-22</td>
<td>36</td>
<td>-1</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed 3-Mos</td>
<td>14</td>
<td>17</td>
<td>12</td>
<td>11</td>
<td>83.3</td>
<td>9</td>
<td>19</td>
<td>-11</td>
<td>30</td>
<td>6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected 3-Mos</td>
<td>12</td>
<td>14</td>
<td>13</td>
<td>14</td>
<td>68.8</td>
<td>19</td>
<td>22</td>
<td>-10</td>
<td>32</td>
<td>7</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales Price</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed over 3-Mos</td>
<td>1</td>
<td>0</td>
<td>2</td>
<td>-2</td>
<td>41.7</td>
<td>29</td>
<td>8</td>
<td>-4</td>
<td>12</td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected over 3-Mos</td>
<td>1</td>
<td>3</td>
<td>0</td>
<td>-1</td>
<td>60.0</td>
<td>38</td>
<td>5</td>
<td>-5</td>
<td>10</td>
<td>1</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed over 3-Mos</td>
<td>13</td>
<td>15</td>
<td>13</td>
<td>12</td>
<td>70.6</td>
<td>11</td>
<td>23</td>
<td>-11</td>
<td>34</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected over 3-Mos</td>
<td>10</td>
<td>16</td>
<td>8</td>
<td>11</td>
<td>60.0</td>
<td>17</td>
<td>20</td>
<td>-5</td>
<td>25</td>
<td>5</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
INSEE Industry Survey
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">&nbsp;</td>
<td colspan="2">Since Jan 1990</td>
<td colspan="4">Since Jan 1990</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr class="odd">
<td class="firstcol">Climate</td>
<td>110</td>
<td>108</td>
<td>112</td>
<td>109</td>
<td>74.0</td>
<td>41</td>
<td>123</td>
<td>73</td>
<td>50</td>
<td>101</td>
</tr>
<tr>
<td colspan="11">Production</td>
</tr>
<tr class="odd">
<td class="firstcol">Recent Trend</td>
<td>24</td>
<td>14</td>
<td>10</td>
<td>-2</td>
<td>80.4</td>
<td>30</td>
<td>44</td>
<td>-58</td>
<td>102</td>
<td>-6</td>
</tr>
<tr class="odd">
<td class="firstcol">Likely trend</td>
<td>28</td>
<td>22</td>
<td>21</td>
<td>23</td>
<td>63.5</td>
<td>33</td>
<td>63</td>
<td>-33</td>
<td>96</td>
<td>7</td>
</tr>
<tr>
<td colspan="11">Orders/Demand</td>
</tr>
<tr class="odd">
<td class="firstcol">Orders &amp; Demand</td>
<td>4</td>
<td>3</td>
<td>5</td>
<td>6</td>
<td>75.9</td>
<td>27</td>
<td>25</td>
<td>-62</td>
<td>87</td>
<td>-15</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Orders &amp; Demand</td>
<td>4</td>
<td>6</td>
<td>10</td>
<td>9</td>
<td>69.7</td>
<td>48</td>
<td>31</td>
<td>-58</td>
<td>89</td>
<td>-11</td>
</tr>
<tr>
<td colspan="11">Prices</td>
</tr>
<tr class="odd">
<td class="firstcol">Likely Sales Prices Trend</td>
<td>9</td>
<td>9</td>
<td>4</td>
<td>10</td>
<td>68.1</td>
<td>31</td>
<td>24</td>
<td>-23</td>
<td>47</td>
<td>0</td>
</tr>
</tbody>
</table>
Hints of Improvement in Japanese Retailing as May Sales Show Gain from Year-Ago 
by <a href="/comment/Stone.html">Carol Stone</a> June 27, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627g.jpg" width="353">
We fret over the Japanese economy: is it improving or not? Is it finally breaking out of 1990s stagnation enough so that deflation will go away? We&#39;re never quite sure. So when one figure is favorable, even by a little bit, we tend to get excited about it.
Today it is retail sales. In May, consumer purchases of goods in stores rose 0.1% from a year ago. The Bloomberg news service reports that of the 23 economists in its Japanese forecast survey, only 1 predicted a positive outcome for this indicator. It was the first 12-month increase since last September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627h.jpg" width="353">
We thought perhaps rising fuel prices had been the main mover. This had certainly been the case from about mid-2004 through mid-2006. But fuel purchases have slowed recently and for May they actually edged down from May 2006, by 0.4%. Excluding fuel, retail sales were still up 0.1%.
The largest single gain was in food and beverages, which rose 1.7%. Other categories of stores -- motor vehicle dealers, clothing, household durable goods and general merchandise -- all still saw year-on-year decreases. So it&#39;s the &quot;all other&quot; segment that helped push up the total: books, sporting goods, personal care items. These increased 1.3% over the year ago.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627i.jpg" width="353">
The narrow scope of the May sales increase might suggest that it will turn out to be fleeting. However, the Ministry of Economy, Trade and Industry (METI) also calculates an index, which they seasonally adjust. As shown in the table below, this index rose 0.5% in May from April, which had been up 0.3% from March. By this measure, general merchandise store sales were up in May, as were clothing stores and &quot;other&quot;, suggesting that recent uptrends have been broadening, giving a more optimistic view going forward. Thus, Japanese consumers, who face an increasing positive employment situation and the lowest unemployment since early 1998, might be starting to spend more freely. The threads of evidence from this retail sales report are thin, but they look to be braiding a stronger rope.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN: Retail Sales</th>
<th scope="col">May 2007</th>
<th scope="col">Apr 2007</th>
<th scope="col">Mar 2007</th>
<th scope="col">Year Ago</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Total (Bil.&yen;)</td>
<td>11,012</td>
<td>11,177</td>
<td>12,077</td>
<td>11,005</td>
<td>11,271</td>
<td>11,255</td>
<td>11,143</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5*</td>
<td>0.3*</td>
<td>-1.3*</td>
<td>0.1</td>
<td>0.2</td>
<td>1.0</td>
<td>1.0</td>
</tr>
<tr>
<td class="firstcol">ex Fuel</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>0.1</td>
<td>-0.6</td>
<td>-0.2</td>
<td>0.4</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626b.jpg" width="353">
The Netherlands released June data on consumer and business confidence today and Italy released data on business confidence, having released data on consumer confidence last week. In Italy confidence is expressed as an index with 2000=100 while in the Netherlands it is measured by the percent of optimists over the percent of pessimists.
Business confidence in both countries showed little change in the month of June. In Italy it was a little stronger--96.3 vs. 96.2--and in the Netherlands, a little weaker--8.5% vs. 8.9%. However, it appears that the level of business confidence is higher in the Netherlands than in Italy. The first chart compares the two measures of business confidence since 2000 when both measures were at historical highs. Business confidence in the Netherlands is above its 2000 highs while business confidence in Italy is still below its 2000 highs.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626c.jpg" width="353">
A different picture emerges when consumer confidence is compared between the two countries. Dutch consumer confidence rose by five percentage points in June while Italian consumer confidence fell by 2.1%. Over the longer period, however, until early 2006, Italian consumers were more optimistic than their Dutch counterparts. It has only been since then that Dutch consumers have become more confident than Italian consumers as can be seen in the second chart.
Confidence measures do have an impact on consumer and business behavior, however, the connection is tentative at best. To illustrate the point we plot the year to year changes in the series, Monthly Household Consumption for the Netherlands and the consumer confidence measure in the third chart. The correlation (R) between the two series is 68%. The R-square is 46%, which means that the confidence measure explains about 46% of the variations in the two series. We also plot the year to year change in Italian industrial production and the Italian business confidence indicator in the fourth. In this case, the correlation and R-square are even lower, 46% and 21%. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626e.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626d.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">CONFIDENCE MEASURES&nbsp;</th>
<th scope="col">Jun&nbsp; 07</th>
<th scope="col">May 07</th>
<th scope="col">Jun 06</th>
<th scope="col">M/M</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">Italy&nbsp; (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Confidence</td>
<td>&nbsp;96.3</td>
<td>96.2</td>
<td>98.3</td>
<td>0.10</td>
<td>-2.03</td>
<td>65.8</td>
<td>87.5</td>
<td>89.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Confidence</td>
<td>107.2</td>
<td>109.4</td>
<td>107.0</td>
<td>-2.10</td>
<td>0.19</td>
<td>108.7</td>
<td>104.2</td>
<td>101.5</td>
</tr>
<tr class="odd">
<td class="firstcol"> Netherlands (% Balance) </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Confidence</td>
<td>8.4</td>
<td>8.9</td>
<td>6.4</td>
<td>-0.5</td>
<td>2</td>
<td>6.7</td>
<td>0.6</td>
<td>-0.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Confidence</td>
<td>18</td>
<td>13</td>
<td>5</td>
<td>5</td>
<td>13</td>
<td>-1</td>
<td>-22</td>
<td>-25</td>
</tr>
</tbody>
</table>
</body>
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The Netherlands released June data on consumer and business confidence today and Italy released data on business confidence, having released data on consumer confidence last week. In Italy confidence is expressed as an index with [...]

Business and Consumer Confidence in Italy and the Netherlands

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626i.jpg" width="353">
The present situation index is doing its leap frog advance thing and this month is one of its landing hops not an advancing hop. Expectations have moved to a weak flat-lining mode as they often do at mature stages of an expansion. If we did not have HIGH gas prices to blame we might be worried about this&#133; 
But what we do have is improving regional MFG surveys and evidence of still strong job growth. We do not have the accompanying signs that would make us really worried. My take on housing is that its declines are less severe; some regions are showing erratic advances and new home prices even rose 6% Yr/Yr. It hardly seems like all the news is bad. But then I&#146;m not on anti-depressants and I don&#146;t work at a firm that is up to its eyeballs in sub-prime paper. OK the high gas prices were a bummer. But the economic news is generally improving. 
Still, many regions of the country are just having a real tough time &#150; see table below. The East North Central region is in bad shape AKA the rust belt. Old industry and auto sector troubles are raging in these states where current conditions, the strong reading of the trio, is some 20% lower than its level at end of the last recession. New England and the West North Central states are also laggards. But most regions are 20% above those lows with the Western Mountain States and the Pacific States considerably better off. Moreover, this month took all the regional readings down hard except New England. 
While the regional reports look pretty glum, the responses arrayed by category do not. The confidence index is still in the top 15% of its post-recession range, as is the present situation. Expectations are weaker, in the 54th percentile of their range (see below). 
As for survey components, business conditions in the present situation are in the top 20% of their range as is employment. For expectations, the percentiles are obviously lower: 48th percentile for business conditions expected, 49th percentile for employment conditions expected and 43rd percentile for income expected. Buying plans are low especially for houses, the bottom 10 percentile of their range. However, nearly everybody is planning to buy an appliance as that gauge stands in the 95th percentile of its range. 
What we have is a weak month for confidence. The weakness still has not driven the levels of the index to a depressing state, it was just a large monthly decline. Now we look to the future to see if the weakness unwinds and how rapidly.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Conference Board Consumer Confidence: Current Condition Trends by Region
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="7">Regional Confidence from Oct-03 to Jan-07</td>
<td>% Above</td>
<td>% Below</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Yr Ago</td>
<td>% Y/Y</td>
<td>Recsn-End</td>
<td>Pre-Recsn</td>
<td>Recsn-End</td>
<td>Pre-Recsn</td>
</tr>
<tr class="grey2">
<td class="firstcol">New England</td>
<td>116.9</td>
<td>113.8</td>
<td>114.8</td>
<td>1.8%</td>
<td>112.3</td>
<td>207.1</td>
<td>4.1%</td>
<td>-43.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">MidAtlantic</td>
<td>106.9</td>
<td>117.0</td>
<td>101.8</td>
<td>5.0%</td>
<td>88.7</td>
<td>150.7</td>
<td>20.5%</td>
<td>-29.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">East North Central</td>
<td>73.9</td>
<td>86.3</td>
<td>81.0</td>
<td>-8.8%</td>
<td>92.8</td>
<td>175.6</td>
<td>-20.4%</td>
<td>-57.9%</td>
</tr>
<tr class="grey2">
<td class="firstcol">West North Central</td>
<td>131.5</td>
<td>136.0</td>
<td>130.2</td>
<td>1.0%</td>
<td>126.9</td>
<td>172.8</td>
<td>3.6%</td>
<td>-23.9%</td>
</tr>
<tr class="grey2">
<td class="firstcol">South Atlantic</td>
<td>129.5</td>
<td>144.3</td>
<td>134.5</td>
<td>-3.7%</td>
<td>106.1</td>
<td>178.9</td>
<td>22.1%</td>
<td>-27.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">East South Central</td>
<td>113.6</td>
<td>130.5</td>
<td>122.7</td>
<td>-7.4%</td>
<td>92.5</td>
<td>146.9</td>
<td>22.8%</td>
<td>-22.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">West South Central</td>
<td>138.0</td>
<td>167.4</td>
<td>146.4</td>
<td>-5.7%</td>
<td>113.2</td>
<td>177.2</td>
<td>21.9%</td>
<td>-22.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Mountain</td>
<td>151.8</td>
<td>177.4</td>
<td>156.7</td>
<td>-3.1%</td>
<td>108.7</td>
<td>178.9</td>
<td>39.7%</td>
<td>-15.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Pacific</td>
<td>145.9</td>
<td>167.4</td>
<td>149.9</td>
<td>-2.7%</td>
<td>87.9</td>
<td>169.7</td>
<td>66.0%</td>
<td>-14.0%</td>
</tr>
<tr class="grey3">
<td colspan="9">Pre-recession is 1998-2000</td>
</tr>
<tr class="grey1">
<td colspan="9">Percentage of Regions with confidence improving</td>
</tr>
<tr class="grey4">
<td class="firstcol">CurrCond improving</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Nov-06</td>
<td>Oct-06</td>
<td>Sep-06</td>
<td>Aug-06</td>
</tr>
<tr class="grey2">
<td class="firstcol">MO/MO or as noted</td>
<td>11.1%</td>
<td>66.7%</td>
<td>11.1%</td>
<td>55.6%</td>
<td>88.9%</td>
<td>22.2%</td>
<td>55.6%</td>
<td>33.3%</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Conference Board Components for Consumer Confidence
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Current</td>
<td>Max/Oct&#39;03</td>
<td>Min/Oct&#39;03</td>
<td>Year Ago</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Confidence Index</td>
<td>103.9</td>
<td>111.2</td>
<td>61.4</td>
<td>105.4</td>
<td>85.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Present Situation</td>
<td>127.9</td>
<td>138.5</td>
<td>59.7</td>
<td>132.2</td>
<td>86.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>87.9</td>
<td>110.2</td>
<td>61.4</td>
<td>87.5</td>
<td>54.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td colspan="2">Percentile standing</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Diffusion</td>
<td>Overall</td>
<td>Good</td>
<td>Bad</td>
<td>Normal</td>
</tr>
<tr class="odd">
<td class="firstcol">Present Situation</td>
<td>--</td>
<td>86.5%</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Conditions</td>
<td>55.5</td>
<td>80.5%</td>
<td>85.7%</td>
<td>11.5%</td>
<td>36.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>53.0</td>
<td>79.3%</td>
<td>83.8%</td>
<td>12.6%</td>
<td>18.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>--</td>
<td>54.3%</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Conditions</td>
<td>52.6</td>
<td>38.8%</td>
<td>20.7%</td>
<td>34.8%</td>
<td>68.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>48.5</td>
<td>49.2%</td>
<td>20.7%</td>
<td>34.8%</td>
<td>68.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Income</td>
<td>55.0</td>
<td>43.8%</td>
<td>42.0%</td>
<td>23.0%</td>
<td>71.6%</td>
</tr>
<tr class="even">
<td class="firstcol">Buying plans</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Automobile</td>
<td>--</td>
<td>34.1%</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">House</td>
<td>--</td>
<td>10.5%</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Appliance</td>
<td>--</td>
<td>96.9%</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td colspan="6">Percentile of range since Oct 2003 to date. 100% is High; 0% is Low</td>
</tr>
</tbody>
</table>
</body>
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The present situation index is doing its leap frog advance thing and this month is one of its landing hops not an advancing hop. Expectations have moved to a weak flat-lining mode as they often do at mature stages of an expansion. If [...]

Not a Shining Moment for U.S. Consumer Confidence

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626f.jpg" width="353">
Housing is still in the grip of a downtrend but prices are not plunging or even weakening further nor are sales trends worsening; in fact, they are showing some signs of stability. Housing rebounded in April and maintained most of its gain in May - a good sign for the sector. Question: How bad is this??<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626g.jpg" width="353">
A tale of two suburbs? Maybe it&#146;s not of two cities but definitely a tale of two suburbs &#150; one affluent and one not. Average house prices are up and strongly at 6.5% year/year. Yes, some of that owes to a weak result a year ago, but not all of it. And year/year price declines for new homes are not very common. Median prices are off for two months running and the last year/year decline was in September of 2006. For average prices, they fell year/year in April 2007; they last fell year/year in November 2006. Obviously high-priced homes are faring better in this housing cycle.
Stability in sales by region is shown in the table below. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
New Single Family Home Sales
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="6">Momentum: Annualized Rates Of Change</td>
<td colspan="2">Prices</td>
</tr>
<tr class="grey3">
<td class="firstcol">As of:</td>
<td>Total</td>
<td>Northeast</td>
<td>Midwest</td>
<td>South</td>
<td>West</td>
<td>Median</td>
<td>Average</td>
</tr>
<tr class="grey2">
<td class="firstcol">May.07</td>
<td colspan="7">Month-to-month percent change</td>
</tr>
<tr class="grey1">
<td class="firstcol">May.07</td>
<td>-1.6%</td>
<td>-11.0%</td>
<td>30.8%</td>
<td>-7.3%</td>
<td>-1.9%</td>
<td>1.5%</td>
<td>4.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Apr.07</td>
<td>12.5%</td>
<td>3.4%</td>
<td>-7.9%</td>
<td>22.7%</td>
<td>8.1%</td>
<td>-9.9%</td>
<td>-7.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Mar.07</td>
<td>-1.5%</td>
<td>91.3%</td>
<td>0.0%</td>
<td>-10.2%</td>
<td>-3.9%</td>
<td>3.0%</td>
<td>1.2%</td>
</tr>
<tr class="grey2">
<td colspan="8">Annualized Rates</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Total</td>
<td> Northeast</td>
<td>Midwest</td>
<td>South</td>
<td>West</td>
<td>Median</td>
<td>Average</td>
</tr>
<tr class="grey1">
<td class="firstcol">3-Mo</td>
<td>35.7%</td>
<td>304.3%</td>
<td>81.9%</td>
<td>8.7%</td>
<td>7.8%</td>
<td>-21.5%</td>
<td>-10.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">6-Mo</td>
<td>-14.6%</td>
<td>53.1%</td>
<td>4.0%</td>
<td>-23.9%</td>
<td>-23.6%</td>
<td>-3.3%</td>
<td>15.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">1-Yr</td>
<td>-15.8%</td>
<td>19.1%</td>
<td>-14.5%</td>
<td>-17.9%</td>
<td>-21.1%</td>
<td>-0.9%</td>
<td>6.5%</td>
</tr>
</tbody>
</table>
</body>
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Housing is still in the grip of a downtrend but prices are not plunging or even weakening further nor are sales trends worsening; in fact, they are showing some signs of stability. Housing rebounded in April and maintained most of its [...]

Housing Slowing Bouncing Maintaining Its Rise…Good Sign

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626a.jpg" width="353">
German export and import inflation is less more subdued than are domestic trends. 
German export and import prices excluding energy flared to peaks in the second half of 2006. But now as they subside, it is Germany domestic excluding energy inflation that has flared. 
German PPI prices excluding energy has flared in early 2007 then showed some sign of settling down. It is the German CPI where prices look to be still building. By May nonpetroleum import prices were rising at the same pace as CPI ex energy prices. The CPI ex-energy seems to have peaked in May but not yet declined. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German International and Domestic Inflation Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">SA</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Export Prices</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Import Prices</td>
<td>0.3%</td>
<td>0.8%</td>
<td>-0.1%</td>
<td>4.2%</td>
<td>1.5%</td>
<td>0.6%</td>
<td>7.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">NSA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Exports excl Petroleum</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Imports excl Petroleum</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.6%</td>
<td>0.6%</td>
<td>1.3%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: SA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">CPI</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.6%</td>
<td>2.7%</td>
<td>1.9%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">CPI excl Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">PPI</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>1.9%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">PPI excl Energy</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>2.2%</td>
<td>2.6%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
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German export and import inflation is less more subdued than are domestic trends. German export and import prices excluding energy flared to peaks in the second half of 2006. But now as they subside, it is Germany domestic excluding [...]

German Export and Import Price Inflation

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070625b.jpg" width="353">
Consumer Price Indexes for four countries--China, India, Singapore and Vietnam--were released today and can be found in the Haver Data Base. EMERGEPR, together with similar data for other Asian nations. Data are available, through May, except for India.
Inflation, as measured by the year to year increase in the Consumer Price Index, has varied widely in the various countries of Asia. Inflation in the first five months of this year are shown for selected Asian countries in the table below, together with the annual rates for 2004, 2005 and 2006.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070625a.jpg" width="353">
Deflationary tendencies that were evident in the Greater China Area appear to have lessened in Hong Kong and China, but still persist in Taiwan. These trends are shown in the first chart.
Among the high inflation countries, Vietnam, Indonesia and India, for example, inflation in Vietnam after decelerating somewhat last year has increased in the current months of this year. Inflation in India has trended upward since mid 2005. Inflation in Indonesia jumped in late 2005 as a result of natural disasters and fell precipitately in late 2006. Inflation there is now moderately below the levels reached in early 2005 and no clear trend is apparent, as can be seen in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070625c.jpg" width="353">
The third chart shows the course of inflation in countries that have experienced moderating inflation in recent years. Thailand, like Indonesia experienced exceptionally high inflation in late 2005 and early 2006 followed by a sharp fall later in the year. Among these countries inflation in Singapore and, to a lesser extent, in South Korea is trending upward.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INFLATION IN ASIA Y/Y % CHANGE IN CPI&nbsp;</th>
<th scope="col">May 07</th>
<th scope="col">Apr&nbsp; 07&nbsp;</th>
<th scope="col">Mar 07&nbsp;</th>
<th scope="col">Feb&nbsp; 07&nbsp;</th>
<th scope="col">Jan 07&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">China</td>
<td>3.42</td>
<td>3.05</td>
<td>3.33</td>
<td>2.75</td>
<td>2.21</td>
<td>1.71</td>
<td>1.78</td>
<td>3.78</td>
</tr>
<tr>
<td class="firstcol">Hong Kong</td>
<td>1.27</td>
<td>1.27</td>
<td>2.36</td>
<td>0.79</td>
<td>1.97</td>
<td>2.02</td>
<td>0.91</td>
<td>-0.38</td>
</tr>
<tr class="odd">
<td class="firstcol">Taiwan</td>
<td>-0.03</td>
<td>0.67</td>
<td>0.84</td>
<td>1.74</td>
<td>0.35</td>
<td>0.60</td>
<td>2.31</td>
<td>1.61</td>
</tr>
<tr>
<td class="firstcol"> Vietnam </td>
<td>7.22</td>
<td>7.07</td>
<td>6.70</td>
<td>6.48</td>
<td>6.43</td>
<td>7.39</td>
<td>8.28</td>
<td>7.76</td>
</tr>
<tr class="odd">
<td class="firstcol">Indonesia</td>
<td>6.01</td>
<td>6.29</td>
<td>6.22</td>
<td>6.30</td>
<td>6.26</td>
<td>13.10</td>
<td>10.46</td>
<td>6.06</td>
</tr>
<tr>
<td class="firstcol">India</td>
<td>n.a.</td>
<td>6.67</td>
<td>6.72</td>
<td>7.56</td>
<td>6.72</td>
<td>6.18</td>
<td>4.24</td>
<td>3.77</td>
</tr>
<tr class="odd">
<td class="firstcol">South Korea</td>
<td>2.35</td>
<td>2.45</td>
<td>2.16</td>
<td>2.17</td>
<td>1.68</td>
<td>2.24</td>
<td>2.75</td>
<td>3.59</td>
</tr>
<tr>
<td class="firstcol">Singapore</td>
<td>1.09</td>
<td>0.59</td>
<td>0.79</td>
<td>0.59</td>
<td>0.20</td>
<td>0.96</td>
<td>0.47</td>
<td>1.67</td>
</tr>
<tr class="odd">
<td class="firstcol">Thailand</td>
<td>1.91</td>
<td>1.84</td>
<td>2.04</td>
<td>2.32</td>
<td>3.05</td>
<td>4.64</td>
<td>4.54</td>
<td>2.77</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer Price Indexes for four countries--China, India, Singapore and Vietnam--were released today and can be found in the Haver Data Base. EMERGEPR, together with similar data for other Asian nations. Data are available, through [...]

Inflation Trends in Asia, ex Japan

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.

260618Z2.jpg

**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.

260618Z3.jpg

**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.

260618Z4.jpg

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

260618Z5.jpg

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

260618Z6.jpg

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

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/7rw2v1Ri8gUVHbFrZfgANL?utm_source=generator&si=75d98727e9524d75" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

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

260618E.jpg

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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