Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102f.jpg" width="353">
Non-farm labor productivity last quarter was unchanged from 2Q and the figure fell short of Consensus expectations for a 1.3% rise. While the q/q change was disappointing, similar weakness just last year was followed by recovery. This year, however, the y/y increase dropped to 1.3% as a result of the decline, the weakest since 1997.
The weakness fueled the growth in unit labor costs. A 3.8% gain lifted the y/y increase in costs to 5.3%, the strongest since 1990. During the last thirty years there has been an 85% correlation between labor cost growth the growth in the GDP chain price deflator, although that correlation has fallen sharply in recent years.
Compensation grew a much diminished 3.7, but here again the y/y growth remained elevated near 7%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102g.jpg" width="353">
Factory sector productivity growth remained quite firm last quarter at 5.9% (4.3% y/y. Growth in factory sector compensation per hour slowed to 2.9% (5.1% y/y) from 4.0% during 2Q and 13.3% during 1Q and that fostered a decline in unit labor costs. The 2.9% (+0.8% y/y) decline was the first this year.
Freedom, Trade, and Growth from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20061101/cover.pdf"> here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q&#39; 06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>0.0%</td>
<td>1.2%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.7%</td>
<td>6.6%</td>
<td>6.7%</td>
<td>4.4%</td>
<td>3.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>3.8%</td>
<td>5.4%</td>
<td>5.3%</td>
<td>2.0%</td>
<td>0.6%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>
</body>
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Non-farm labor productivity last quarter was unchanged from 2Q and the figure fell short of Consensus expectations for a 1.3% rise. While the q/q change was disappointing, similar weakness just last year was followed by recovery. This [...]

U.S. Productivity Unchanged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102a.jpg" width="353">
Initial claims for unemployment insurance jumped 18,000 last week to 327,000 from a little revised level during the prior period. Consensus expectations had been for 310,000 claims during the latest week.
There apparently were no special factors to explain the increase but it occurred after the period, which includes the twelfth of the month, when the nonfarm payrolls survey occurs. Therefore Consensus estimates of a 125,000 rise in October jobs, to be released tomorrow, should not change.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102b.jpg" width="353">
The four-week moving average of initial claims rose to 311,250 (-8.2% y/y).
Continuing claims for unemployment insurance fell 27,000 following a revised 4,000 decline the prior week that initially was reported as a slight increase.
The insured rate of unemployment revisited the six year low at 1.8% after being steady most of 2006 at 1.9%.
Are Two Employment Surveys Better than One? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20061101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/28/06</th>
<th scope="col">10/21/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>327</td>
<td>309</td>
<td>1.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,415</td>
<td>-12.2%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance jumped 18,000 last week to 327,000 from a little revised level during the prior period. Consensus expectations had been for 310,000 claims during the latest week. There apparently were no [...]

Initial Claims for Unemployment Insurance Jumped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102c.jpg" width="353">
In October, a 2.8% decline in U.S. sales of light vehicles to 16.16M units retraced most of the prior month&#39;s 3.5% increase, according to the Autodata Corporation. During the first ten months of 2006 vehicle sales averaged 16.58M units, down 2.7% from the comparable period during 2005. Consensus estimates had been for 16.2M sales during October
Light truck sales fell 1.8% last month following a 7.5% September gain. That pulled the average of light truck sales year to date down 6.2% versus the first ten months of last year.
Sales of the relatively fuel efficient imported light trucks were again strong and rose 10.7% (38.5% y/y) after a 14.4% September jump. Year to date sales of imported light trucks are 12.4% higher than the first ten months of 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102d.jpg" width="353">
Domestic light truck sales fell 4.1% (+13.4% y/y) during October, the y/y comparison still favorable due to a slump last October after the end of a sales promotion. During the first ten months of this year domestic light truck sales fell 9.0% from the first ten months of 2005 to an average of 7.46M units (85% of the U.S. market).
Auto sales fell 4.0%, the third sequential m/m drop. Domestic car sales slumped 4.7% (-2.1% y/y) but year to date sales of U.S. nameplates were down a modest 1.3% versus 2005. Sales of imported autos also fell 2.6% (+6.0% y/y) and year to date sales of imported autos were up 8.9% versus 2005 and grabbed 31% of the U.S. car market. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102e.jpg" width="353">
U.S. car &amp; truck production, a figure in Haver&#39;s USECON database, fell 9.9% (-16.3% y/y) during October. Year to date production was off 5.2% from 2005. For all of last year production was about steady with 2004.
Economy on cruise control through 2007 from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflaugust2006_229a.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.16</td>
<td>16.63</td>
<td>8.9%</td>
<td>16.96</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.32</td>
<td>7.63</td>
<td>0.4%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.84</td>
<td>9.00</td>
<td>17.2%</td>
<td>9.32</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
</body>
</html>

In October, a 2.8% decline in U.S. sales of light vehicles to 16.16M units retraced most of the prior month's 3.5% increase, according to the Autodata Corporation. During the first ten months of 2006 vehicle sales averaged 16.58M [...]

U.S. Vehicle Sales Retraced Earlier Increase

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102c.jpg" width="353">
In October, a 2.8% decline in U.S. sales of light vehicles to 16.16M units retraced most of the prior month&#39;s 3.5% increase, according to the Autodata Corporation. During the first ten months of 2006 vehicle sales averaged 16.58M units, down 2.7% from the comparable period during 2005. Consensus estimates had been for 16.2M sales during October
Light truck sales fell 1.8% last month following a 7.5% September gain. That pulled the average of light truck sales year to date down 6.2% versus the first ten months of last year.
Sales of the relatively fuel efficient imported light trucks were again strong and rose 10.7% (38.5% y/y) after a 14.4% September jump. Year to date sales of imported light trucks are 12.4% higher than the first ten months of 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102d.jpg" width="353">
Domestic light truck sales fell 4.1% (+13.4% y/y) during October, the y/y comparison still favorable due to a slump last October after the end of a sales promotion. During the first ten months of this year domestic light truck sales fell 9.0% from the first ten months of 2005 to an average of 7.46M units (85% of the U.S. market).
Auto sales fell 4.0%, the third sequential m/m drop. Domestic car sales slumped 4.7% (-2.1% y/y) but year to date sales of U.S. nameplates were down a modest 1.3% versus 2005. Sales of imported autos also fell 2.6% (+6.0% y/y) and year to date sales of imported autos were up 8.9% versus 2005 and grabbed 31% of the U.S. car market. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102e.jpg" width="353">
U.S. car &amp; truck production, a figure in Haver&#39;s USECON database, fell 9.9% (-16.3% y/y) during October. Year to date production was off 5.2% from 2005. For all of last year production was about steady with 2004.
Economy on cruise control through 2007 from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflaugust2006_229a.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.16</td>
<td>16.63</td>
<td>8.9%</td>
<td>16.96</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.32</td>
<td>7.63</td>
<td>0.4%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.84</td>
<td>9.00</td>
<td>17.2%</td>
<td>9.32</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
Initial Claims for Unemployment Insurance Jumped 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102a.jpg" width="353">
Initial claims for unemployment insurance jumped 18,000 last week to 327,000 from a little revised level during the prior period. Consensus expectations had been for 310,000 claims during the latest week.
There apparently were no special factors to explain the increase but it occurred after the period, which includes the twelfth of the month, when the nonfarm payrolls survey occurs. Therefore Consensus estimates of a 125,000 rise in October jobs, to be released tomorrow, should not change.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102b.jpg" width="353">
The four-week moving average of initial claims rose to 311,250 (-8.2% y/y).
Continuing claims for unemployment insurance fell 27,000 following a revised 4,000 decline the prior week that initially was reported as a slight increase.
The insured rate of unemployment revisited the six year low at 1.8% after being steady most of 2006 at 1.9%.
Are Two Employment Surveys Better than One? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20061101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/28/06</th>
<th scope="col">10/21/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>327</td>
<td>309</td>
<td>1.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,415</td>
<td>-12.2%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
U.S. Productivity Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102f.jpg" width="353">
Non-farm labor productivity last quarter was unchanged from 2Q and the figure fell short of Consensus expectations for a 1.3% rise. While the q/q change was disappointing, similar weakness just last year was followed by recovery. This year, however, the y/y increase dropped to 1.3% as a result of the decline, the weakest since 1997.
The weakness fueled the growth in unit labor costs. A 3.8% gain lifted the y/y increase in costs to 5.3%, the strongest since 1990. During the last thirty years there has been an 85% correlation between labor cost growth the growth in the GDP chain price deflator, although that correlation has fallen sharply in recent years.
Compensation grew a much diminished 3.7, but here again the y/y growth remained elevated near 7%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102g.jpg" width="353">
Factory sector productivity growth remained quite firm last quarter at 5.9% (4.3% y/y. Growth in factory sector compensation per hour slowed to 2.9% (5.1% y/y) from 4.0% during 2Q and 13.3% during 1Q and that fostered a decline in unit labor costs. The 2.9% (+0.8% y/y) decline was the first this year.
Freedom, Trade, and Growth from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20061101/cover.pdf"> here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q&#39; 06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>0.0%</td>
<td>1.2%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.7%</td>
<td>6.6%</td>
<td>6.7%</td>
<td>4.4%</td>
<td>3.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>3.8%</td>
<td>5.4%</td>
<td>5.3%</td>
<td>2.0%</td>
<td>0.6%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>
U.S. Factory Inventory Accumulation Continued 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102h.jpg" width="353">
Factory inventories rose 0.6% last month. That matched the gain during July, which was upwardly revised, and it pulled the y/y change up to 7.4%, the fastest since early 2005.
Though petroleum inventories have fallen in recent months, higher prices have lifted the y/y gain to 15.7%. Despite this distortion, factory inventories less petroleum grew 7.0% y/y in September, the fastest since 2005.
Primary metals inventories rose another, firm 2.8% (16.3% y/y). Inventories of computers &amp; electronic products actually fell slightly (9.3% y/y) after a strong 1.5% August increase and inventories of electrical equipment fell 0.3% (+11.6% y/y) after near 2% jumps during each of the prior three months. Machinery inventories spiked 1.4% (6.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102i.jpg" width="353">
Total factory orders recovered a strong 2.1% after an August dip. That strength reflected an 8.3% pop in durable goods orders which was little revised from the advance report and reflected higher aircraft orders. Factory orders less transportation fell 2.4% (+3.0% y/y), the weakness reflecting a 4.6% decline in nondurables and a 14.8% drop in petroleum.
Factory shipments fell 3.5% due to the drop in petroleum. Transportation shipments also collapsed 4.5% due to a 7.3% drop in autos. Still, factory shipments less transportation &amp; petroleum fell 2.0% (+5.0% y/y) due to across the board declines.
Unfilled orders surged 3.9% due to the jump in civilian aircraft. Less the transportation sector altogether backlogs rose 1.2% (13.1% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.6%</td>
<td>0.6%</td>
<td>7.4%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.1%</td>
<td>-0.3%</td>
<td>7.7%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-3.5%</td>
<td>0.8%</td>
<td>2.4%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>3.9%</td>
<td>0.5%</td>
<td>22.0%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
German Labor Markets Show More Distinct Gain 
by <a href="/comment/Stone.html">Carol Stone</a> November 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102j.jpg" width="353">
German labor market data for September and October were reported today. We last checked in with these data at the end of June. The most notable factor then was an increase in job vacancies, and we wondered if they would translate into actual jobs. This may have happened -- at least to some extent.
Total employment in September was 39.17 million, up 24,000 from August and 334,000 or 0.9% from September 2005. It has risen for seven consecutive months (seasonally adjusted), and marks the longest such span since 1999/2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102k.jpg" width="353">
Moreover, the number of job vacancies has continued to rise. In October employers reported opportunities for 662,000 workers, and increase of 45,000 from September and 179,000 from a year ago. This increase in vacancies, when filled, would add about 0.5% to total employment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102l.jpg" width="353">
The unemployment situation is mixed and depends on what measure one looks at. The harmonized &quot;ILO&quot; unemployment rate was 8.3% in September, steady with August, but up from a recent low of 7.9% in April. Germans prefer their own measure of &quot;registered&quot; unemployment rate, and it has declined, dipping to 10.4% in October, the lowest since April 2004. Among labor force groups, all sectors of the population have seen some year-on-year improvement in recent months (the individual categories are not seasonally adjusted, necessitating comparisons with like periods of prior years) and the rate for men in particular has reached down to 9.1%, the lowest since October 2001. Thus, job opportunities are increasing in Germany, and with a record number of vacancies shown in this report, that may yield more workers in the months ahead.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D5/@D5.HTM">Germany: Seas Adj, ex as noted</a></th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">LFS Employment (mil)</td>
<td>--</td>
<td>39.17</td>
<td>39.14</td>
<td>38.84</td>
<td>38.82</td>
<td>38.87</td>
<td>38.72</td>
</tr>
<tr>
<td class="firstcol">Change (thous)</td>
<td>--</td>
<td>+24</td>
<td>+34</td>
<td>+334</td>
<td>-53</td>
<td>+150</td>
<td>-370</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Chg NSA</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>+0.9</td>
<td>-0.1</td>
<td>+0.4</td>
<td>-0.9</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%, ILO Def.)</td>
<td>--</td>
<td>8.3</td>
<td>8.3</td>
<td>8.0</td>
<td>7.1</td>
<td>9.1</td>
<td>9.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Registered Unemployment Rate (%)</td>
<td>10.4</td>
<td>10.6</td>
<td>10.6</td>
<td>11.6</td>
<td>11.7</td>
<td>10.6</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Job Vacancies (thous)</td>
<td>662</td>
<td>617</td>
<td>589</td>
<td>483</td>
<td>488</td>
<td>278</td>
<td>318</td>
</tr>
</tbody>
</table>
</body>
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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/061101h.jpg" width="353">
Purchasing Managers surveys for a number of large countries indicate a modest slowing of manufacturing growth through October. Changes from September are not big, but most are in the same direction and the overall indexes are reinforced by moves in the key new orders component.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101i.jpg" width="353">
In China, the total index is down 0.3 point, and at 52.15, indicates growth is still spread across a good portion of reporting companies, although it is not broadening. New orders remain firm, although down fractionally from September. More notable is a slowing of outstanding orders -- backlogs -- to 49.78, just below the 50% threshold of expansion. In light of continuing growth in new orders, the decline in backlogs may only reflect strengthening productivity, but even so, it does appear that overall momentum is waning.
Russia&#39;s manufacturing sector actually appears stronger, although the latest months have diminished more than in China. Overall activity, according to the Purchasing Manager measure, had a reading last month of 53.05, down 1.65 points from September. New orders, which run consistently higher than the composite index, slipped 2.5 points to 56.82. In August both of these reached their highest levels since 1999. So the easing in September and October may only be a correction. Backlogs in Russian factories have actually strengthened since early 2005 along with the good gains in new orders. But they too corrected in October back below 50%. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101j.jpg" width="353">
The Indian economy&#39;s service sector has received more publicity in recent years, but its manufacturing industries are experiencing broad expansion as well. The overall PMI was 59.30 in October, up from September&#39;s 59.00 reading. These data are very new, beginning only in April of last year. But certainly their behavior is internally consistent. Strong new orders, evident in the graph, are pulling up backlogs, which rose 0.63 point in October to 52.68, their highest level. So momentum in Indian manufacturing looks quite vigorous.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101k.jpg" width="353">
In the long-established UK manufacturing sector, the overall index eased 0.78 point to a still firm level of 53.73, as industry there continues a year of good expansion. However, what we see in the last graph is that output is gaining as fast as new orders, so that backlogs look weak. This suggests that while overall growth is good now, it is vulnerable to any orders slowdown going forward.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PMI Indexes, SA</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">China</td>
<td>52.15</td>
<td>52.45</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>53.02</td>
<td>53.39</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Backlogs</td>
<td>49.78</td>
<td>50.56</td>
</tr>
<tr>
<td class="firstcol">Russia</td>
<td>53.05</td>
<td>54.70</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>56.82</td>
<td>59.34</td>
</tr>
<tr>
<td class="firstcol">India</td>
<td>59.30</td>
<td>59.00</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>66.29</td>
<td>65.17</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>53.73</td>
<td>54.51</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>54.72</td>
<td>55.00</td>
</tr>
<tr>
<td class="firstcol">Memo: US</td>
<td>51.2</td>
<td>52.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>52.1</td>
<td>54.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Purchasing Managers surveys for a number of large countries indicate a modest slowing of manufacturing growth through October. Changes from September are not big, but most are in the same direction and the overall indexes are [...]

PMI Surveys Hint at Slower Growth in Several Countries

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101f.jpg" width="353">
The value of construction put in place fell 0.3% during September after a slight decline the prior month which was downwardly revised. Consensus expectations had been for a 0.1% gain and it was the third decline in three months.
Residential building dropped another sharp 1.1%, the sixth decline in as many months. New single family building fell an even harder 2.5% (-12.8% y/y) however spending on improvements rose 1.0%% (2.8% y/y) and recovered after two months of little change.
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
Slowdown in Housing Won&#146;t Shut Down Economic Growth from the Federal Reserve Bank of St. Louis can be found <a href="http://stlouisfed.org/publications/re/2006/c/pages/pres_message.html"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101g.jpg" width="353">
Nonresidential building inched up 0.1% after a little revised 3.1% surge during August. Lodging jumped 2.8% (61.7% y/y) and office construction tacked on another 0.8% (28.0% y/y) to earlier monthly gains which ranged between two and eight percent. Multi-retail building boomed another 2.2% (44.8% y/y) though building by the factory sector slipped 0.6% (+22.2% y/y) after a 7.9% surge the prior month.
Public construction spending rose 0.9% but a previously reported 1.1% August increase was revised to just 0.3%. The 1.7% (+13.2% y/y) monthly decline in construction activity on highways &amp; streets, nearly one third of the value of public construction spending, was the fourth in a row.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.
The great turn-of-the-century housing boom from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_3qtr2006_part3_fisher_quayyum.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.3%</td>
<td>-0.0%</td>
<td>2.9%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.6%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.1%</td>
<td>-1.6%</td>
<td>-6.9%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.1%</td>
<td>3.1%</td>
<td>19.2%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.9%</td>
<td>0.3%</td>
<td>11.6%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place fell 0.3% during September after a slight decline the prior month which was downwardly revised. Consensus expectations had been for a 0.1% gain and it was the third decline in three months. [...]

U.S. Construction Spending Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101e.jpg" width="353">
The total number of mortgage applications fell a hard 3.0% last week and pulled the average number of applications down 0.6% during October, according to the Mortgage Bankers Association. That was the first m/m decline in total applications and followed a 5.6% increase during September.
Applications to refinance skidded 4.5% after a moderate rise the prior week but rose 3.5% for the month from September..
Purchase applications also fell. The 1.8% decline was the fifth in the last seven weeks and lowered the average level of purchase apps in October 3.6% below September which rose 3.2% from August.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales. sharp increases late last month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell eleven basis points to 6.46%, the lowest level in about a month. The peak for 30 year financing was 7.08% late in June. The rate for 15-year financing also fell ten points to 6.19% versus 6.20% averaged during September and 6.24% averaged last month. The peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
The latest release from the Mortgage Bankers Association indicated that 4.4% of mortgage loans were past due during the second quarter of this year, down sharply from the 4.7% past due at the end of 2005. Foreclosure had been started, however, on an increased 4.43% of loans versus 4.36% at the 2003 low.
Homeownership in a High-Cost Region from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/fall/homeownerships.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">10/27/06</th>
<th scope="col">10/20/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>570.8</td>
<td>588.5</td>
<td>-11.7%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>375.6</td>
<td>382.4</td>
<td>-14.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,709.2</td>
<td>1,790.4</td>
<td>-8.2%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications fell a hard 3.0% last week and pulled the average number of applications down 0.6% during October, according to the Mortgage Bankers Association. That was the first m/m decline in total [...]

Mortgage Applications Fell Hard

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101b.jpg" width="353">
The Institute for Supply Management reported that last month&#39;s composite index of manufacturing sector activity fell to 51.2 from 52.9 during September. The decline was the fifth in the last six months and was to the lowest level since July 2003. Consensus expectations had been for stability at 53.0.
During the last ten years there has been a 67% correlation between the level of the ISM index and three month growth in factory sector industrial production.
The price index, which is not included in the composite, collapsed to 47.0. The reading was the first below 50 in over one year and reflected just 18% of respondents reporting higher prices, 58% with prices unchanged and 24% indicating lower prices.
During the last ten years there has been an 89% correlation between the level of the price index and the three month change in the PPI for intermediate goods less food &amp; energy.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101c.jpg" width="353">
A lower new orders (52.1) and a lower production (51.9) component led the composite index down. In addition, the vendor performance measure fell to 50.2, indicating the quickest delivery speeds since July 2003. The inventories index rose to a low 49.2.
The new export orders index at 57.8 improved to its highest level January. The series peak was in early 2004 near 60. During the last ten years there has been a 69% correlation between the level of the export order index and the q/q growth in goods exports from the GDP accounts. The imports index rose slightly.
Employment also improved, marginally, to a barely break-even 50.8. During the last ten years there has been a 77% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
U.S. Maneuvers Through Choppy Waters from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2006/c/pages/choppy_waters.html"> here</a>.
The Yield Curve as a Leading Indicator: Some Practical Issues from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-5.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Oct. &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>51.2</td>
<td>52.9</td>
<td>58.1</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>47.0</td>
<td>61.0</td>
<td>84.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The Institute for Supply Management reported that last month's composite index of manufacturing sector activity fell to 51.2 from 52.9 during September. The decline was the fifth in the last six months and was to the lowest level [...]

ISM Composite Index Fell, Price Index Below 50

Surging orders for computers and electronics propelling durable goods orders

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

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Winnie Tapasanun

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The U.S. international trade deficit in goods ballooned to a larger-than-expected $105.75 billion in May after narrowing to $83.01 billion in April, according to the advance estimate from the U.S. Census Bureau. The May reading marked the third widening in the goods trade deficit in four months, exceeding a $91.55 billion shortfall in May 2025. A deficit of $84.0 billion for May had been expected by the Action Economics Forecast Survey. The deficit reached a low of $61.44 billion in October 2025 (the smallest since February 2020) and a record high of $158.73 billion in March 2025. On a quarterly basis, the deficit averaged $94.38 billion so far in Q2'26 versus $81.96 billion in Q1'26.

Total goods exports fell 5.4% m/m (+14.7% y/y) to $207.67 billion in May, the first monthly fall since December and a three-month low, following a 3.8% rise to a record-high $219.52 billion in April. Exports were up 27.7% from a June 2023 low. The m/m fall in exports in May reflected declines of 9.2% (-5.0% y/y) in nonfood consumer goods excluding autos, 7.0% (+23.2% y/y) in industrial supplies & materials, 6.8% (+19.5% y/y) in other goods, and 5.0% (+14.8% y/y) in capital goods excluding autos. To the upside, exports of foods, feeds & beverages (+3.9%; +19.1% y/y) and automotive vehicles & parts (+0.5%; -3.6% y/y) rebounded m/m in May.

Total goods imports, up for the fourth consecutive month, rose 3.6% m/m (15.0% y/y) to $313.43 billion in May, after a 2.0% increase to $302.53 billion in April, marking the highest level since the March 2025 record high of $340.11 billion. Imports were up 25.0% from a March 2023 low. The m/m rise in imports in May was broad-based across all end-use categories, led by an 11.5% gain (22.0% y/y) in other goods, followed by increases of 6.3% (1.4% y/y) in automotive vehicles & parts, 5.7% (-9.1% y/y) in nonfood consumer goods excluding autos, 4.8% (11.7% y/y) in industrial supplies & materials, 4.3% (-0.2% y/y) in foods, feeds & beverages, and 0.4% (41.9% y/y) in capital goods excluding autos. 

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Deficit: $105.75 bil. in May, up $22.75 bil. (+27.4%) from April’s $83.01 bil.
- Exports -5.4%, first m/m decline since Dec., led by a 9.2% drop in nonauto consumer goods exports.
- Imports +3.6%, fourth straight m/m rise to highest level since Mar. ’25, driven by an 11.5% gain in imports of other goods.

U.S. Goods Trade Deficit Balloons in May, Largest Since March ’25

Robert Brusca

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In June, there's a slight divergence in the performance of industry climate and service sector climate, although broadly the two sectors have seen their composite indexes moving in more or less the same direction. Since 2024, the industry survey has moved up slightly after falling faster than the services gauge. The services survey has been locked in a slow trend of deterioration, largely since it reached a peak in 2021 in the wake of COVID.

The industry climate gauge has a 30.8 percentile standing, but the recent production trend, while declining, logs a more substantial 42.8 percentile standing. Contributing survey members find their own industry ‘likely trend’ much weaker, at a 21.2 percentile standing. Demand overall, however, has standings above the 50th percentile, putting overall and foreign orders & demand each above their respective medians for this period of ranking back to 2001. Inventories have a strong 81-percentile ranking. Prices are extremely strong, with 87-percentile and 86-percentile standings for respondents for their personal industry trend for prices as well as for the overarching manufacturing sector estimate of prices. Higher prices seem to be the one thing that everyone can agree on by a large margin.

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As for services, the service climate index improved slightly to 93.4 in June from 92.6 in May. The three-month moving average was weaker in June than in May as well; the 12-month moving average has been stuck at its current level for a number of months. The outlook in June improved slightly to a reading of -12 from -15 in May, but the outlook ranking is still a weak 26.8 percentile standing. The three-month expectations and observations of past sales trends haven't changed much in the last two months, but there has been a slight improvement for sales expectations. However, both sales metrics have low 20th percentile standings. Sales prices have deteriorated slightly in June compared to May for both the observed and the expected trends, but prices have standings above their 50th percentiles, logging above-median performance. Employment over the last three months has weakened noticeably, and expected employment is weaker by a small amount.

In terms of rankings, all of the sector rankings are below the 50th percentile on all of these observations, including the climate headline except for sales prices where both the past three-month observed trend and the expected trend have readings above their respective 50th percentiles, indicating past and expected price pressures in excess of normal.

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**Assessment**
On balance, the readings for the French industry, manufacturing sector and services are not encouraging. In addition, concerns about prices linger. The services sector, those concerns seem moderate compared to the concerns in manufacturing.

The hot war continues between Ukraine and Russia, while in the Middle East there was talk of some improvement and a potential peace deal between the United States and Iran, but every time there is some talk of a breakthrough, there appears to be a breakdown. In the most recent development, Iran has asserted its right to control traffic through the Strait of Hormuz, and it's not clear how that demand would ever be consistent with the U.S. allowing a ceasefire. It appears that Iran may have traded its irreconcilable demand for nuclear weapons for a more pragmatic and real-world argument—that it will control the traffic through the Strait of Hormuz simply because it can—and it still is doing exactly that, even after all the destruction it suffered.

Stopping Iran from controlling the Strait would take a commitment to restart the war. All this makes me personally more pessimistic. I think Iran sees the need for Trump to cut a deal and stop the war before the U.S. mid-term elections, and it is pressing that need to its advantage. Trading its nuclear ambitions for real world control of the Strait would elevate Iran’s power from being dangerous but ethereal to a real world event with constant consequences.

France

French Industry and Services Confidence Diverge in June

Andrew Cates

**Equity Momentum and Global Surprises — Still Moving Together**
One of the more telling features of global equity markets in 2026 has been the persistence of the correlation between non-US equity momentum and global growth and inflation surprise indices. Equity markets outside the United States have generally prospered when economic data have beaten consensus expectations and when inflation surprises have been negative  — a combination that has historically been associated with stronger corporate earnings and a more benign policy backdrop in economies other than the US. That correlation has held reasonably well through the turbulence of the past few months, even as the Middle East conflict introduced significant noise into both the economic data and the financial market signal. What the chart reveals this week is a picture of moderate but not alarming deterioration: global growth surprises have softened at the margin, consistent with the energy cost headwinds that have weighed on European and Asian activity, but the relationship between equity momentum and the broader data pulse remains intact. It is a signal that market participants continue to track economic fundamentals rather than purely geopolitical newsflow — a modestly reassuring sign that the underlying framework for assessing the global cycle has not broken down.

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**The Fed Decouples: Why Oil and US Two-Year Yields Have Parted Ways**
For much of 2026, oil prices and US two-year Treasury yields moved in close alignment. The logic was straightforward: higher oil prices raised inflation expectations, which in turn pushed market participants to anticipate a more hawkish Federal Reserve, lifting short-dated yields in the process. That relationship held with notable consistency through the March escalation and the months that followed, as energy market shocks and monetary policy expectations fed off each other. What this week’s chart captures is a striking breakdown in that correlation. As oil prices have fallen on the back of the US-Iran memorandum of understanding and the associated unwinding of the geopolitical risk premium, US two-year yields have not followed them lower. The reason is last week’s Federal Reserve meeting. Under new chair Kevin Warsh, the Fed delivered a hawkish dot plot that shifted the median year-end projection to a hike, making clear that the easing cycle previously priced by some market participants is no longer the central scenario. The message is important: the deflationary impulse from lower oil prices is being offset — at least in the Fed’s framing — by persistent underlying inflation pressures and a commitment to keeping policy tight.

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**Flash PMIs Signal Easing Supply Chain Stress and Softer Price Pressures**
June’s flash PMI surveys, released this week across the major advanced economies, provide a timely read on how the global manufacturing and services sectors are absorbing the shifting macro backdrop. Two findings stand out. First, supplier delivery times have improved (or not lengthened as much as they had in the prior two months). This finding coheres naturally with the broader narrative: lower oil prices reduce transport and energy input costs, while the resumption of Strait of Hormuz shipping flows — examined in more detail in chart 4 — is beginning to reduce the freight disruption and re-routing costs that had been building since the conflict escalated. Second, output price inflation in manufacturing has softened, suggesting that some of the pipeline pressure from earlier energy cost spikes is beginning to fade.

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**Hormuz Traffic and Oil: A Coherent Story of Tentative Normalisation**
The recent US-Iran memorandum of understanding to work towards a final deal, though not without subsequent flare-ups, has already brought relief to markets, most visibly in crude oil prices. This should go a long way towards unwinding the inflation-related concerns that previously elevated oil prices had stoked. While the pullback has owed much to anticipation of the glut of pent-up supply expected to follow, certain trackers of shipping volume through the Strait of Hormuz, such as the IMF’s, already point to a marked pickup in traffic, even if it remains well below pre-conflict levels. Should this normalisation of shipping flows persist, it would lend continued justification to a corresponding easing in oil prices, energy-related inflation and, by extension, headline inflation — a welcome development for central banks grappling with the delicate balancing act of reining in price pressures without dampening growth too sharply.

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**South Korea’s Trade Data Flag a Modest Softening in Global Demand**
South Korea’s trade data serve as one of the global economy’s most useful early warning systems. As one of the world’s most open economies, with exports spanning semiconductors, petrochemicals, steel, automobiles and consumer electronics, South Korea’s monthly trade figures provide a timely and broad-based read on the state of global demand. This week’s data show a slightly softer picture than the strong prints that characterised much of the first quarter. Headline export growth has moderated at the margin, and crucially, semiconductor exports — which had been the most dynamic component of the trade data, propelled by AI-related chip demand — have also come in a touch below the exceptional run rates seen earlier in the year. This is not, in itself, alarming: some moderation from peak rates was always to be expected, and the semiconductor cycle remains structurally supported by the scale of AI infrastructure investment globally.

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**A Super El Niño on the Horizon — The Next Inflation Risk**
With that said, while one driver of price pressures seems to be ebbing for now — albeit not without the risk of future flare-ups — another potential inflationary risk looms on the horizon. The chart illustrates the transmission mechanism. It plots Thailand’s milled rice production (left axis) against Australia’s Southern Oscillation Index (right axis), a well-established barometer of El Niño and La Niña conditions. The convention is straightforward: SOI readings persistently above +8 indicate La Niña, associated with above-average rainfall across Southeast Asia and broadly supportive crop conditions; readings persistently below -8 signal El Niño, which brings drought stress and reduced water availability across the region. The historical relationship is striking. The sharp negative SOI troughs around 2002–03, 2009–10 and most dramatically around 2015 all coincide with visible falls in Thai milled rice output. The severe El Niño of 2014–16 produced both the deepest SOI trough in the series and the sharpest single drop in rice production, to below 24,000 thousand tonnes. As meteorological authorities have been warning for some time, the world appears to be facing an imminent Super El Niño event, with the SOI already drifting back towards negative territory in recent months. Were a significant El Niño to materialise in the second half of this year, the implications for Thai rice output — and by extension for Asian food price inflation — could be substantial. Central bankers, in other words, may find themselves having to wrestle with a new inflationary impulse just as they had begun to hope the worst was behind them.

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The mood in global financial markets this week is more settled, though “settled” should not be confused with resolved. The US-Iran memorandum of understanding, signed last week, has continued to do its work: oil prices have fallen further, Strait of Hormuz shipping traffic has picked up measurably, and the risk premium that had been embedded in energy markets since the conflict escalated in March is now visibly unwinding. That is a material development for the inflation outlook, and central bankers will be watching carefully. Yet the picture is not without its complications. Technology stocks — the most conspicuous beneficiary of the prevailing low-rate, high-growth narrative — have been subject to renewed jitters this week, as investors grow more attentive to stretched valuations and the implications of a Federal Reserve that, under new chair Kevin Warsh, is no longer signalling the easing cycle previously priced into markets. Against this backdrop, this week’s charts draw on the latest data to assess where the global economic cycle stands. Equity momentum outside the United States has tracked closely with global growth and inflation surprises, a correlation that tells us something important about how activity is being perceived (chart 1). Meanwhile, the breakdown of the previously tight relationship between oil prices and US two-year yields is arguably one of the more telling market signals of recent weeks (chart 2). June’s flash PMI surveys point to easing supply chain stress and softer output price inflation in manufacturing — a finding that chimes naturally with lower crude prices and the resumption of Hormuz flows (chart 3). The Strait of Hormuz itself deserves a closer look: traffic data and the mechanics of the oil price pullback are telling a coherent story that supports the PMI picture (chart 4). South Korea’s trade data, including semiconductors, offer a slightly softer read on global demand momentum at the margin (chart 5). And looming on the horizon, one new risk is drawing the attention of meteorological authorities: a Super El Niño event whose probability has been rising, with potentially significant implications for food commodity prices and Asian agriculture (chart 6).

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Charts of the Week: Calmer Waters, New Currents

Michael J. Moran

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The price index for personal consumption expenditures rose 0.4% in May, although the measure almost rounded up to 0.5% (0.4498%). May marked the sixth consecutive month with headline prices increasing 0.3% or more. This series of changes has pulled the year-over-year inflation rate to 4.1%, up from 2.3% just over one year ago (April 2025). Energy prices, of course, have been the most important factor behind the acceleration in inflation, and they remained an issue in May, increasing 4.0% after advances of 3.9% and 11.6% in the prior two months. Food prices have moved erratically in the past year, with jumps and lulls leaving an average monthly increase of 0.2%. The noise was evident in recent months, with food prices increasing only 0.1% in May after a jump of 0.5% in April.

Core prices also have contributed to the pickup in inflation. After averaging monthly increases of 0.24% during 2025, core prices have increased at an average rate of 0.34% so far this year. The year-over-year increase in core inflation totaled 3.4% in May, up from a recent low of 2.6% in April of last year. Both the headline and core inflation rates are uncomfortably above the Federal Reserve’s target of 2.0%.

Total personal income rose briskly in May (0.7%). A surge in farm income played an important role (up 125% month-to-month, most likely reflecting government support payments), but nominal results also were firm elsewhere (up 0.5% ex farm income). Inflation reduced the purchasing power of this income gain, but aggregate income still advanced slightly in real terms (0.2%).

Given the recent surge in energy-driven inflation, May marked only the second monthly increase in real income so far this year. Tight budgets have dampened consumer spending, but individuals have not pulled to the sidelines. Real consumption expenditures rose 0.5% (annual rate) in the first quarter, and results for April and May suggest that real PCE is on track to increase 1.5% to 2.0% in the second quarter.

Households have managed to remain moderately active in their spending by limiting their saving. The saving rate has drifted lower since early 2024 moving to 3.0% in May (chart, below right). The erosion in saving perhaps seems reckless, but some of the reduction could be a response to the strength in the equity market, where wealth gains have possibly limited the incentive to save. Also, larger-than-normal tax refunds this year because of tax cuts in the One Big Beautiful Budget Act have allowed many households to spend actively despite modest increases in real income.

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

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- Energy prices rose sharply for the third consecutive month; core prices were unsettling as well.
- A jump in nominal income translated to a modest advance in real terms, allowing consumers to remain reasonably active.

Personal Income, Consumption, and Prices in May

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New orders for durable goods fell 4.5% m/m in May, the first monthly fall in three months, following an upwardly revised 8.5% gain in April (+7.9% initially reported on May 28) and a 1.3% increase in March (unrevised), according to today’s advance report by the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 4.4% m/m May decrease. The year-on-year rate decelerated to -3.5% in May from +17.7% in April (+20.0% in May 2025), marking the first negative reading since December 2024 (-4.5%). Excluding transportation, durable goods orders rose 1.3% (10.2% y/y) in May, the 13th consecutive m/m rise, after a 1.4% increase in April. Meanwhile, durable goods orders excluding defense dropped 4.6% (-5.0% y/y), down for the third time in four months, following an 8.4% April rebound.

The m/m fall in May durable goods orders was driven by a 51.8% m/m plunge in orders for nondefense aircraft & parts, following a 167.4% surge in April and a 23.0% slump in March. Orders for defense aircraft & parts rose 7.9% (63.5% y/y), the fourth successive m/m increase, after gains of 2.5% in April and 23.7% in March. Orders excluding aircraft climbed 1.0% (9.8% y/y), the six straight m/m rise and the 10th in 11 months, after a 1.3% April increase.

Durable goods orders for transportation dropped 14.0% (-22.1% y/y) in May, the first m/m decline since February, following a 22.4% gain in April. In addition to May’s m/m plunge in nondefense aircraft orders and increase in defense aircraft orders, motor vehicles & parts orders rose 1.1% (12.4% y/y), the sixth straight m/m rise, after a 0.7% April increase. Orders for primary metals advanced 3.0% (15.9% y/y), the largest of six successive m/m gains, after a 2.6% April rise. Machinery orders climbed 1.9% (14.0% y/y), up for the 13th straight month, on top of a 1.3% April rise. Orders for fabricated metal products grew 1.5% (11.2% y/y), the third m/m increase in four months, following a 4.1% April gain. Orders for all other durable goods rose 0.8% (3.2% y/y), the strongest of nine consecutive m/m increases, after a 0.1% April uptick. Orders for computers & electronic products rebounded 0.3% (13.3% y/y), the eighth m/m gain in nine months, following a 0.4% April decrease. Orders for electrical equipment, appliances & components recovered 0.3% (5.8% y/y), the second increase in three months, after a 0.2% April decline.

Capital goods orders fell 13.6% (-21.1% y/y) in May, the first m/m fall in three months and the deepest since June 2025, following a 22.2% jump in April. Nondefense capital goods orders dropped 15.7% (-26.4% y/y), the fifth m/m decrease in six months, after a 24.9% April rebound. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) rose 1.6% (10.5% y/y), the third m/m gain in four months, reversing a 0.7% April decline. Defense capital goods orders slid 3.4% (+14.4% y/y), the first m/m slide since January, after a 10.4% April gain. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 0.3% (7.6% y/y), the eighth m/m rise in nine months, after a 0.5% April increase.

Shipments of all manufactured goods climbed 1.6% (8.9% y/y) in May following a 1.3% gain in April. Durable goods shipments rose 1.0% (8.9% y/y) after a 0.7% April increase. Nondurable goods shipments advanced 2.2% (9.0% y/y), building on a 1.9% April gain. All three series posted the sixth consecutive m/m increase.

Unfilled orders of durable goods rose 0.6% (8.5% y/y) in May, the 10th straight m/m rise, after a 1.8% gain in April. Excluding transportation, unfilled orders increased 0.9% (4.3% y/y), also up for the 10th consecutive month, following a 0.7% April rise.

Manufacturing inventories edged up 0.2% (1.9% y/y) in May, the seventh successive m/m gain, after a 0.3% rise in April. Durable goods inventories grew 0.2% (2.1% y/y), the eighth straight m/m increase, after rising 0.3% in April and March. Nondurable goods inventories, up for the fourth consecutive month, rose 0.3% (1.6% y/y), matching April's pace.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- May headline orders -4.5% m/m, first fall in three mths.; -3.5% y/y, first negative reading since Dec. ’24.
- Nondefense aircraft & parts -51.8% m/m vs. April’s +167.4%.
- Transportation orders -14.0%, first m/m drop since Feb.; orders ex transp. +1.3%, 13th straight m/m rise.
- Core capital goods shipments +0.3%, eighth gain in nine mths., pointing to a moderate contribution to Q2’26 GDP from business equipt. spending.
- Durable goods shipments +1.0%; unfilled orders +0.6%; inventories +0.2%.

Economy in Brief

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U.S. Productivity Unchanged

Initial Claims for Unemployment Insurance Jumped

U.S. Vehicle Sales Retraced Earlier Increase

U.S. Vehicle Sales Retraced Earlier Increase

PMI Surveys Hint at Slower Growth in Several Countries

U.S. Construction Spending Down

Mortgage Applications Fell Hard

ISM Composite Index Fell, Price Index Below 50