Robert Brusca

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<th scope="col" class="firstcol">&middot; The LEI is weak and faltering. One very reliable signal from the LEI is its year/year growth rate. Since the early 1960s, with one exception, significant year/year declines have foreshadowed the onset of recession. The sole exception was in 1966. Although in January 1996 a minor year/year&nbsp; reading of -0.1% also was recorded. Currently the LEI is off by 0.8% year/year &#150; a worrisome signal.</th>
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Leading Economic Indicators
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<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>LEADING</td>
<td>COINCIDENT</td>
<td>LAGGING</td>
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<tr class="odd">
<td colspan="4">Month-to-month</td>
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<td class="firstcol">Mar-07</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Feb-07</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.2%</td>
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<td class="firstcol">Jan-07</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>0.0%</td>
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<tr>
<td class="firstcol">Dec-06</td>
<td>0.6%</td>
<td>0.3%</td>
<td>0.7%</td>
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<tr class="odd">
<td colspan="4">SAAR</td>
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<td class="firstcol">3-Mos</td>
<td>-2.9%</td>
<td>1.0%</td>
<td>0.9%</td>
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<td class="firstcol">6-Mos</td>
<td>-0.3%</td>
<td>1.8%</td>
<td>4.0%</td>
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<td class="firstcol">12-Mos</td>
<td>-0.8%</td>
<td>1.7%</td>
<td>3.2%</td>
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</table>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419a.jpg" width="353">
However, the signal for recession is not only a weakening in the LEI but also in the coincident index of economic indicators (COIN). The COIN is weakening only by a very small amount and at a very moderate pace, in effect blunting the weakening signal from the LEI itself&#133;at least so far. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419b.jpg" width="353"> 
 The blown up chart on the right allows closer inspection of the recent LEI and COIN trends. The ongoing and disturbing weakens in the LEI is clear, although its RATE OF DESCENT is not very pre-recession-like. The faltering in the COIN index after a spurt earlier in the year is also put in its less worrisome context, at least for the moment. 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419c.jpg" width="353">
 Moreover...if we look at short-term (3-month) growth rates of the COIN components, they still seem to be relatively firm. The coincident index does appear to be about to collapse. It seems still solid. 
 On balance what we have is evidence of ongoing weakness in the economy. The slippage of the year/year LEI growth rate, below zero and into negative territory, is very disturbing by itself given the reliability of that growth rate as a recession indicator. Yet the LEI itself is slipping at a very slow &#150; almost slow-motion - speed compared to other pre-recession periods. More to the point, for recession to occur the coincident index must decline and the components of that index are showing no sign of doing that. The coincident index itself has undergone some slowing but the index is a product of its components and even three-month growth rates of its components still look quite solid.Verdict: worry but do not grieve for growth. A downturn still looks less than probable.

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However, the signal for recession is not only a weakening in the LEI but also in the coincident index of economic indicators (COIN). The COIN is weakening only by a very small amount and at a very moderate pace, in effect blunting the [...]

U.S. Leading Indicator Weak

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/070418a.jpg" width="353">
The US Treasury&#39;s monthly investment data, called &quot;Treasury International Capital&quot; data or &quot;TIC&quot;, are increasingly watched for trends in foreign investors&#39; interest in US capital markets. Data for February were released this Monday past. Net purchases of securities by foreign investors appear to have fallen to $58.1 billion from $98.8 billion in January and $93.4 billion in February 2006. The reduction in February consists of smaller net purchases of federal agency (GSE) debt and US equities than in January, modestly offset by slight increases in Treasuries and corporate bonds. US investors also bought slightly more in foreign securities in February. So in the securities markets, less foreign capital came into the US and a bit more US capital went out.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070418c.jpg" width="353">
These data contain two important lessons that caution us against making too much of one month&#39;s figures. First, they obviously move around a lot. Foreign purchases of domestic securities were $116.8 billion in January and dropped to &quot;only&quot; $77.9 billion in February. This included the largest ever monthly swing in net purchases of federal agencies, -$33.2 billion, while net purchases of corporate bonds were the fifth largest they had ever been. And even though purchases of equities diminished, they remain quite large by historical comparison. The monthly data on security purchases run back to 1977.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070418b.jpg" width="353">
At the same time, these figures do just cover security purchase and sale transactions. But there are other financial flows, of course. Since last November 16 (see our commentary for that date), the Treasury has highlighted more information on these in a new &quot;TIC Monthly Report on Cross-Border Financial Flows&quot;. This table includes &quot;other securities acquisition&quot;, which tends to run negative as periodic principal payments are made on pass-through securities; stock swaps are also in this category and can run both ways as multinational corporations alter ownership structures. Also included in the Treasury&#39;s summary table are non-security transactions: short-term custody holdings and changes in banks&#39; dollar-denominated liabilities. Both of these can be highly variable, and indeed, the latter item, Line 6 in the table below, swung from a net outflow of $22.4 billion in January to an inflow of $30.4 billion in February.
Thus, overall, the influx of capital to the US did not decrease in February, but it increased, to $94.5 billion from $79.6 billion in January and $77.5 billion a year ago. We have argued before and would repeat, that in these monthly capital flow data, the items that &quot;balance&quot; the &quot;balance of payments&quot; are in fact the transitory ones, the cash moving around the world financial system as trade flows are paid for and companies shift deposits to countries where they have upcoming expenditures. Security purchases represent entirely different kinds of business decisions and may not necessarily be tied to the trade or current account deficits. 

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<th scope="col" class="firstcol">Net Foreign Purchases fromUS Residents, Bil $</th>
<th scope="col">Feb 2007</th>
<th scope="col">Jan 2007</th>
<th scope="col">Feb 2006</th>
Monthly Averages
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<td class="firstcol">Last 12 Months</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
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<td class="firstcol">&quot;Headline&quot;: Net Foreign Purchases&nbsp;= 1 + 2</td>
<td>58.1</td>
<td>98.8</td>
<td>93.4</td>
<td>73.6</td>
<td>74.3</td>
<td>69.9</td>
<td>63.6</td>
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<td class="firstcol">1. Domestic Securities</td>
<td>77.9</td>
<td>116.8</td>
<td>105.0</td>
<td>95.1</td>
<td>94.8</td>
<td>84.3</td>
<td>76.4</td>
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<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>17.0</td>
<td>15.2</td>
<td>19.4</td>
<td>17.4</td>
<td>16.5</td>
<td>28.2</td>
<td>29.3</td>
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<td class="firstcol">&nbsp;&nbsp; Agencies</td>
<td>2.0</td>
<td>35.8</td>
<td>30.1</td>
<td>22.3</td>
<td>24.1</td>
<td>18.3</td>
<td>18.9</td>
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<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>45.4</td>
<td>43.0</td>
<td>37.7</td>
<td>43.4</td>
<td>41.7</td>
<td>31.0</td>
<td>25.8</td>
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<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>13.5</td>
<td>22.8</td>
<td>17.8</td>
<td>12.0</td>
<td>12.5</td>
<td>6.8</td>
<td>2.4</td>
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<td class="firstcol">2. Foreign Securities&nbsp;</td>
<td>-19.8</td>
<td>-17.9</td>
<td>-11.5</td>
<td>-21.5</td>
<td>-20.6</td>
<td>-14.4</td>
<td>-12.7</td>
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<td class="firstcol">3. &quot;Other Acquisition&quot;*</td>
<td>-15.0</td>
<td>-15.1</td>
<td>-9.0</td>
<td>-13.3</td>
<td>-12.8</td>
<td>-11.7</td>
<td>-3.2</td>
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<td class="firstcol">4. Net Foreign Acquisition (1+2+3)</td>
<td>43.2</td>
<td>83.7</td>
<td>84.4</td>
<td>60.3</td>
<td>61.5</td>
<td>58.3</td>
<td>60.4</td>
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<td class="firstcol">5. Short-Term Liabilities</td>
<td>20.8</td>
<td>17.9</td>
<td>-10.6</td>
<td>14.1</td>
<td>11.2</td>
<td>-4.0</td>
<td>15.8</td>
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<td class="firstcol">6. Change in Bank Liabilities</td>
<td>30.4</td>
<td>-22.0</td>
<td>3.7</td>
<td>10.8</td>
<td>13.9</td>
<td>1.4</td>
<td>5.3</td>
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<td class="firstcol">7. Total TIC Flows**&nbsp; </td>
<td>94.5</td>
<td>79.6</td>
<td>77.5</td>
<td>85.2</td>
<td>86.6</td>
<td>55.7</td>
<td>81.6</td>
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The US Treasury's monthly investment data, called "Treasury International Capital" data or "TIC", are increasingly watched for trends in foreign investors' interest in US capital markets. Data for February were released this Monday [...]

Treasury TIC Data Show Reduced Security Purchases, but More Inflows of Other Capital

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417c.jpg" width="353">
German investors surprised the economic community with a spurt of optimism. The balance of those looking for better conditions six months ahead over those looking for worsening conditions rose to 16.5% in April from 5.8% in March. In spite of the rise, however, the balance is well below that of 62.7% in April, 2006 and also well below the long term average of 33.1%.
Investors continue to be impressed with current conditions. The balance of those seeing improvement in current conditions over those seeing deterioration rose to 76.9%, an all time high, from 69.2% in March and from 2.9% in April, 2006. The first chart shows the balances for current conditions and for the outlook since December 1981, when the series began.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417d.jpg" width="353">
Contributing, no doubt, to the increased optimism regarding current conditions among German investors has been the continued improvement in the economy in the first months of this year. The imposition of a 3 point increase in the Value Added Tax that went into effect on January 1, 2007 has apparently had a less deleterious effect on the economy than had been feared. Retail sales declined 3.9% in January, but rose 1.26% in February. The unemployment rate of registered workers declined to 9.2% in March from 9.8% in December. Industrial production was up 7.57% in February over the corresponding month of 2006 and, on the same basis, in January, 7.24%, compared with an increase of 5.88% for all of 2006 over 2005. Unemployment rates and the year over year increases in industrial production are shown in second chart shows.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417e.jpg" width="353">
As noted above, the expectations balance is well below the long term average of 33.1%. Perhaps one of the factors that may account for the subdued expectations is the strength in the Euro and what it may mean for exports. It was export demand increasing 2.10 points that offset the 1.2 point decline in domestic demand in the final quarter of the year. The third chart shows the contributions to growth of exports and domestic demand over the last five years. Perhaps one of the questions troubling investors is whether the decline in unemployment is such that it will lead to an increase in consumer demand that could offset a decline in exports. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">&nbsp;GERMANY ZEW INDICATOR</a></th>
<th scope="col">Apr 07</th>
<th scope="col">Mar 07</th>
<th scope="col">Apr 06</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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<td class="firstcol">Expectations (% Balance)</td>
<td>16.5</td>
<td>5.8</td>
<td>62.7</td>
<td>10.7</td>
<td>-46.2</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
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<td class="firstcol">Current Conditions (% Balance)</td>
<td>76.9</td>
<td>69.2</td>
<td>2.9</td>
<td>7.7</td>
<td>74.0</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.7</td>
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German investors surprised the economic community with a spurt of optimism. The balance of those looking for better conditions six months ahead over those looking for worsening conditions rose to 16.5% in April from 5.8% in March. In [...]

German Investors' Optimism Surprises but the Optimism Is Subdued

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<th scope="col" class="firstcol">&middot; The table below shows the percent changes in starts and permits on different horizons without compounding. It shows that each measure except for the large projects (5 of more) is above its three-month average in March. This finding tends to reinforce the sense that there is some stability developing in the sector. &nbsp;To be sure, all measures are down over 3 months and 12 months. Two-to-four unit projects alone are flat or up compared to six months. Firmness on the three-month horizon is mostly in the Midwest where there is a 23% bounce (annualized) and in the South where a -12% annual rate trims the -33% annual rate drop over 6 months.&nbsp;</th>
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March 2007
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<td class="firstcol">Seas Adj Annual Rate</td>
<td colspan="2">Total</td>
<td colspan="2">One Unit</td>
<td colspan="2">2- 4 Units</td>
<td colspan="2">5 or more</td>
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<td class="firstcol">In 000&#39;s of Units</td>
<td>Starts</td>
<td>Permits</td>
<td>Starts</td>
<td>Permits</td>
<td>Starts</td>
<td>Permits</td>
<td>Starts</td>
<td>Permits</td>
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<td class="firstcol">This Month:</td>
<td>1,518</td>
<td>1,544</td>
<td>1,218</td>
<td>1,114</td>
<td>38</td>
<td>72</td>
<td>262</td>
<td>358</td>
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<td class="firstcol">3-month avg</td>
<td>1,474</td>
<td>1,549</td>
<td>1,177</td>
<td>1,112</td>
<td>31</td>
<td>73</td>
<td>267</td>
<td>363</td>
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<td class="firstcol">1-month % chg</td>
<td>0.8%</td>
<td>0.8%</td>
<td>2.0%</td>
<td>1.4%</td>
<td>22.6%</td>
<td>0.0%</td>
<td>-6.8%</td>
<td>-0.8%</td>
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<td class="firstcol">3-month % chg</td>
<td>-7.0%</td>
<td>-4.3%</td>
<td>-2.2%</td>
<td>-4.6%</td>
<td>-22.4%</td>
<td>-4.0%</td>
<td>-22.7%</td>
<td>-3.2%</td>
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<td class="firstcol">6-month % chg</td>
<td>-11.9%</td>
<td>-5.7%</td>
<td>-12.6%</td>
<td>-8.6%</td>
<td>31.0%</td>
<td>0.0%</td>
<td>-13.2%</td>
<td>3.2%</td>
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<td class="firstcol">yr/yr % chg</td>
<td>-23.0%</td>
<td>-25.9%</td>
<td>-24.6%</td>
<td>-28.4%</td>
<td>5.6%</td>
<td>-13.3%</td>
<td>-18.4%</td>
<td>-19.9%</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417f.jpg" width="353">
We plot the trends by region to show the common patterns. Each region shows a long down slope reflecting the lasting weakness in housing across the nation. But then most regions show some stability - or at least a hint of it. 
There is an outright bounce in the Midwest and somewhat slower erosion in the West. The South is still declining but is also slowing its pace of decline. The Northeast is unclear, having bounced in January, probably on the weather, then having started a new slide since then, but still not quite making a new low. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417g.jpg" width="353"> 
On balance, housing is still having troubles. The rise in starts this month came about only because of a DOWNWARD revision to the previous month. Had February not been revised lower the new level in March would have been a decline from February since the preliminary February reading was higher than the level of starts that now prevails in March. Even so the clearest evidence we have is that the pace of decline is slowing and that for the moment two of the three types of starts and the overall are above their 3-month average. Housing is still faltering but no longer seems to have the downward momentum. It&#146;s sort of like a horror movie seen the second time around -- no longer any surprises and you&#146;ve already seen the worst of it. But unlike the movie the second time around, you still don&#146;t know where this one is going. Not for sure.

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We plot the trends by region to show the common patterns. Each region shows a long down slope reflecting the lasting weakness in housing across the nation. But then most regions show some stability - or at least a hint of it. There is [...]

U.S. Housing Starts Hit a Plateau

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<th scope="col" class="firstcol">&middot; Industrial production fell by 0.2% in March as utilities output pulled back but manufacturing output advanced by a strong 0.7% led by a gain of 0.9% in durable goods output. March saw a decline in consumer goods output, materials production was flat and there was a rise of 0.8% in business equipment output. &middot; But for the quarter as a whole and on trend, industrial production is a story of firming consumer output offset by plunging demand for equipment on the part of business with materials output vacillating about unchanged. Manufacturing output rose by 1.5% in Q1 given the strong productivity there that was not enough to create job growth in the sector. &middot; Looking at the just completed quarter we find industrial production is higher for most measures. So the National ISM report is correct to be above 50. There is a great deal of regional disparity according to various regional manufacturing surveys. We see that in the variety of conditions across industry groups there is a great deal of variation as well. Consumer durables output in the quarter rose at a 0.1% pace as auto output fell. Consumer nondurable output rose by a robust 6% pace with energy output up at a 12% pace. Business equipment output fell in the quarter but computer and office equipment production rose by 34.3%. Materials output was mixed, up by 0.5% in the quarter but up by 1.9% for durable goods and off by 1.7% for nonenergy nondurable goods. Overall auto production fell by 0.1% in Q1 but truck production expanded at a 52% annual rate. &nbsp; </th>
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Industrial Production
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<td class="firstcol">&nbsp;</td>
<td colspan="3">Monthly Percent Changes</td>
<td colspan="3">At Annual Rates of Change</td>
<td>SAAR</td>
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<td class="firstcol">&nbsp;</td>
<td colspan="3">Month-to-month Percent Change</td>
<td>3-Month</td>
<td>6-Month</td>
<td>Year/Year</td>
<td>07-Q1</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Output</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>%Change</td>
<td>%Change</td>
<td>%Change</td>
<td>Pct Change</td>
</tr>
<tr>
<td class="firstcol">All Prod &amp; Materials</td>
<td>-0.2%</td>
<td>0.8%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>0.5%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">All Products</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">Final Products</td>
<td>-0.3%</td>
<td>1.2%</td>
<td>-0.5%</td>
<td>1.4%</td>
<td>2.3%</td>
<td>3.4%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing only</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">MFG - NAICS</td>
<td>0.7%</td>
<td>0.1%</td>
<td>-0.6%</td>
<td>0.7%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG - Durables</td>
<td>0.8%</td>
<td>0.2%</td>
<td>-1.1%</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>3.5%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG - Nondurables</td>
<td>0.5%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>1.9%</td>
<td>0.2%</td>
<td>1.9%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>-0.6%</td>
<td>1.7%</td>
<td>0.0%</td>
<td>4.1%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Durables</td>
<td>0.6%</td>
<td>1.7%</td>
<td>-2.9%</td>
<td>-2.6%</td>
<td>0.2%</td>
<td>-1.2%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Automotive Production</td>
<td>0.4%</td>
<td>3.7%</td>
<td>-5.4%</td>
<td>-6.0%</td>
<td>1.4%</td>
<td>-3.1%</td>
<td>-0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excl Automotive Production</td>
<td>0.7%</td>
<td>0.0%</td>
<td>-0.6%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>0.6%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">Nondurables</td>
<td>-1.0%</td>
<td>1.6%</td>
<td>1.0%</td>
<td>6.3%</td>
<td>3.1%</td>
<td>3.2%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonenergy</td>
<td>0.6%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>4.0%</td>
<td>4.8%</td>
<td>3.9%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption Energy</td>
<td>-6.1%</td>
<td>5.4%</td>
<td>4.5%</td>
<td>13.5%</td>
<td>-2.2%</td>
<td>0.7%</td>
<td>12.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Equip.</td>
<td>0.8%</td>
<td>0.3%</td>
<td>-2.2%</td>
<td>-4.5%</td>
<td>3.3%</td>
<td>7.4%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Transportation</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-1.4%</td>
<td>-5.2%</td>
<td>6.0%</td>
<td>7.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Computer &amp; Office Equipment</td>
<td>3.5%</td>
<td>3.3%</td>
<td>2.4%</td>
<td>38.2%</td>
<td>30.6%</td>
<td>28.3%</td>
<td>34.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excl Technology &amp; Transportation</td>
<td>0.8%</td>
<td>-0.2%</td>
<td>-2.2%</td>
<td>-6.4%</td>
<td>2.3%</td>
<td>6.7%</td>
<td>-2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Materials</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>2.1%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">Durables</td>
<td>1.0%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>3.5%</td>
<td>-0.2%</td>
<td>3.6%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Nondurables excl energy</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-1.2%</td>
<td>-2.3%</td>
<td>-1.7%</td>
<td>0.3%</td>
<td>-1.7%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>-2.2%</td>
<td>2.3%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>0.7%</td>
</tr>
</tbody>
</table>
 



<img align="left" height="331" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/0704172.gif" v:shapes="_x0000_i1026" width="533">
The chart on the left shows the trends for output by main manufacturing sector. As consumer output has steadied and strengthened, the business sector has been unraveling. This is an unpleasant picture and has been quite unexpected. We still do not know what is holding business back. 

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The chart on the left shows the trends for output by main manufacturing sector. As consumer output has steadied and strengthened, the business sector has been unraveling. This is an unpleasant picture and has been quite unexpected. We [...]

U.S. IP is Up But Still is a Mixed Up Sector

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417a.jpg" width="353">
The 0.1% increase in the CPI in March (annual rate of 0.7%) is just what the CPI needed after back to back monthly increases of 0.23% but, after two such bad reports, this good one can only take the edge off bad trends; it can&#146;t by itself make CPI trends good. For the month, inflation was not widespread; our monthly diffusion counter was at 42.9 for the headline and 42.9 for the core. Both signal that month-to-month inflation fell in more CPI categories than it rose. But both core and headline inflation now show an accelerating three-month pace compared to six months ago.
In the guts of this month&#146;s report we find core goods prices were weak as in the PPI, falling at a 0.9% annual rate in the month. But services prices were moderate too, cutting their pace of increase to a pace of +1.4%. Still over three months core goods prices are rising by 0.4% and core services are at 2.9%. (the service sector is 71% of the core). So while the inflation game is still a tug of war between goods deflation and services inflation, both sectors say inflation pressures eased in the month. Services inflation has seen sequentially lower from 1-year to 6-months and from 6-months to 3-months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417b.jpg" width="353">
While still high, core service sector inflation trends are cooling across horizons. However, look at the graph and realize how much this has to do with just this last month&#146;s result. Inflation had started another minor uptrend. So while the chart looks benign, the result is still quite reversible. 
Core goods prices are showing persisting declines in year/year and six-month rates of change. However, at the three-month horizon goods prices have reversed to show some inflation. So the anti-inflation trend is no longer as uniformly solid as it was.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Consumer Prices: 2007 March Report Overview: Moderation is Back in Play&#133;&#133;
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">5COLSPAN</td>
<td colspan="2">Year-To-Date</td>
<td>1- Mo</td>
<td>--</td>
</tr>
<tr class="even">
<td class="firstcol">Quick Summary</td>
<td>Yr/Yr</td>
<td>6-Mo AR</td>
<td>3-Mo AR</td>
<td>--</td>
<td>2007</td>
<td>2006</td>
<td>Diffusion</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI</td>
<td>2.8%</td>
<td>2.4%</td>
<td>4.7%</td>
<td>--</td>
<td>4.7%</td>
<td>3.7%</td>
<td>42.9</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Core CPI</td>
<td>2.5%</td>
<td>1.9%</td>
<td>2.3%</td>
<td>--</td>
<td>2.3%</td>
<td>2.6%</td>
<td>42.9</td>
<td>--</td>
</tr>
<tr>
<td colspan="9">Commodity Category</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Mo Annualized Rate</td>
<td colspan="6">Annualized Inflation Rate For Last</td>
<td>Mo/Mo Not Annualized</td>
</tr>
<tr class="even">
<td class="firstcol">By Expenditure Category</td>
<td>Mar 2007</td>
<td>% Weight</td>
<td>3-Mo</td>
<td>--</td>
<td>6-Mo</td>
<td>--</td>
<td>Year</td>
<td>Mar 2007</td>
</tr>
<tr class="odd">
<td class="firstcol">All Items</td>
<td>7.5%</td>
<td>100.00</td>
<td>4.7%</td>
<td>--</td>
<td>2.4%</td>
<td>--</td>
<td>2.8%</td>
<td>0.6%</td>
</tr>
<tr>
<td colspan="9">By Economic Group</td>
</tr>
<tr class="odd">
<td class="firstcol">All: Excl Food &amp; Energy</td>
<td>0.7%</td>
<td>77.10</td>
<td>2.3%</td>
<td>--</td>
<td>1.9%</td>
<td>--</td>
<td>2.5%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">(Median Increase)</td>
<td>3.1%</td>
<td>100.00</td>
<td>4.4%</td>
<td>--</td>
<td>2.8%</td>
<td>--</td>
<td>2.7%</td>
<td>0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Excl. Energy</td>
<td>1.1%</td>
<td>92.32</td>
<td>2.9%</td>
<td>--</td>
<td>2.2%</td>
<td>--</td>
<td>2.6%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Commodities Excl Food &amp; Energy</td>
<td>-0.9%</td>
<td>22.77</td>
<td>0.4%</td>
<td>(29% of core)</td>
<td>-1.1%</td>
<td>--</td>
<td>-0.3%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services Excl Energy</td>
<td>1.4%</td>
<td>54.33</td>
<td>2.9%</td>
<td>(71% of core)</td>
<td>3.1%</td>
<td>--</td>
<td>3.6%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core CPI less Tobacco</td>
<td>0.7%</td>
<td>--</td>
<td>2.1%</td>
<td>--</td>
<td>1.8%</td>
<td>--</td>
<td>2.4%</td>
<td>0.1%</td>
</tr>
<tr>
<td colspan="9">Food &amp; Energy</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>216.3%</td>
<td>7.68</td>
<td>30.9%</td>
<td>--</td>
<td>1.7%</td>
<td>--</td>
<td>6.9%</td>
<td>10.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>3.4%</td>
<td>15.22</td>
<td>7.3%</td>
<td>--</td>
<td>3.9%</td>
<td>--</td>
<td>3.3%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>
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The 0.1% increase in the CPI in March (annual rate of 0.7%) is just what the CPI needed after back to back monthly increases of 0.23% but, after two such bad reports, this good one can only take the edge off bad trends; it cant by [...]

U.S. CPI Gives Markets a Breath of Pretty Fresh Air

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.

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

260618N12.jpg

260618O12.jpg

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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