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/070316e.jpg" width="353">
There are 86,400 seconds in a day: 24 hours x 60 minutes x 60 seconds. In February, according to the Oil Market Intelligence publication of industry consulting firm Energy Intelligence, the world consumed 87,069 million barrels of petroleum products, a new monthly record. That amount equals 1,007 barrels every second. Haver carries the daily average demand information in its OMI database, offered in partnership with Energy Intelligence. The idea for this time calculation is not ours, though. It comes from an investment consultant in the field, Peter Tertzakian, author of a book published last year titled, appropriately enough, &quot;A Thousand Barrels a Second&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070316c.jpg" width="353">
February&#39;s daily oil consumption for the total world was up 3.4 million barrels from January (4.1%), although February demand is frequently high, and this was just 1.5% above February 2006. A notable part of the increase came in the US, where demand was 21.6 million barrels daily, 5.4% more than a year ago. The US experience is clearly a spike and as with other economic data for the month -- jobs in the construction industry and retail sales, for examples -- was likely related to the swing to unusually cold weather, particularly compared with mild February weather last year.
Even with this February rise, the US share of world oil consumption is no higher than it has been running over the last couple of years: just under 25%. These data illustrate well what we&#39;ve heard more casually elsewhere: the significant growth in oil consumption is coming from developing regions of the world. For instance, in China, the last 12 months&#39; average has been 7.1 million barrels daily, 6.2% ahead of the 12 months ended February 2006.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070316f.jpg" width="353">
From the third graph, we can see that the US share of the world total over a longer period, since 2000, has actually declined. In dramatic contrast, the OMI grouping called &quot;developing countries&quot;* has gained share. From 26.4% in 2002, those countries expanded to 28.0% in 2006.
These graphs illustrate some upcoming innovations in Haver&#39;s DLXVG3 software. In the Chinese example, we were able to take a percent change in a moving average, utilizing a new &quot;nested function&quot; capability. In the market share graph, we were able to make two separate calculations involving three different series. Elsewhere this past week in several of Robert Brusca&#39;s articles, you have seen three or even four series on a single graph. These new features will be available to clients soon and we&#39;re very excited about them. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Daily Average Oil Demand: Thousand Barrels</th>
<th scope="col">Feb 2007</th>
<th scope="col">Jan 2007</th>
<th scope="col">Feb 2006</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">Total World</td>
<td>87,069</td>
<td>83,653</td>
<td>85,796</td>
<td>84,475</td>
<td>83,838</td>
<td>82,287</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.5</td>
<td>0.1</td>
<td>0.3</td>
<td>0.8</td>
<td>1.9</td>
<td>4.3</td>
</tr>
<tr class="odd">
<td class="firstcol">United States</td>
<td>21,632</td>
<td>20,618</td>
<td>20,518</td>
<td>20,768</td>
<td>20,799</td>
<td>20,731</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>7,276</td>
<td>7,222</td>
<td>7,107</td>
<td>7,074</td>
<td>6,675</td>
<td>6,367</td>
</tr>
<tr class="odd">
<td class="firstcol">Developing Countries*</td>
<td>24,135</td>
<td>23,804</td>
<td>23,675</td>
<td>23,760</td>
<td>23,160</td>
<td>22,251</td>
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There are 86,400 seconds in a day: 24 hours x 60 minutes x 60 seconds. In February, according to the Oil Market Intelligence publication of industry consulting firm Energy Intelligence, the world consumed 87,069 million barrels of [...]

World Oil Consumption Reaches Record 87 Million Barrels/Day; Developing Country Share Expands

Robert Brusca

U.S. Industrial Production Increased 1.0 percent in February

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070315c.jpg" width="353">
Consumer prices in the Eurozone rose 1.8% in February from a year ago, the same as in January and 0.1% below December. In February 2006, the year-on-year change was 2.3%, boosted by strong energy gains.
In the most recent months, energy prices have slowed, as is well known. But a version of a &quot;core&quot; HICP has picked up. A year ago, when energy was running rampant, the index less energy and food/alcohol/tobacco was very slow at 1.2% year-on-year. Now, this core rate has picked up to 1.7% in January and 1.9% in February. Several sectors are participating: clothing prices in particular have stopped falling. While rising only about 1%, they have turned around from earlier outright declines. Household maintenance and repairs have gained, as well as home furnishings and housekeeping products. Health care costs are rising this year. There have been modest accelerations of education costs, hotels and restaurants and &quot;other&quot;. Communications prices are still falling, but much less than they had been.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070315d.jpg" width="353">
So while both the total HICP and this core measure are hovering below the ECB&#39;s comfort rate of 2%, the breadth of the price increases is opening up concern over inflation. Over the last 15 months, the ECB has raised its target rate seven times, most recently on March 8 to 3.75%. [This is the minimum bid rate for conducting refinancing operations at the Bank.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070315e.jpg" width="353">
Note that these price data cover series denoted in Haver&#39;s databases as &quot;EA11/12/13&quot;. This grouping includes the new members of the Monetary Union only as they join, not earlier. Prior to 2001, there were 11 members; Greece was added then and finally Slovenia just this year. The data are not &quot;break adjusted&quot;, as is an alternative series, which we call EA13 and which includes Greece and Slovenia since the beginning of these data in 1996. As seen in the accompanying graph, there is hardly any visible difference in the groupings. But there are small differences in individual periods: for instance, the &quot;headline rate&quot; for EA11/12/13 this month is 1.8%, but the comparable EA 13 figure is 1.9%. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">EA11/12/13 Yr/Yr % Changes</th>
<th scope="col">Feb 2007</th>
<th scope="col">Jan 2007</th>
<th scope="col">Dec 2006</th>
<th scope="col">Year Ago</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
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<td class="firstcol">HICP [MUICP]</td>
<td>1.8</td>
<td>1.8</td>
<td>1.9</td>
<td>2.3</td>
<td>1.9</td>
<td>2.2</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>0.8</td>
<td>0.9</td>
<td>2.9</td>
<td>12.6</td>
<td>2.9</td>
<td>11.3</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">Ex Energy,&nbsp; Food/- Alcohol/Tobacco</td>
<td>1.9</td>
<td>1.7</td>
<td>1.5</td>
<td>1.2</td>
<td>1.5</td>
<td>1.4</td>
<td>1.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: EA 13</td>
<td>1.9</td>
<td>1.8</td>
<td>1.9</td>
<td>2.4</td>
<td>1.9</td>
<td>2.2</td>
<td>2.4</td>
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Consumer prices in the Eurozone rose 1.8% in February from a year ago, the same as in January and 0.1% below December. In February 2006, the year-on-year change was 2.3%, boosted by strong energy gains. In the most recent months, [...]

February Eurozone HICP Holds at 1.8% Yr/Yr; Core Picks Up to 1.9% with Widespread Gains

U.S. PPI Surprise

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314d.jpg" width="353">
A notable catalyst for yesterday&#39;s stock market sell-off was the quarterly mortgage delinquency report from the Mortgage Bankers&#39; Association (MBA). It showed that 4.95% (seasonally adjusted) of all loans surveyed by MBA were past due on December 31, an increase from 4.67% in September and the highest since September 2002. The foreclosure process was started on 0.54% of all loans, 0.08% more than during the previous quarter and a record high rate for a single quarter; at the end of December, 1.19% of loans were in foreclosure, up from 1.05% at end-September and 0.99% at the end of 2005. These rates are calculated on a total base of more than 42 million mortgage loans.
The MBA gives data on several types of mortgages: conventional prime, conventional subprime, FHA and VA. Each of these is further broken down by fixed and adjustable rate. Haver maintains these series in its specialized database MBAMTG and individual series are available on HaverSelect. The database includes seasonally adjusted data for the country as a whole and the four Census regions as well as not seasonally adjusted data for those areas plus the nine Census divisions, the 50 States, District of Columbia and Puerto Rico.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314e.jpg" width="353">
Delinquencies worsened for all major loan types. Conventional prime loans, which constitute 76.6% of the total market, had loan payments over due 30 days or more increase from 2.52% to 2.79% of the loans in that segment. Conventional subprime delinquencies rose from 12.95% to 14.27%. &quot;Conventional&quot; loans are those not insured by the federal government, such as FHA or VA. Conventional loans may be insured by private mortgage insurance or not insured at all. &quot;Subprime&quot; loans are those granted to borrowers with risky credit ratings or with excessively generous lending terms, such as loan-to-value ratios (&quot;LTV&quot;) near 100%, whereas &quot;prime&quot; mortgages typically see LTVs below 80% and average or higher credit quality in the borrower.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314f.jpg" width="353">
Delinquencies on FHA-backed loans affected 14.43% of those loans and foreclosures were initiated on 0.96%. VA-insured loans had a delinquency rate of 7.43% and a foreclosure rate of 0.36%.
There are very large differences in delinquency experiences among the regions of the country. The Northeast had 4.58% of its loans past due in December, near the national average. But the Midwest and the South were both at about 5.7% and the West at 3.18%. So credit quality varies considerably around the nation. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mortgage Delinquencies (SA, %)</th>
<th scope="col">Q4 2006</th>
<th scope="col">Q3 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Loans Past Due</td>
<td>4.95</td>
<td>4.67</td>
<td>4.70</td>
<td>4.61</td>
<td>4.45</td>
<td>4.48</td>
<td>5.11</td>
</tr>
<tr>
<td class="firstcol">Foreclosures Started</td>
<td>0.54</td>
<td>0.46</td>
<td>0.42</td>
<td>1.86</td>
<td>1.63</td>
<td>1.73</td>
<td>1.80</td>
</tr>
<tr class="odd">
<td class="firstcol">Conventional Prime Loan Delinquencies</td>
<td>2.57</td>
<td>2.44</td>
<td>2.47</td>
<td>2.39</td>
<td>2.29</td>
<td>2.30</td>
<td>2.67</td>
</tr>
<tr>
<td class="firstcol">Conventional Subprime Loan Delinquencies</td>
<td>13.33</td>
<td>12.56</td>
<td>11.63</td>
<td>12.27</td>
<td>10.84</td>
<td>10.80</td>
<td>14.04</td>
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A notable catalyst for yesterday's stock market sell-off was the quarterly mortgage delinquency report from the Mortgage Bankers' Association (MBA). It showed that 4.95% (seasonally adjusted) of all loans surveyed by MBA were past due [...]

Major Increase in Mortgage Delinquencies in Q4; Rate of Foreclosures Started Hits a Quarterly Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314c.jpg" width="353">
Ex-petroleum import prices fell by 0.1% in February. Good news for core inflation trends. The 1Yr, 6-Mo, 3-mo progression of annualized inflation pressures also show that there is no pressure building. Yr/Yr non-petroleum import prices are up by 2.1%; looking over 3-mos annualized the gain is just 1.1%. Tame. Nonagricultural export prices show a bit more lift than that, partly aided by pressure from industrial supplies and materials, an export category that does contain some oil. 
Looking more directly at prices that feed into consumer prices (look at the import figures), we see a bit of lift for consumer prices excluding vehicles and for foods and beverages. Vehicle import prices are under wraps. For the most part it does not look like there is an inflation impulse leaking in for the international sector. 
The chart on the left shows some key consumer goods price relationships. We plot import prices for vehicles and for consumer goods excluding vehicles Vs the CPI core for goods and the PPI consumer goods core. The PPI tends to show the highest gains; this index measures price for core consumer goods produced in the US. The Core CPI for goods consists of these products taken to the next level of distribution, adding consumer goods imports. That results in a core goods CPI index that has showed lower inflation than most other indexes since about August 2002. Nonvehicle consumer prices were, at one time, the slowest inflators on the block, but that changed in August of 2002. While the two international indexes do not show much in the way of inflation it is also true that vehicle imports and nonvehicle consumer goods imports sport higher inflation rates that the core CPI by itself and have been so for about one year . And the consumer core of the PPI is &#145;ramping up&#146; albeit none of these yr/yr gains exceeds even 2% y/y yet. If it&#146;s inflation in the making, it is still quite mild. The trends maybe less than reassuring but the degree of inflation that is in train remains quite MILD.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Export and Import Price Trends
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td colspan="3"> Imports</td>
<td></td>
<td colspan="3"> Exports</td>
</tr>
<tr class="odd">
<td class="firstcol"> SAAR</td>
<td> All</td>
<td> Petrol</td>
<td> Excl Petrol</td>
<td> SAAR</td>
<td> All</td>
<td> Agric</td>
<td> NonAgric</td>
</tr>
<tr>
<td class="firstcol"> 3-MO</td>
<td>1.8%</td>
<td>-11.2%</td>
<td>1.1%</td>
<td> 3-MO</td>
<td>7.0%</td>
<td>22.9%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"> 6-MO</td>
<td>-7.4%</td>
<td>-38.8%</td>
<td>1.5%</td>
<td> 6-MO</td>
<td>2.9%</td>
<td>22.3%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol"> Yr/Yr</td>
<td>1.3%</td>
<td>-5.5%</td>
<td>2.1%</td>
<td> Yr/Yr</td>
<td>4.7%</td>
<td>16.9%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"> 2-Yrs</td>
<td>4.1%</td>
<td>18.0%</td>
<td>1.9%</td>
<td> 2-Yrs</td>
<td>3.7%</td>
<td>10.6%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol"> MO/MO</td>
<td>0.2%</td>
<td>2.0%</td>
<td>-0.1%</td>
<td> MO/MO</td>
<td>0.7%</td>
<td>2.3%</td>
<td>0.6%</td>
</tr>
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<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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Ex-petroleum import prices fell by 0.1% in February. Good news for core inflation trends. The 1Yr, 6-Mo, 3-mo progression of annualized inflation pressures also show that there is no pressure building. Yr/Yr non-petroleum import [...]

US Export and Import Prices Show Their Soft Side

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<td><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314b.jpg" width="353">The US current account deficit is one of the most intriguing phenomena about the US economy. To understand the account is both very simple and extremely complicated. It is therefore easy to think you know nothing about it or everything at the same time! &nbsp; The 2006Q4 current account deficit shrank sharply to $195.8bln from $229.4bln in Q3. It also shrank compared to its $223.1bln level in 2005-Q4. And a shrinkage in the deficit over four quarters ago is unusual. (see chart on the left).&nbsp; Such improvement generally was induced by recession (1990, 2001, 1981,198) but also can be occasioned by significant slowdowns (1995) and the sharp dollar depreciation from its pre-Plaza Accord peak was behind the persisting improvement in the late 1980s ahead of the onset of recession. The current account is simple to understand because it is the just the difference between the value of the goods services we sell Vs the ones we buy plus a few transfer items. The US has a small positive and essentially stable balance on its services account. The trade account is the problem. Its deficit is large and persistently growing larger (see chart below on the right).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314a.jpg" width="353"> That&#146;s the part of the current account that is easy. Now comes the hard part&#133;understanding WHY&#133;The &#145;why&#146; it is difficult because some of the concepts are esoteric and also because there are different identities that describe the deficit circumstance and they have seemingly different root causes.&nbsp; Let me explain.One identity is that (at least conceptually) the world current account deficits across countries must balance. So if the US has a deficit at least one other country has a surplus. And, conceptually, in a world of no lags and the same accounting principles the US deficit would be the same size as the surplus for the rest of the world in total. Another is that the US current account surplus must be funded by net capital inflows of the same magnitude &#150; this is the double entry accounting that accompanies the US balance of payments. &nbsp;The current account plus the capital flows that fund it are what the term &#145;balance of payments&#146; refers to. The US has a current account deficit and an equal and opposite capital account surplus.&nbsp; &nbsp;That&#146;s a bit more complicated framework, but still not impossible. Here is where the immovable object meets the unstoppable force:&nbsp; Economists argue about where the forces come from that drive the deficit. We ask, do the forces stem mostly from the current account itself or from the capital account? Does one push the other into deficit or the other push the one into surplus?&nbsp; Is it the current account the active mover, as profligate US consumers are overspending, or is it that miserly foreign consumer/savers under-spend and over save?&nbsp; Or do the main forces work though the capital account because the US is too dependent on foreign capital or is it the opposite, that foreign investors are too addicted to US investments?&nbsp;Here are the questions.(1) Is it US credit demand that is so huge that is draws in international capital keeping the dollar strong, hurting US competitiveness and ballooning the current account deficit as a result?(2) Is it US demand for goods that is so strong we simply consume too much and live beyond our means leading to a huge current account deficit?(3) Is it that foreign economies consume too little and do not buy enough in general and from the US in particular helping to balloon the US deficit? The flip side of low consumption is the high savings rate. Do foreigners simply save too much (Bernanke&#146;s saving glut argument)?(4) Is the demand by foreigners for US investments so high that they push capital into the US and keep the dollar from falling so that US competitiveness is undermined and the current account deficit balloons?That&#146;s quite a list.&nbsp; AND you may notice that the various arguments draw the dollar in as well.We will not solve these issues today. In any event we know that the deficit is a combination of the above points. We also know that not having a mechanism to create currency adjustment, as there was under Bretton Woods, means that deficits may not be self correcting in any timely way. Notice that despite the US deficit contraction in Q4 2006 compared to Q4 2005 the average for the year is still worsening; that is the deficit for all of 2006 was for a quarterly average of $214.2bln compared to $197.9bln in 2005. This is a full year deficit of $856.8bln for 2006 &#150; over three quarters of a trillion dollars IN ONE YEAR in case you are counting.And if 2007 worsens as much as 2006 did our deficit will top $1trln per year in 2007. How much is one trillion? Well suppose you were to try to &#145;sing the deficit down to zero&#146; and did so singing the tune &#145;100 bottles of beer on the wall&#146;, using the lyric &#145;1trln dollars of deficit today,1trln dollars today, take one down what have you got? 999,999,999,999 dollars of deficit today&#146;. Now assume you can sing that in 10 seconds &#150;each verse. That&#146;s 10 trillion seconds of singing. It would take you more than 300 years to get the current account into balance. If George Washington had started singing that song, and were he blessed with extraordinary long life, he would still being singing today...and going strong with his work still cut out for him. .&nbsp;Slower US growth especially on the back of reduced inventory demand helped to contain imports in 2006; that was aided by lower oil prices as well by year end. Stronger foreign growth played a role as US exports expanded briskly at a 14.5% pace against the weak nominal import gain of 4.5%. Looking ahead to 2007 the fate of the dollar is still a matter of speculation. US growth should pick up from its weak Q4 pace. Inventories should rebuild, thereby boosting imports. Overseas growth is expected to be &#145;about the same to a bit stronger&#146;. The real question is whether US exports can keep up the good work in 2007, or was 2006 some flash in the pan of good news? Imports will rise faster in 2007 than in 2006. That could make it impossible to make trade deficit reduction a reality in 2007 either.</td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 US Current Account
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> Balances:</td>
<td> Q4-06</td>
<td> Q3-06</td>
<td> Q2-06</td>
<td> 4Qtr-Avg</td>
<td> Prev4Qtr</td>
</tr>
<tr class="odd">
<td class="firstcol"> Current Account</td>
<td>-195.8</td>
<td>-229.4</td>
<td>-217.7</td>
<td>-214.2</td>
<td>-197.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade</td>
<td>-197.9</td>
<td>-218.9</td>
<td>-210.9</td>
<td>-209.0</td>
<td>-195.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>22.4</td>
<td>12.0</td>
<td>15.0</td>
<td>15.9</td>
<td>19.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Transfers</td>
<td>-20.2</td>
<td>-22.5</td>
<td>-21.9</td>
<td>-21.0</td>
<td>-21.5</td>
</tr>
<tr>
<td class="firstcol"> Growth Rates</td>
<td colspan="3"> Quarterly SAAR</td>
<td colspan="2">4-Qtr % for Yr Ended:</td>
</tr>
<tr>
<td class="firstcol">Merchandise</td>
<td> Q4-06</td>
<td> Q3-06</td>
<td> Q2-06</td>
<td> Q4-06</td>
<td> Q4-06</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>8.4%</td>
<td>15.5%</td>
<td>14.4%</td>
<td>14.5%</td>
<td>11.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>-12.4%</td>
<td>15.7%</td>
<td>10.1%</td>
<td>4.3%</td>
<td>13.9%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td> Q4-06</td>
<td> Q3-06</td>
<td> Q2-06</td>
<td> Q4-06</td>
<td> Q4-06</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>12.9%</td>
<td>3.0%</td>
<td>13.4%</td>
<td>8.7%</td>
<td>8.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>6.3%</td>
<td>2.5%</td>
<td>12.7%</td>
<td>8.6%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"> memo: ($-Blns)</td>
<td> Q4-06</td>
<td> Q3-06</td>
<td> Q2-06</td>
<td> 4Qtr-Avg</td>
<td> Prev4Qtr</td>
</tr>
<tr class="odd">
<td class="firstcol">Offical Gov&#39;t Securities Purchased</td>
<td>78.0</td>
<td>78.0</td>
<td>21.6</td>
<td>60.9</td>
<td>39.1</td>
</tr>
</tbody>
</table>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314c.jpg" width="353">
Ex-petroleum import prices fell by 0.1% in February. Good news for core inflation trends. The 1Yr, 6-Mo, 3-mo progression of annualized inflation pressures also show that there is no pressure building. Yr/Yr non-petroleum import prices are up by 2.1%; looking over 3-mos annualized the gain is just 1.1%. Tame. Nonagricultural export prices show a bit more lift than that, partly aided by pressure from industrial supplies and materials, an export category that does contain some oil. 
Looking more directly at prices that feed into consumer prices (look at the import figures), we see a bit of lift for consumer prices excluding vehicles and for foods and beverages. Vehicle import prices are under wraps. For the most part it does not look like there is an inflation impulse leaking in for the international sector. 
The chart on the left shows some key consumer goods price relationships. We plot import prices for vehicles and for consumer goods excluding vehicles Vs the CPI core for goods and the PPI consumer goods core. The PPI tends to show the highest gains; this index measures price for core consumer goods produced in the US. The Core CPI for goods consists of these products taken to the next level of distribution, adding consumer goods imports. That results in a core goods CPI index that has showed lower inflation than most other indexes since about August 2002. Nonvehicle consumer prices were, at one time, the slowest inflators on the block, but that changed in August of 2002. While the two international indexes do not show much in the way of inflation it is also true that vehicle imports and nonvehicle consumer goods imports sport higher inflation rates that the core CPI by itself and have been so for about one year . And the consumer core of the PPI is &#145;ramping up&#146; albeit none of these yr/yr gains exceeds even 2% y/y yet. If it&#146;s inflation in the making, it is still quite mild. The trends maybe less than reassuring but the degree of inflation that is in train remains quite MILD.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Export and Import Price Trends
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td colspan="3"> Imports</td>
<td></td>
<td colspan="3"> Exports</td>
</tr>
<tr class="odd">
<td class="firstcol"> SAAR</td>
<td> All</td>
<td> Petrol</td>
<td> Excl Petrol</td>
<td> SAAR</td>
<td> All</td>
<td> Agric</td>
<td> NonAgric</td>
</tr>
<tr>
<td class="firstcol"> 3-MO</td>
<td>1.8%</td>
<td>-11.2%</td>
<td>1.1%</td>
<td> 3-MO</td>
<td>7.0%</td>
<td>22.9%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"> 6-MO</td>
<td>-7.4%</td>
<td>-38.8%</td>
<td>1.5%</td>
<td> 6-MO</td>
<td>2.9%</td>
<td>22.3%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol"> Yr/Yr</td>
<td>1.3%</td>
<td>-5.5%</td>
<td>2.1%</td>
<td> Yr/Yr</td>
<td>4.7%</td>
<td>16.9%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"> 2-Yrs</td>
<td>4.1%</td>
<td>18.0%</td>
<td>1.9%</td>
<td> 2-Yrs</td>
<td>3.7%</td>
<td>10.6%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol"> MO/MO</td>
<td>0.2%</td>
<td>2.0%</td>
<td>-0.1%</td>
<td> MO/MO</td>
<td>0.7%</td>
<td>2.3%</td>
<td>0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">

</table>
US Export and Import Prices Show Their Soft Side 
by <a href="/comment/Brusca.html">Robert A. Brusca</a> March 14, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314d.jpg" width="353">
A notable catalyst for yesterday&#39;s stock market sell-off was the quarterly mortgage delinquency report from the Mortgage Bankers&#39; Association (MBA). It showed that 4.95% (seasonally adjusted) of all loans surveyed by MBA were past due on December 31, an increase from 4.67% in September and the highest since September 2002. The foreclosure process was started on 0.54% of all loans, 0.08% more than during the previous quarter and a record high rate for a single quarter; at the end of December, 1.19% of loans were in foreclosure, up from 1.05% at end-September and 0.99% at the end of 2005. These rates are calculated on a total base of more than 42 million mortgage loans.
The MBA gives data on several types of mortgages: conventional prime, conventional subprime, FHA and VA. Each of these is further broken down by fixed and adjustable rate. Haver maintains these series in its specialized database MBAMTG and individual series are available on HaverSelect. The database includes seasonally adjusted data for the country as a whole and the four Census regions as well as not seasonally adjusted data for those areas plus the nine Census divisions, the 50 States, District of Columbia and Puerto Rico.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314e.jpg" width="353">
Delinquencies worsened for all major loan types. Conventional prime loans, which constitute 76.6% of the total market, had loan payments over due 30 days or more increase from 2.52% to 2.79% of the loans in that segment. Conventional subprime delinquencies rose from 12.95% to 14.27%. &quot;Conventional&quot; loans are those not insured by the federal government, such as FHA or VA. Conventional loans may be insured by private mortgage insurance or not insured at all. &quot;Subprime&quot; loans are those granted to borrowers with risky credit ratings or with excessively generous lending terms, such as loan-to-value ratios (&quot;LTV&quot;) near 100%, whereas &quot;prime&quot; mortgages typically see LTVs below 80% and average or higher credit quality in the borrower.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314f.jpg" width="353">
Delinquencies on FHA-backed loans affected 14.43% of those loans and foreclosures were initiated on 0.96%. VA-insured loans had a delinquency rate of 7.43% and a foreclosure rate of 0.36%.
There are very large differences in delinquency experiences among the regions of the country. The Northeast had 4.58% of its loans past due in December, near the national average. But the Midwest and the South were both at about 5.7% and the West at 3.18%. So credit quality varies considerably around the nation. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mortgage Delinquencies (SA, %)</th>
<th scope="col">Q4 2006</th>
<th scope="col">Q3 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Loans Past Due</td>
<td>4.95</td>
<td>4.67</td>
<td>4.70</td>
<td>4.61</td>
<td>4.45</td>
<td>4.48</td>
<td>5.11</td>
</tr>
<tr>
<td class="firstcol">Foreclosures Started</td>
<td>0.54</td>
<td>0.46</td>
<td>0.42</td>
<td>1.86</td>
<td>1.63</td>
<td>1.73</td>
<td>1.80</td>
</tr>
<tr class="odd">
<td class="firstcol">Conventional Prime Loan Delinquencies</td>
<td>2.57</td>
<td>2.44</td>
<td>2.47</td>
<td>2.39</td>
<td>2.29</td>
<td>2.30</td>
<td>2.67</td>
</tr>
<tr>
<td class="firstcol">Conventional Subprime Loan Delinquencies</td>
<td>13.33</td>
<td>12.56</td>
<td>11.63</td>
<td>12.27</td>
<td>10.84</td>
<td>10.80</td>
<td>14.04</td>
</tr>
</tbody>
</table>
</body>
</html>

U.S. Current Account Deficit Shrinks

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070313c.jpg" width="353">
The ZEW Indicator of Economic Sentiment for Germany, which assesses the outlook in the next six months, based on the opinions of investors and analysts, rose 2.9 points in March to 5.8%. While the current level is a substantial improvement over the pessimism reached last November when pessimists exceeded optimists by 28.5%, it is well below the long term average of 33.2%. On the other hand, the fact that the participants became more positive during a survey period which included a sharp down turn in world stock markets and only a partial recovery, was in itself a pleasant surprise. Many observers had expected the indicator to decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070313d.jpg" width="353">
The assessment of current conditions declined slightly to 69.2% from 70.9%, the first decline since June 2005. The indicators for the outlook and current conditions are shown in the first chart.
The ZEW Financial Markets Survey also asks its participants to report on the outlook and current conditions in the entire Euro Area. The assessment of the outlook for the entire Euro Area declined in March 5.1% from 6.8% in February and the appraisal of current conditions rose marginally from 66.7% in February to 66.9% in March. The indicators of current conditions and the outlook for the Euro Area are shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070313e.jpg" width="353">
The indicators for the Euro Area, of course, include those for Germany, but the differences between the indicators of the Euro Area and those of Germany can shed some light on the performance of Germany relative to the rest of the Euro Area. From the appraisal of current conditions in the total area and in Germany, we can infer that the participants had rated conditions in the Euro Area outside of Germany higher than those in Germany until November, 2006. Since then, the appraisal of current conditions in Germany has been higher than that for the whole region, as can be seen in the third chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070313f.jpg" width="353"> Similar inferences can be derived from the appraisals of the outlook in the two series. The outlook for Germany was less positive than that for the whole area indicator until about mid 2005 when it became more positive than the whole area indicator. It remained more positive from then until June 2006. After that until this March of this year, the German outlook for the German economy appeared to be much less positive than that for the Euro Area as a whole. The divergence may have been due, in part perhaps, to the prospect of the January 1, 2007 increase in Germany&#39;s VAT. Since the effects of the higher VAT appear to have been less onerous than expected, optimism in the German outlook has has become modestly more positive relative to the whole area, as can be seen in the fourth 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">ZEW INDICATORS&nbsp; (% Balance)</th>
<th scope="col">Mar&nbsp; 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar&nbsp; 05</th>
<th scope="col">M/M&nbsp; DIF</th>
<th scope="col">Y/Y&nbsp;&nbsp; DIF</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">Germany</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Current Conditions</td>
<td>69.2</td>
<td>70.9</td>
<td>-8.4</td>
<td>-1.7</td>
<td>77.6</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Expectations 6 Months Ahead</td>
<td>5.8</td>
<td>2.9</td>
<td>63.4</td>
<td>2.9</td>
<td>-47.6</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
</tr>
<tr>
<td class="firstcol"> Eurostat </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Current Conditions</td>
<td>66.9</td>
<td>66.7</td>
<td>2.0</td>
<td>0.2</td>
<td>64.9</td>
<td>23.8</td>
<td>-28.7</td>
<td>-41.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expectations 6 Months Ahead</td>
<td>5.1</td>
<td>6.8</td>
<td>61.1</td>
<td>-1.7</td>
<td>-56.0</td>
<td>26.6</td>
<td>32.3</td>
<td>52.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The ZEW Indicator of Economic Sentiment for Germany, which assesses the outlook in the next six months, based on the opinions of investors and analysts, rose 2.9 points in March to 5.8%. While the current level is a substantial [...]

German Financial Types Become a Little More Positive on the German Outlook, and a Little Less So for the Euro Area [...]

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

Our global data offering is unparalleled in terms of coverage, quality, and organization. We offer 290+ databases from 2500 government and private sources, a wealth of key survey and forecast data covering the world’s economies, and a robust offering of archive databases that drive machine learning for big data applications.

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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.

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

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

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

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Charts of the Week: Between Relief and Reality

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Europe

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.