Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070517e.jpg" width="353">
The LEI is increasing its year/year pace of decline and is now falling by 0.7% year/year. However, a brief look at history shows that the current combination of a weak LEI and weak coincident index is not producing a weakening at a pace that signals recession. They are weakening more like they did in 1995, but not even as severely as that&#133;and there is less weakening power in the pipeline that it seems.
Periods in which the coincident index is growing more slowing than the leading index do tend to be slowdown periods. But not all of them become recession periods. Some of them are extended periods that eventually transition into recession. Only the aftermath of the 1995 episode left a good solid period of growth in its wake.
While the LEI has dropped to a weaker growth rate on year/year measures, this is not a period with increased downward momentum in general. The 3-month and 6-month rates of growth are not getting progressively lower. The six month rate speeded up but the three-month rate is the one that has fallen sharply. Over the same recent three-months the coincident index has speeded up slightly. The LEI has been very flat so that there is really little in the way for further declines in the pipeline from one-year ago. May of 2006 was weaker than April of that year implying that the year/year LEI will be lower by only 0.2% year/year unless it falls further in May. Even the three-month growth rate (annualized) is not set for further weakness despite its relatively sharp drop in April. If the LEI is unchanged next month it will rise in May over the next three-month period, not fall. 
Apart from these technical considerations there are the economic data that have begun to show a bit more strength.
The LEI is falling. Its rate of decline has accelerated this month. But there does not appear to be an ongoing process here nor does the rate of descent appear to be particularly disturbing.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Leading Economic Indicators
</tr>
</thead>
<tbody>
<tr class="grey6">
<td class="firstcol">&nbsp;</td>
<td>LEADING</td>
<td>COINCIDENT</td>
<td>LAGGING</td>
</tr>
<tr class="grey5">
<td colspan="4">Month-to-month</td>
</tr>
<tr class="grey4">
<td class="firstcol">Apr-07</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>0.2%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Mar-07</td>
<td>0.6%</td>
<td>0.1%</td>
<td>0.0%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Feb-07</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.2%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Jan-07</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>-0.1%</td>
</tr>
<tr class="grey5">
<td colspan="4">SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">3-Mos</td>
<td>-2.0%</td>
<td>1.6%</td>
<td>1.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">6-Mos</td>
<td>-0.4%</td>
<td>1.3%</td>
<td>3.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">12-Mos</td>
<td>-0.7%</td>
<td>1.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
</body>
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The LEI is increasing its year/year pace of decline and is now falling by 0.7% year/year. However, a brief look at history shows that the current combination of a weak LEI and weak coincident index is not producing a weakening at a [...]

U.S. LEI Weakness in April… One Trick Pony

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070517d.jpg" width="353">
Pictured on the left is the Philadelphia barometer for its OUTLOOK index that looks 6-months ahead. The index has made a considerable rebound and is now closer to giving off a signal of normal growth for the future based on the position of this index in its range of values going back to 1968.
Few plot this index but I like it because it has been such a good and consistent harbinger of recessions and weakness and then of recovery (see chart). The index turned negative and before each recession since 1974. If you view a below zero reading as a signal for recession, it has given off some false ones, but it does give off weak signals when MFG is weak and its reports tend to be early-to-timely. Its &#145;false&#146; signals have tended to be more isolated or single weak readings. However, ahead of the 2001 recession this index did not give off a powerful series of negative readings it just gave off a few. But then it did emit strong signals of coming recovery &#150; and that was even though the recovery itself proved to be tepid. .
The signal for this index that is unimpeachable is that once it has been weak and rebounds it signals growth The only thing close to an exception to this result was that the cluster of recession-indicating weaker readings ahead of the 1991 recession was followed by a series of positive readings (none as strong as +20, however) before the recession actually occurred. The index had signaled recession ahead. But then there was a weak rise (weaker than what the barometer is signaling right now) and then recession kicked in. Once the recession started the outlook barometer dipped again, then moved up strongly near the end of recession to signal oncoming recovery.
Against that background the recovery signals from the Philly outlook are now impressively stronger and are coming off a set of weak readings that did not turn the barometer negative at any point. It may not be safe to assume anything but this index is something to encourage you to become more optimistic. It is signaling continued growth.
Its upbeat signal joins with the sharp March rise in industrial output and the recovery in the Empire State index for May. Jobless claims fell further below the 300k level this week in another upbeat sign. Economic signals remain mixed to be sure but a series of reports from this week (and I&#146;ll throw in the tentative sign of bottoming from housing starts) are reason to be more optimistic.
The table below grinds out relationships for the more conventionally watched Philadelphia current index. The various readings confirm that the current index is still quite weak but it has moved up with the key orders and shipments series as two of the best-advancing components. Employment has advanced sharply even if it has been at the cost of the length of the work week. Substituting full time workers for longer hours is usually a good sign for the economy.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Philadelphia Fed index in perspective: Since 1968
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Index:C</td>
<td>New Ord:C</td>
<td>Shipmnt:C</td>
<td>Deliv.</td>
<td>Inventory</td>
<td>Backlog</td>
<td>Pr:Pd</td>
<td>Pr:Rcd</td>
<td>Employ:C</td>
<td>Wrk Hrs</td>
</tr>
<tr>
<td class="firstcol">May-07</td>
<td>4.2</td>
<td>8.7</td>
<td>9.3</td>
<td>-8.2</td>
<td>-6.9</td>
<td>-9.1</td>
<td>32.3</td>
<td>2.2</td>
<td>12.9</td>
<td>-5.5</td>
</tr>
<tr>
<td class="firstcol">Apr-07</td>
<td>0.2</td>
<td>2.8</td>
<td>4.3</td>
<td>-11.9</td>
<td>-3.1</td>
<td>-13.7</td>
<td>24.3</td>
<td>5.2</td>
<td>2.5</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>0.2</td>
<td>1.9</td>
<td>6.8</td>
<td>-13.2</td>
<td>-3.7</td>
<td>-20.9</td>
<td>21.8</td>
<td>16.3</td>
<td>2.3</td>
<td>-4.9</td>
</tr>
<tr>
<td class="firstcol">Average</td>
<td>9.7</td>
<td>10.6</td>
<td>14.7</td>
<td>-3.4</td>
<td>-6.8</td>
<td>-5.8</td>
<td>29.8</td>
<td>11.3</td>
<td>-0.1</td>
<td>-1.1</td>
</tr>
<tr>
<td class="firstcol">Median</td>
<td>11.5</td>
<td>13.3</td>
<td>15.9</td>
<td>-2.5</td>
<td>-6.8</td>
<td>-4.3</td>
<td>26.7</td>
<td>8.9</td>
<td>2.1</td>
<td>0.0</td>
</tr>
<tr>
<td class="firstcol">max</td>
<td>58.9</td>
<td>56.2</td>
<td>48.3</td>
<td>19.9</td>
<td>27.6</td>
<td>44.6</td>
<td>91.0</td>
<td>63.8</td>
<td>24.4</td>
<td>22.7</td>
</tr>
<tr>
<td class="firstcol">Min</td>
<td>-57.9</td>
<td>-53.5</td>
<td>-32.2</td>
<td>-33.6</td>
<td>-50.7</td>
<td>-60.9</td>
<td>-16.4</td>
<td>-18.2</td>
<td>-40.0</td>
<td>-45.6</td>
</tr>
<tr class="odd">
<td colspan="11">% of Range reading</td>
</tr>
<tr>
<td class="firstcol">Current</td>
<td>53.2%</td>
<td>56.7%</td>
<td>51.6%</td>
<td>47.5%</td>
<td>55.9%</td>
<td>49.1%</td>
<td>45.3%</td>
<td>24.9%</td>
<td>82.1%</td>
<td>58.7%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>43.4%</td>
<td>56.7%</td>
<td>56.7%</td>
<td>51.7%</td>
<td>39.2%</td>
<td>41.5%</td>
<td>36.4%</td>
<td>34.7%</td>
<td>54.5%</td>
<td>52.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Pictured on the left is the Philadelphia barometer for its OUTLOOK index that looks 6-months ahead. The index has made a considerable rebound and is now closer to giving off a signal of normal growth for the future based on the [...]

Philly Index Points Way Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070517d.jpg" width="353">
Pictured on the left is the Philadelphia barometer for its OUTLOOK index that looks 6-months ahead. The index has made a considerable rebound and is now closer to giving off a signal of normal growth for the future based on the position of this index in its range of values going back to 1968.
Few plot this index but I like it because it has been such a good and consistent harbinger of recessions and weakness and then of recovery (see chart). The index turned negative and before each recession since 1974. If you view a below zero reading as a signal for recession, it has given off some false ones, but it does give off weak signals when MFG is weak and its reports tend to be early-to-timely. Its &#145;false&#146; signals have tended to be more isolated or single weak readings. However, ahead of the 2001 recession this index did not give off a powerful series of negative readings it just gave off a few. But then it did emit strong signals of coming recovery &#150; and that was even though the recovery itself proved to be tepid. .
The signal for this index that is unimpeachable is that once it has been weak and rebounds it signals growth The only thing close to an exception to this result was that the cluster of recession-indicating weaker readings ahead of the 1991 recession was followed by a series of positive readings (none as strong as +20, however) before the recession actually occurred. The index had signaled recession ahead. But then there was a weak rise (weaker than what the barometer is signaling right now) and then recession kicked in. Once the recession started the outlook barometer dipped again, then moved up strongly near the end of recession to signal oncoming recovery.
Against that background the recovery signals from the Philly outlook are now impressively stronger and are coming off a set of weak readings that did not turn the barometer negative at any point. It may not be safe to assume anything but this index is something to encourage you to become more optimistic. It is signaling continued growth.
Its upbeat signal joins with the sharp March rise in industrial output and the recovery in the Empire State index for May. Jobless claims fell further below the 300k level this week in another upbeat sign. Economic signals remain mixed to be sure but a series of reports from this week (and I&#146;ll throw in the tentative sign of bottoming from housing starts) are reason to be more optimistic.
The table below grinds out relationships for the more conventionally watched Philadelphia current index. The various readings confirm that the current index is still quite weak but it has moved up with the key orders and shipments series as two of the best-advancing components. Employment has advanced sharply even if it has been at the cost of the length of the work week. Substituting full time workers for longer hours is usually a good sign for the economy.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Philadelphia Fed index in perspective: Since 1968
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Index:C</td>
<td>New Ord:C</td>
<td>Shipmnt:C</td>
<td>Deliv.</td>
<td>Inventory</td>
<td>Backlog</td>
<td>Pr:Pd</td>
<td>Pr:Rcd</td>
<td>Employ:C</td>
<td>Wrk Hrs</td>
</tr>
<tr>
<td class="firstcol">May-07</td>
<td>4.2</td>
<td>8.7</td>
<td>9.3</td>
<td>-8.2</td>
<td>-6.9</td>
<td>-9.1</td>
<td>32.3</td>
<td>2.2</td>
<td>12.9</td>
<td>-5.5</td>
</tr>
<tr>
<td class="firstcol">Apr-07</td>
<td>0.2</td>
<td>2.8</td>
<td>4.3</td>
<td>-11.9</td>
<td>-3.1</td>
<td>-13.7</td>
<td>24.3</td>
<td>5.2</td>
<td>2.5</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>0.2</td>
<td>1.9</td>
<td>6.8</td>
<td>-13.2</td>
<td>-3.7</td>
<td>-20.9</td>
<td>21.8</td>
<td>16.3</td>
<td>2.3</td>
<td>-4.9</td>
</tr>
<tr>
<td class="firstcol">Average</td>
<td>9.7</td>
<td>10.6</td>
<td>14.7</td>
<td>-3.4</td>
<td>-6.8</td>
<td>-5.8</td>
<td>29.8</td>
<td>11.3</td>
<td>-0.1</td>
<td>-1.1</td>
</tr>
<tr>
<td class="firstcol">Median</td>
<td>11.5</td>
<td>13.3</td>
<td>15.9</td>
<td>-2.5</td>
<td>-6.8</td>
<td>-4.3</td>
<td>26.7</td>
<td>8.9</td>
<td>2.1</td>
<td>0.0</td>
</tr>
<tr>
<td class="firstcol">max</td>
<td>58.9</td>
<td>56.2</td>
<td>48.3</td>
<td>19.9</td>
<td>27.6</td>
<td>44.6</td>
<td>91.0</td>
<td>63.8</td>
<td>24.4</td>
<td>22.7</td>
</tr>
<tr>
<td class="firstcol">Min</td>
<td>-57.9</td>
<td>-53.5</td>
<td>-32.2</td>
<td>-33.6</td>
<td>-50.7</td>
<td>-60.9</td>
<td>-16.4</td>
<td>-18.2</td>
<td>-40.0</td>
<td>-45.6</td>
</tr>
<tr class="odd">
<td colspan="11">% of Range reading</td>
</tr>
<tr>
<td class="firstcol">Current</td>
<td>53.2%</td>
<td>56.7%</td>
<td>51.6%</td>
<td>47.5%</td>
<td>55.9%</td>
<td>49.1%</td>
<td>45.3%</td>
<td>24.9%</td>
<td>82.1%</td>
<td>58.7%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>43.4%</td>
<td>56.7%</td>
<td>56.7%</td>
<td>51.7%</td>
<td>39.2%</td>
<td>41.5%</td>
<td>36.4%</td>
<td>34.7%</td>
<td>54.5%</td>
<td>52.7%</td>
</tr>
</tbody>
</table>
U.S. LEI Weakness in April… One Trick Pony 
by <a href="/comment/Brusca.html">Robert Brusca</a> May 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070517e.jpg" width="353">
The LEI is increasing its year/year pace of decline and is now falling by 0.7% year/year. However, a brief look at history shows that the current combination of a weak LEI and weak coincident index is not producing a weakening at a pace that signals recession. They are weakening more like they did in 1995, but not even as severely as that&#133;and there is less weakening power in the pipeline that it seems.
Periods in which the coincident index is growing more slowing than the leading index do tend to be slowdown periods. But not all of them become recession periods. Some of them are extended periods that eventually transition into recession. Only the aftermath of the 1995 episode left a good solid period of growth in its wake.
While the LEI has dropped to a weaker growth rate on year/year measures, this is not a period with increased downward momentum in general. The 3-month and 6-month rates of growth are not getting progressively lower. The six month rate speeded up but the three-month rate is the one that has fallen sharply. Over the same recent three-months the coincident index has speeded up slightly. The LEI has been very flat so that there is really little in the way for further declines in the pipeline from one-year ago. May of 2006 was weaker than April of that year implying that the year/year LEI will be lower by only 0.2% year/year unless it falls further in May. Even the three-month growth rate (annualized) is not set for further weakness despite its relatively sharp drop in April. If the LEI is unchanged next month it will rise in May over the next three-month period, not fall. 
Apart from these technical considerations there are the economic data that have begun to show a bit more strength.
The LEI is falling. Its rate of decline has accelerated this month. But there does not appear to be an ongoing process here nor does the rate of descent appear to be particularly disturbing.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Leading Economic Indicators
</tr>
</thead>
<tbody>
<tr class="grey6">
<td class="firstcol">&nbsp;</td>
<td>LEADING</td>
<td>COINCIDENT</td>
<td>LAGGING</td>
</tr>
<tr class="grey5">
<td colspan="4">Month-to-month</td>
</tr>
<tr class="grey4">
<td class="firstcol">Apr-07</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>0.2%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Mar-07</td>
<td>0.6%</td>
<td>0.1%</td>
<td>0.0%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Feb-07</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.2%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Jan-07</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>-0.1%</td>
</tr>
<tr class="grey5">
<td colspan="4">SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">3-Mos</td>
<td>-2.0%</td>
<td>1.6%</td>
<td>1.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">6-Mos</td>
<td>-0.4%</td>
<td>1.3%</td>
<td>3.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">12-Mos</td>
<td>-0.7%</td>
<td>1.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
Japan's Growth a Bit Slower than Expected, but Encouraging Forces in Place 
by <a href="/comment/Stone.html">Carol Stone</a> May 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070517a.jpg" width="353">
Japanese GDP grew at a 2.4% annual rate in Q1, less than Q4&#39;s 5.0% and less than market expectations of 2.7%. Q4 was also revised downward from 5.5% reported in mid-March.
The slower growth was due to a contraction in investment, and Q4&#39;s investment amount was also reduced from prior reports. So total fixed capital formation fell at a 2.8% rate, following growth of 10.6% in Q4. Residential was off 1.3% in Q1 and nonresidential plant and equipment at a 3.7% rate. The revision to Q4 was small for residential but nonresidential was cut from 13.2% to 9.4% growth. Even so, plant &amp; equipment expenditures for 2006 as a whole came in at 11.0%. Thus, the decrease in Q1 came on the heels of quite strong gains during last year. Further, new depreciation rules went into effect with the new fiscal year in April, and the accounting change would have discouraged major capital spending just before that.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070517b.jpg" width="353">
By contrast, consumption did well. In Q1, it grew at a 3.5% annual rate, following 4.3% in Q4. These two quarters are a considerable pick-up from last year&#39;s overall tepid performance. And Q4 was even revised a bit higher. Net exports also added to overall growth, as exports themselves grew 13.9%, annualized, in Q1 after 3.4% in Q4. This latter figure was also revised upward for Q4, which previously had shown 2.4% growth. Partially offsetting, imports switched from their declining pattern in Q3 (-1.5%) and Q4 2006 (-0.5%) to a moderate gain of 3.8% in Q1. The amount in Q4 was revised upward marginally.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070517c.jpg" width="353">
The transitory accounting-rule factors on capital spending can well mean that it will turn back up soon. And the nice back-to-back growth in consumer spending is encouraging. Prices do persist in their decline. We calculated a deflator from the seasonally adjusted GDP figures, and it fell 1.2% in Q1, although it had risen 0.4% in Q4. The &quot;official&quot; deflator based on not seasonally adjusted data was off just 0.2% year-on-year in Q1. Government officials assert that Japan is on the verge of breaking out of deflation, and these recent patterns suggest that is an apt description. In this space on Monday, Louise Curley noted the role of its vibrant Asian neighbors in boosting the Japanese economy. So there look to be a number of positive forces in the outlook. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN (% Chg, SAAR*)</th>
<th scope="col">Q1 2007</th>
<th scope="col">Q4 2006</th>
<th scope="col">Q3 2006</th>
<th scope="col">Year/ Year</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">Real GDP</td>
<td>2.4</td>
<td>5.0</td>
<td>0.3</td>
<td>2.0</td>
<td>2.4</td>
<td>2.8</td>
<td>1.1</td>
</tr>
<tr>
<td class="firstcol">Private Consumption</td>
<td>3.5</td>
<td>4.3</td>
<td>-4.0</td>
<td>1.6</td>
<td>0.5</td>
<td>2.7</td>
<td>0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Government Consumption</td>
<td>-0.3</td>
<td>0.3</td>
<td>2.5</td>
<td>1.2</td>
<td>1.3</td>
<td>0.8</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">GFCF**</td>
<td>-2.8</td>
<td>10.6</td>
<td>-1.2</td>
<td>1.7</td>
<td>5.3</td>
<td>2.5</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Residential</td>
<td>-1.3</td>
<td>8.9</td>
<td>-1.0</td>
<td>-0.2</td>
<td>1.0</td>
<td>-0.5</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Plant &amp; Equipment</td>
<td>-3.7</td>
<td>9.4</td>
<td>3.8</td>
<td>4.7</td>
<td>11.0</td>
<td>4.2</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Public Investment</td>
<td>-0.6</td>
<td>17.0</td>
<td>-17.6</td>
<td>-6.8</td>
<td>-8.0</td>
<td>0.5</td>
<td>-5.4</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>13.9</td>
<td>3.4</td>
<td>9.6</td>
<td>7.4</td>
<td>6.3</td>
<td>10.4</td>
<td>10.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>3.8</td>
<td>-0.5</td>
<td>-1.5</td>
<td>2.0</td>
<td>2.8</td>
<td>4.4</td>
<td>9.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516d.jpg" width="353">
Employment in the UK fell by 1,000 in the February period, a third successive monthly decrease in this 3-month moving average. Over the last three months (the style of comparison that the UK&#39;s Office for National Statistics [ONS] generally emphasizes) employment was down by 55,000 and reached the lowest monthly level since last June. Notably, though, full-time work has held virtually steady October, and it is part-time work that has been cut.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516e.jpg" width="353">
The unemployment rate, measured by the ILO definition, has held flat at 5.5% since September, and in fact, with the exception of a 5.6% reading last August, has been 5.5% since last May, again using a 3-month moving average. The number unemployed has hovered close around 1.7 million. At the same time, the more popular unemployment gauge in the UK, the &quot;claimant count rate&quot;, has edged lower. In April, this rate, reported as a figure covering just a single month, was 2.8%, down from 2.9% in March and 3.0% during nearly all of 2006.The number of &quot;claimants&quot; for April was 890,000, the first dip below 900,000 since October 2005. At least one press report today argued that the improvement in these latter jobless statistics would give the Bank of England room to raise interest rates in coming months to keep inflation down. However, another press service noted a modest slowing in earnings growth, which would limit the Bank&#39;s need to act.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516f.jpg" width="353">
Job vacancies suggest that the employment environment may do better. Reported vacancies amounted to 647,400 in April, up 20,000 from three months ago. The clearest gains appear in wholesale &amp; retail trade, hotels and restaurants and in public services, such as health care. The financial sector is also on a steady, but more gradual uptrend. Manufacturing even has seen some increase. Thus, despite the flat pattern in the broad employment measure, these vacancy data point toward some improvement. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK Labor Force Survey &amp; Related Labor Data</th>
<th scope="col">Jan 2007</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment* &nbsp; (3Mo Avg, SA, Thous)</td>
<td>--</td>
<td>--</td>
<td>28,981</td>
<td>28,982</td>
<td>28,887</td>
<td>28,960</td>
<td>28,730</td>
<td>28,465</td>
</tr>
<tr>
<td class="firstcol">Chg from 1 &amp; 3 Months Ago</td>
<td>--</td>
<td>--</td>
<td>-1/-44</td>
<td>-40/-47</td>
<td>+8&nbsp;&nbsp; (MoAvg)0.3% y/y</td>
<td>0.8%</td>
<td>0.9%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate* &nbsp; (3Mo Avg, SA, %)</td>
<td>--</td>
<td>--</td>
<td>5.5%</td>
<td>5.5%</td>
<td>5.2%</td>
<td>5.4%</td>
<td>4.8%</td>
<td>4.8%</td>
</tr>
<tr>
<td class="firstcol">Claimant Count &nbsp; (Monthly, Thous)</td>
<td>890.0</td>
<td>905.7</td>
<td>920.0</td>
<td>923.1</td>
<td>947.1</td>
<td>944.7</td>
<td>861.7</td>
<td>853.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Claimant Count Rate (SA, %)</td>
<td>2.8</td>
<td>2.9</td>
<td>2.9</td>
<td>2.9</td>
<td>3.0</td>
<td>3.0</td>
<td>2.7</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Vacancies (Monthly, Thous)</td>
<td>637.7</td>
<td>602.8</td>
<td>590.7</td>
<td>619.1</td>
<td>598.8</td>
<td>599.4</td>
<td>618.6</td>
<td>631.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Employment in the UK fell by 1,000 in the February period, a third successive monthly decrease in this 3-month moving average. Over the last three months (the style of comparison that the UK's Office for National Statistics [ONS] [...]

UK "Claimant"-Based Unemployment Down, but Total Employment Sagging

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516c.jpg" width="353">
Industrial production is up strongly at the start of Q2 2007 and its lift is across the aboard. Vehicle output is strong. But output is strong apart from vehicles as well. Consumer product output is also strong and business equipment is strengthening sharply. All the signs of increased output are good except that domestic demand does not seem to be there to support it. Since inventories have been in a contracting/control mode (except in manufacturing where inventories have seemed to bloat further even as shipments have sagged). What does this surge in output really mean? Either the US is gaining trade competitiveness or the consumer will bail producers out by accelerating spending or what we see is evidence of more unneeded inventories being created. 
The big picture shows retail spending excluding autos correlates pretty well with industrial production excluding vehicles. Unfortunately both are showing declining trends even with this strong April output report factored in. 
We can also look at consumer spending and output separate from capital goods. When we go behind the scenes to that level of detail, we see some evidence of a correlation between consumer spending and the output of consumer goods. But we still see the consumer spending is declining year/year and so is the output of consumer goods despite this month&#146;s output surge. 
Turning to capital spending, capital spending by itself is still slowing (y/y) even with this month&#146;s strong rise in output. While durable goods orders (ex aircraft) are still very volatile, capital spending tracks its erratic trend with a lag. Both spending and orders are pointing to weaker performance ahead.Summing up&#133;on balance, the NEWS on industrial production is reassuring by itself. After all producers do the things they do for a reason. But, for the moment we do not know what that is. Year/year consumer trends are slowing and capital spending plans are slowing as well. The rise in output in April only boosts the year/year industrial production growth rate to the point that it stays in a withering trend. Unless the U.S. is benefiting from a surge in trade (exports) that is not yet present in data, the rise in output this month is mostly a mystery.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
At Annual Rates of Change
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>3-Month </td>
<td>6-Month</td>
<td>Year/Year</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Output</td>
<td>% Change</td>
<td>% Change</td>
<td>% Change</td>
<td>% Change</td>
</tr>
<tr>
<td class="firstcol">All Prod&amp;Materials</td>
<td>4.7%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">All Products</td>
<td>5.4%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Final Products</td>
<td>6.4%</td>
<td>3.7%</td>
<td>3.0%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">MFG-NAICS</td>
<td>4.5%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG-Durables</td>
<td>7.9%</td>
<td>4.0%</td>
<td>2.7%</td>
<td>9.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG-Nondurables</td>
<td>0.7%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>7.1%</td>
<td>3.7%</td>
<td>2.3%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Business Equipment</td>
<td>9.0%</td>
<td>5.1%</td>
<td>5.7%</td>
<td>12.7%</td>
</tr>
<tr>
<td class="firstcol">Materials</td>
<td>4.3%</td>
<td>0.9%</td>
<td>1.4%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">Capacity Use Level</td>
<td>81.5</td>
<td>81.4</td>
<td>81.7</td>
<td>80.7</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production is up strongly at the start of Q2 2007 and its lift is across the aboard. Vehicle output is strong. But output is strong apart from vehicles as well. Consumer product output is also strong and business equipment [...]

U.S. Industrial Production Surges Across the Board - Turning Point?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516a.jpg" width="353">
Starts rise by 2.5% after downward revision of 1.8% still a net rise on month. 
Permits fall by 8.9% - drops in all regions.
Starts are off by 16.1% year/year compared to permits that are off by 28.1%.
Builders hack permits to get them in better alignment with starts. 
Permits fell across the board in April and fell sharply. But starts advanced, rising by 2.5% in the month after a downward revision to the prior month. Starts are much weaker year/year than are permits, pointing to a dampening in activity ahead. 
While the sharp drop in permits is disturbing, permits have little explanatory power for future starts. The chart shows a clear tendency for the level of starts to coalesce around current levels over the past seven months. It is unclear if the drop in permits in April is to arrest a stock pile of permits that had grown too large for builders or if there are real plans being cut back that affect actual starts even more in the months ahead. The chart speaks to a pause in the rate of descent. Both starts and permits have paused for the last several months now. Starts and permit trends are diverging - at least for one month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516b.jpg" width="353"> 
The regional patterns of housing starts are likewise rather docile. They show slow declines are in force with scattered evidence of some turbulence in the recent observations that create a path of stability around current levels in recent months. The Midwest has already bounced and showed some sense of trying to stabilize. The Northeast is also turning higher amid some considerable volatility. A more moderate &#145;sustained rise&#146; appears in train in the South. The West looks more like it has hit a two-month plateau or that it is in a very gradual upturn. The growth statistics over fixed horizons exaggerate or even dismiss some of these trends. On balance if the permits data are signaling new weakness it is coming out of the blue and is not tipped off by past trends in starts. The history of this time series does NOT suggest that that is the way it works. Permits are the slave, not the master. 
As builders became optimistic during the housing boom, they had acquired permits at a pace faster than starts. Evidence is therefore consistent with the notion that builders have plenty of slack in permits and are trying to reduce them more to coincide with the reasonable future levels of starts. In January the ratio of permits to starts was the fifth highest since January 1985. In Feb that slipped to the 49th rank (out of 266); in April the ranking is 222 out of 268, more appropriate for these times. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Trends In Housing Starts
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Apr 2007</td>
<td colspan="3">% Change at Ann Rate</td>
</tr>
<tr class="odd">
<td class="firstcol">Regional Trends</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>1-Yr</td>
</tr>
<tr>
<td class="firstcol">Northeast</td>
<td>-34.0%</td>
<td>34.0%</td>
<td>-4.4%</td>
</tr>
<tr>
<td class="firstcol">Midwest</td>
<td>8.4%</td>
<td>-32.8%</td>
<td>-42.6%</td>
</tr>
<tr>
<td class="firstcol">South</td>
<td>36.6%</td>
<td>14.0%</td>
<td>-13.0%</td>
</tr>
<tr>
<td class="firstcol">West</td>
<td>89.6%</td>
<td>11.1%</td>
<td>-6.3%</td>
</tr>
</tbody>
</table>
U.S. Industrial Production Surges Across the Board - Turning Point? 
by <a href="/comment/Brusca.html">Robert Brusca</a> May 16, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516c.jpg" width="353">
Industrial production is up strongly at the start of Q2 2007 and its lift is across the aboard. Vehicle output is strong. But output is strong apart from vehicles as well. Consumer product output is also strong and business equipment is strengthening sharply. All the signs of increased output are good except that domestic demand does not seem to be there to support it. Since inventories have been in a contracting/control mode (except in manufacturing where inventories have seemed to bloat further even as shipments have sagged). What does this surge in output really mean? Either the US is gaining trade competitiveness or the consumer will bail producers out by accelerating spending or what we see is evidence of more unneeded inventories being created. 
The big picture shows retail spending excluding autos correlates pretty well with industrial production excluding vehicles. Unfortunately both are showing declining trends even with this strong April output report factored in. 
We can also look at consumer spending and output separate from capital goods. When we go behind the scenes to that level of detail, we see some evidence of a correlation between consumer spending and the output of consumer goods. But we still see the consumer spending is declining year/year and so is the output of consumer goods despite this month&#146;s output surge. 
Turning to capital spending, capital spending by itself is still slowing (y/y) even with this month&#146;s strong rise in output. While durable goods orders (ex aircraft) are still very volatile, capital spending tracks its erratic trend with a lag. Both spending and orders are pointing to weaker performance ahead.Summing up&#133;on balance, the NEWS on industrial production is reassuring by itself. After all producers do the things they do for a reason. But, for the moment we do not know what that is. Year/year consumer trends are slowing and capital spending plans are slowing as well. The rise in output in April only boosts the year/year industrial production growth rate to the point that it stays in a withering trend. Unless the U.S. is benefiting from a surge in trade (exports) that is not yet present in data, the rise in output this month is mostly a mystery.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
At Annual Rates of Change
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>3-Month </td>
<td>6-Month</td>
<td>Year/Year</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Output</td>
<td>% Change</td>
<td>% Change</td>
<td>% Change</td>
<td>% Change</td>
</tr>
<tr>
<td class="firstcol">All Prod&amp;Materials</td>
<td>4.7%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">All Products</td>
<td>5.4%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Final Products</td>
<td>6.4%</td>
<td>3.7%</td>
<td>3.0%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">MFG-NAICS</td>
<td>4.5%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG-Durables</td>
<td>7.9%</td>
<td>4.0%</td>
<td>2.7%</td>
<td>9.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG-Nondurables</td>
<td>0.7%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>7.1%</td>
<td>3.7%</td>
<td>2.3%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Business Equipment</td>
<td>9.0%</td>
<td>5.1%</td>
<td>5.7%</td>
<td>12.7%</td>
</tr>
<tr>
<td class="firstcol">Materials</td>
<td>4.3%</td>
<td>0.9%</td>
<td>1.4%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">Capacity Use Level</td>
<td>81.5</td>
<td>81.4</td>
<td>81.7</td>
<td>80.7</td>
</tr>
</tbody>
</table>
</body>
</html>

Starts rise by 2.5% after downward revision of 1.8% still a net rise on month. Permits fall by 8.9% - drops in all regions. Starts are off by 16.1% year/year compared to permits that are off by 28.1%. Builders hack permits to get them [...]

U.S. Housing Starts Rise, Permits Fall

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516a.jpg" width="353">
Starts rise by 2.5% after downward revision of 1.8% still a net rise on month. 
Permits fall by 8.9% - drops in all regions.
Starts are off by 16.1% year/year compared to permits that are off by 28.1%.
Builders hack permits to get them in better alignment with starts. 
Permits fell across the board in April and fell sharply. But starts advanced, rising by 2.5% in the month after a downward revision to the prior month. Starts are much weaker year/year than are permits, pointing to a dampening in activity ahead. 
While the sharp drop in permits is disturbing, permits have little explanatory power for future starts. The chart shows a clear tendency for the level of starts to coalesce around current levels over the past seven months. It is unclear if the drop in permits in April is to arrest a stock pile of permits that had grown too large for builders or if there are real plans being cut back that affect actual starts even more in the months ahead. The chart speaks to a pause in the rate of descent. Both starts and permits have paused for the last several months now. Starts and permit trends are diverging - at least for one month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516b.jpg" width="353"> 
The regional patterns of housing starts are likewise rather docile. They show slow declines are in force with scattered evidence of some turbulence in the recent observations that create a path of stability around current levels in recent months. The Midwest has already bounced and showed some sense of trying to stabilize. The Northeast is also turning higher amid some considerable volatility. A more moderate &#145;sustained rise&#146; appears in train in the South. The West looks more like it has hit a two-month plateau or that it is in a very gradual upturn. The growth statistics over fixed horizons exaggerate or even dismiss some of these trends. On balance if the permits data are signaling new weakness it is coming out of the blue and is not tipped off by past trends in starts. The history of this time series does NOT suggest that that is the way it works. Permits are the slave, not the master. 
As builders became optimistic during the housing boom, they had acquired permits at a pace faster than starts. Evidence is therefore consistent with the notion that builders have plenty of slack in permits and are trying to reduce them more to coincide with the reasonable future levels of starts. In January the ratio of permits to starts was the fifth highest since January 1985. In Feb that slipped to the 49th rank (out of 266); in April the ranking is 222 out of 268, more appropriate for these times. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Trends In Housing Starts
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Apr 2007</td>
<td colspan="3">% Change at Ann Rate</td>
</tr>
<tr class="odd">
<td class="firstcol">Regional Trends</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>1-Yr</td>
</tr>
<tr>
<td class="firstcol">Northeast</td>
<td>-34.0%</td>
<td>34.0%</td>
<td>-4.4%</td>
</tr>
<tr>
<td class="firstcol">Midwest</td>
<td>8.4%</td>
<td>-32.8%</td>
<td>-42.6%</td>
</tr>
<tr>
<td class="firstcol">South</td>
<td>36.6%</td>
<td>14.0%</td>
<td>-13.0%</td>
</tr>
<tr>
<td class="firstcol">West</td>
<td>89.6%</td>
<td>11.1%</td>
<td>-6.3%</td>
</tr>
</tbody>
</table>
U.S. Industrial Production Surges Across the Board - Turning Point? 
by <a href="/comment/Brusca.html">Robert Brusca</a> May 16, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516c.jpg" width="353">
Industrial production is up strongly at the start of Q2 2007 and its lift is across the aboard. Vehicle output is strong. But output is strong apart from vehicles as well. Consumer product output is also strong and business equipment is strengthening sharply. All the signs of increased output are good except that domestic demand does not seem to be there to support it. Since inventories have been in a contracting/control mode (except in manufacturing where inventories have seemed to bloat further even as shipments have sagged). What does this surge in output really mean? Either the US is gaining trade competitiveness or the consumer will bail producers out by accelerating spending or what we see is evidence of more unneeded inventories being created. 
The big picture shows retail spending excluding autos correlates pretty well with industrial production excluding vehicles. Unfortunately both are showing declining trends even with this strong April output report factored in. 
We can also look at consumer spending and output separate from capital goods. When we go behind the scenes to that level of detail, we see some evidence of a correlation between consumer spending and the output of consumer goods. But we still see the consumer spending is declining year/year and so is the output of consumer goods despite this month&#146;s output surge. 
Turning to capital spending, capital spending by itself is still slowing (y/y) even with this month&#146;s strong rise in output. While durable goods orders (ex aircraft) are still very volatile, capital spending tracks its erratic trend with a lag. Both spending and orders are pointing to weaker performance ahead.Summing up&#133;on balance, the NEWS on industrial production is reassuring by itself. After all producers do the things they do for a reason. But, for the moment we do not know what that is. Year/year consumer trends are slowing and capital spending plans are slowing as well. The rise in output in April only boosts the year/year industrial production growth rate to the point that it stays in a withering trend. Unless the U.S. is benefiting from a surge in trade (exports) that is not yet present in data, the rise in output this month is mostly a mystery.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
At Annual Rates of Change
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>3-Month </td>
<td>6-Month</td>
<td>Year/Year</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Output</td>
<td>% Change</td>
<td>% Change</td>
<td>% Change</td>
<td>% Change</td>
</tr>
<tr>
<td class="firstcol">All Prod&amp;Materials</td>
<td>4.7%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">All Products</td>
<td>5.4%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Final Products</td>
<td>6.4%</td>
<td>3.7%</td>
<td>3.0%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">MFG-NAICS</td>
<td>4.5%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG-Durables</td>
<td>7.9%</td>
<td>4.0%</td>
<td>2.7%</td>
<td>9.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG-Nondurables</td>
<td>0.7%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>7.1%</td>
<td>3.7%</td>
<td>2.3%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Business Equipment</td>
<td>9.0%</td>
<td>5.1%</td>
<td>5.7%</td>
<td>12.7%</td>
</tr>
<tr>
<td class="firstcol">Materials</td>
<td>4.3%</td>
<td>0.9%</td>
<td>1.4%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">Capacity Use Level</td>
<td>81.5</td>
<td>81.4</td>
<td>81.7</td>
<td>80.7</td>
</tr>
</tbody>
</table>
UK "Claimant"-Based Unemployment Down, but Total Employment Sagging 
by <a href="/comment/Stone.html">Carol Stone</a> May 16, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516d.jpg" width="353">
Employment in the UK fell by 1,000 in the February period, a third successive monthly decrease in this 3-month moving average. Over the last three months (the style of comparison that the UK&#39;s Office for National Statistics [ONS] generally emphasizes) employment was down by 55,000 and reached the lowest monthly level since last June. Notably, though, full-time work has held virtually steady October, and it is part-time work that has been cut.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516e.jpg" width="353">
The unemployment rate, measured by the ILO definition, has held flat at 5.5% since September, and in fact, with the exception of a 5.6% reading last August, has been 5.5% since last May, again using a 3-month moving average. The number unemployed has hovered close around 1.7 million. At the same time, the more popular unemployment gauge in the UK, the &quot;claimant count rate&quot;, has edged lower. In April, this rate, reported as a figure covering just a single month, was 2.8%, down from 2.9% in March and 3.0% during nearly all of 2006.The number of &quot;claimants&quot; for April was 890,000, the first dip below 900,000 since October 2005. At least one press report today argued that the improvement in these latter jobless statistics would give the Bank of England room to raise interest rates in coming months to keep inflation down. However, another press service noted a modest slowing in earnings growth, which would limit the Bank&#39;s need to act.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070516f.jpg" width="353">
Job vacancies suggest that the employment environment may do better. Reported vacancies amounted to 647,400 in April, up 20,000 from three months ago. The clearest gains appear in wholesale &amp; retail trade, hotels and restaurants and in public services, such as health care. The financial sector is also on a steady, but more gradual uptrend. Manufacturing even has seen some increase. Thus, despite the flat pattern in the broad employment measure, these vacancy data point toward some improvement. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK Labor Force Survey &amp; Related Labor Data</th>
<th scope="col">Jan 2007</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment* &nbsp; (3Mo Avg, SA, Thous)</td>
<td>--</td>
<td>--</td>
<td>28,981</td>
<td>28,982</td>
<td>28,887</td>
<td>28,960</td>
<td>28,730</td>
<td>28,465</td>
</tr>
<tr>
<td class="firstcol">Chg from 1 &amp; 3 Months Ago</td>
<td>--</td>
<td>--</td>
<td>-1/-44</td>
<td>-40/-47</td>
<td>+8&nbsp;&nbsp; (MoAvg)0.3% y/y</td>
<td>0.8%</td>
<td>0.9%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate* &nbsp; (3Mo Avg, SA, %)</td>
<td>--</td>
<td>--</td>
<td>5.5%</td>
<td>5.5%</td>
<td>5.2%</td>
<td>5.4%</td>
<td>4.8%</td>
<td>4.8%</td>
</tr>
<tr>
<td class="firstcol">Claimant Count &nbsp; (Monthly, Thous)</td>
<td>890.0</td>
<td>905.7</td>
<td>920.0</td>
<td>923.1</td>
<td>947.1</td>
<td>944.7</td>
<td>861.7</td>
<td>853.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Claimant Count Rate (SA, %)</td>
<td>2.8</td>
<td>2.9</td>
<td>2.9</td>
<td>2.9</td>
<td>3.0</td>
<td>3.0</td>
<td>2.7</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Vacancies (Monthly, Thous)</td>
<td>637.7</td>
<td>602.8</td>
<td>590.7</td>
<td>619.1</td>
<td>598.8</td>
<td>599.4</td>
<td>618.6</td>
<td>631.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070515d.jpg" width="353">
Eurostat issued its flash estimates for GDP growth in the 13 country Euro area and the 27 country European Union. In both cases the estimates showed, as expected, a deceleration from the 0.9% growth in the fourth quarter of 2006 to 0.6% in the first quarter of 2007. The consensus had expected a slightly greater deceleration to 0.5% for the first quarter. In addition to the first quarter flash estimate, Eurostat publishes an estimated range for the second, third and fourth quarters of the year for the GDP growth of the Euro Area. These ranges are shown in the first chart together with the actual flash estimates. The average estimate for the second quarter is 0.65%, the third quarter, 0.65% and the fourth quarter 0.5%. These data are found in the EUROSTAT data base.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070515e.jpg" width="353">
In addition to the flash estimates of percentage changes, published by Eurostat, some countries are beginning to release preliminary details of the composition of GDP for the first quarter. Among the countries of the Euro Area Germany, France, Italy and the Netherlands have published first quarter data, which can be found in the GERMANY, FRANCE, ITALY and BENELUX data bases. First quarter growth in Germany was 0.51%, a surprisingly good showing. Apparently the increase in the Value Added Tax of 3 points had little effect on demand. French growth was only slightly lower at 0.49%.Growth in Italy, however, was only 0.21%. The highest growth of the four was in the Netherlands where GDP grew 0.58% from the fourth quarter of last year to the first quarter of this year. The quarter to quarter growth rates are shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070515f.jpg" width="353">
If the year over year growth in the first quarter is any indicator of the likely growth for the year as a whole, the 3.60% growth in Germany, suggests growth in 2007 may well be better than the 2.2% growth in 2006. Similarly, the first quarter growth in Italy suggests a better 2007, The first quarter year over year growth in France, on the other hand, suggests growth in 2007 could be lower than 2006. First quarter year over year growth in the Netherlands was almost equal to average growth in 2006 as can be seen in the table below.The year over year growth rates are shown in the third chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">FIRST QUARTER &#39;07 ESTIMATES OF EUROPEAN GDP CHANGE&nbsp; (%)</th>
<th scope="col">Q1 07 Q/Q%</th>
<th scope="col">Q4 06 Q/Q%</th>
<th scope="col">Q1 07 Y/Y%</th>
<th scope="col">Q4 06 Y/Y%</th>
<th scope="col">2006 Y/Y%</th>
<th scope="col">2005 Y/Y%</th>
<th scope="col">2004 Y/Y%</th>
<th scope="col">2003 Y/Y%</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Area</td>
<td>0.6</td>
<td>0.9</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">European Union</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Germany&nbsp;</td>
<td>0.51</td>
<td>0.99</td>
<td>3.60</td>
<td>2.83</td>
<td>2.20</td>
<td>1.72</td>
<td>2.26</td>
<td>1.07</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.49</td>
<td>0.48</td>
<td>2.00</td>
<td>2.18</td>
<td>2.99</td>
<td>1.10</td>
<td>0.77</td>
<td>-0.20</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.21</td>
<td>1.15</td>
<td>2.25</td>
<td>2.83</td>
<td>1.94</td>
<td>0.23</td>
<td>1.02</td>
<td>0.11</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td>0.58</td>
<td>0.59</td>
<td>2.83</td>
<td>2.88</td>
<td>2.85</td>
<td>1.53</td>
<td>1.95</td>
<td>0.34</td>
</tr>
</tbody>
</table>
</body>
</html>

Eurostat issued its flash estimates for GDP growth in the 13 country Euro area and the 27 country European Union. In both cases the estimates showed, as expected, a deceleration from the 0.9% growth in the fourth quarter of 2006 to [...]

First Quarter 2007 Growth in Europe's GDP Stronger than Expected

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.

260618Z1.jpg

**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.

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

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Charts of the Week: Between Relief and Reality

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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EMU Unemployment Remains Low

Sandy Batten

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Total retail sales rose a much larger-than-expected 0.9% m/m (6.9%y/y) in May following a slightly downwardly revised 0.4% monthly gain in April (previously 0.5% m/m), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 0.5% m/m gain. Excluding autos, other sales increased 0.8% m/m (7.5% y/y) after an unrevised 0.7% m/m increase in April. Expectations were for a 0.5% monthly rise.

Elevated retail gasoline prices continued to boost the value of gasoline sales in May. Gasoline sales increased 3.4% m/m (26.5% y/y) in May on top of a 2.8% m/m increase in April. However, both monthly increases were slower than the 14.2% monthly jump reported in March. Gasoline sales accounted for 31% of total sales in May. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.7% m/m in April, up from 0.2% m/m in April. Sales excluding both autos and gasoline increased 0.5% m/m in May, the same monthly gain as in April.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in May, rising 0.7% m/m (6.3% y/y) following an unrevised 0.5% monthly increase in April. The strong performance at the end of Q1 followed by solid gains in April and May put the April-May level of control group sales up 8.6% at an annual rate from the Q1 average, pointing to another solid contribution by consumption to overall GDP growth in Q2. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales generally increased across major sectors in May. Auto sales rebounded, rising 1.2% m/m in May and more than reversing the 0.9% monthly decline in April. This was the third gain in auto sales in the past four months. Furniture sales rose 1.0% m/m but sales at electronics and appliance stores slipped 0.5% m/m. Building material sales gained 1.0% m/m on top of a 1.1% monthly increase in April. Clothing sales rose 0.3% m/m. Sales at general merchandise stores gained 0.4% m/m in May. Miscellaneous sales jumped 2.3% m/m in May, their first monthly gain in three months. Sales by nonstore retailers continued their strong performance, increasing 1.5% m/m in May on top of a 1.1% monthly rise in April. Over the first five months of this year, nonstore retail sales have risen 7.2%, not annualized. By contrast, food sales were unchanged in May from April while sales at restaurants edged down 0.1% m/m in May, their first monthly decline in four months.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total sales increased 0.9% m/m in May, nearly twice expectations.
- Auto sales rebounded, rising 1.2% m/m in May, more than reversing a 0.9% monthly decline in April. 
- Gasoline sales rose 3.4% m/m in May.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in May, the same monthly increase as in April.
- Sales of the retail control group that is used to construct PCE rose 0.7% m/m in May and are 8.6% annualized above the Q1 average.

U.S. Retail Sales Jumped More than Expected in May

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Mortgage applications fell 3.8% w/w (+8.6% y/y) in the week ending June 12 following a 10.8% rebound in the week ending June 5, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the fourth w/w fall in five weeks, lowering the index to 269.5. Applications for loans to purchase a house slid 3.4% (+3.0% y/y) in the June 12 week, down for the fourth time in five weeks, after a 7.3% rise in the previous week. Applications for loan refinancing dropped 4.5% (+17.0% y/y) in the June 12 week, the seventh w/w decline in eight weeks, following a 15.3% jump in the June 5 week.

The effective interest rate on a 30-year fixed-rate loan was unchanged at 6.78% in the week ending June 12; it was above a low of 6.24% in the February 27 week but below a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages edged up 2bps to 6.18% in the June 12 week, the highest in three weeks, from 6.16% in the previous week; it was up from a low of 5.60% in the week of September 20, 2024 but down from a high of 7.44% in the week of October 27, 2023. Meanwhile, the rate on 30-year jumbo loans declined 4bps to 6.78% in the June 12 week from 6.82% in the prior week; it was above a low of 6.25% in the February 27 week but below a high of 7.99% in the week of October 27, 2023. The rate on a 5-year ARM fell 7bps to 6.16% in the June 12 week, the first w/w decline in six weeks, from 6.23% in the previous week (the highest since the week of August 15, 2025); it was above a low of 5.38% in the February 20 week but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan edged up to 40.3% of total applications in the week ending June 12—the fourth w/w increase in five weeks and the highest level since the May 15 week—after rising to 40.2% in the week ending June 5; it remained below a peak of 61.9% in the January 16 week but above a low of 34.6% in the week of May 23, 2025. The adjustable-rate mortgage (ARM) share of activity slipped to 8.5% in the June 12 week from 8.6% in the prior week; it was below a peak of 12.9% in the week of September 12, 2025 but above a low of 4.7% in the week of January 3, 2025.

The average size of a mortgage loan fell 1.5% w/w (+3.7% y/y) to $394,100 in the June 12 week, the lowest level since the April 3 week, after a 0.4% rebound to $399,900 in the June 5 week. The average size of a purchase loan dropped 1.9% (+4.0% y/y) to $456,600 in the June 12 week following a 2.8% recovery to $465,300 in the prior week. The average size of a loan to refinance a mortgage fell 0.4% (+7.0% y/y) to $301,400 in the June 12 week on top of a 2.3% decline to $302,500 in the previous week, marking the third consecutive w/w fall, the sixth decline in seven weeks, and the lowest level since the week of July 25, 2025.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications -3.4% w/w, down for fourth time in five weeks; refinance applications -4.5% w/w, seventh fall in eight weeks.
- Effective interest rate on 30-year fixed loans unchanged at 6.78%, up from a late-February low of 6.24%.
- Average loan size down for the second time in three weeks, lowest since the April 3 week.

Economy in Brief

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