Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003c.jpg" width="353">
For September, announced job cuts reported by Challenger, Grey &amp; Christmas jumped for the second month. The 35,037 increase to 100,315 was to the highest level since January. The three month moving average of layoff announcements also rose 19.5% to its highest level since April.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
A sharply higher level of layoffs in automotive (464.2% y/y), commodities (77.2% y/y), consumer goods (9.5% y/y), industrial goods (-16.1% y/y), and insurance (396.0% y/y) boosted the total. These were offset by declines in retail (-82.7% y/y), financial (-26.5% y/y), real estate and transportation (-90.8% y/y).
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans more than tripled m/m (87.9% y/y).
Remarks by Fed Governor Randall S. Kroszner titled What Drives Productivity Growth? Implications for the Economy and Prospects for the Future can be found <a href="http://www.federalreserve.gov/BoardDocs/Speeches/2006/20060927/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</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>
<td class="firstcol">Announced Job Cuts</td>
<td>100,315</td>
<td>65,278</td>
<td>39.6%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
</tbody>
</table>
</body>
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For September, announced job cuts reported by Challenger, Grey & Christmas jumped for the second month. The 35,037 increase to 100,315 was to the highest level since January. The three month moving average of layoff announcements also [...]

Challenger Layoffs Up Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS indicated that chain store sales fell last week. The 0.3% decline was the fourth drop in as many weeks and pulled the average of sales in September 0.5% below August.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The retail price for a gallon of regular unleaded gasoline also fell last week. The seven cent w/w decline to an average $2.31 (-21.1% y/y) was to the lowest level since late February. 
The earlier decline in spot market prices, however, recently stabilized. In trading yesterday, the NY harbor price for regular unleaded gasoline was $1.55 per gallon versus an average $1.54 last week and $1.53 the prior period. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003a.jpg" width="353">
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS reversed all of the prior week&#39;s decline with a 0.7% rise, the third gain in the last four weeks. The indicator in September rose 0.7% from the August average, the first m/m rise since June.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Consumer Confidence Surveys: Can They Help Us Forecast Consumer Spending in Real Time? from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/br_q3-2006-1_consumer_confidence.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">09/30/06</th>
<th scope="col">09/23/06</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">Total Weekly Chain Store Sales</td>
<td>463.0</td>
<td>464.2</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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The International Council of Shopping Centers (ICSC)-UBS indicated that chain store sales fell last week. The 0.3% decline was the fourth drop in as many weeks and pulled the average of sales in September 0.5% below August.

Chain Store Sales & Gasoline Prices Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS indicated that chain store sales fell last week. The 0.3% decline was the fourth drop in as many weeks and pulled the average of sales in September 0.5% below August.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The retail price for a gallon of regular unleaded gasoline also fell last week. The seven cent w/w decline to an average $2.31 (-21.1% y/y) was to the lowest level since late February. 
The earlier decline in spot market prices, however, recently stabilized. In trading yesterday, the NY harbor price for regular unleaded gasoline was $1.55 per gallon versus an average $1.54 last week and $1.53 the prior period. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003a.jpg" width="353">
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS reversed all of the prior week&#39;s decline with a 0.7% rise, the third gain in the last four weeks. The indicator in September rose 0.7% from the August average, the first m/m rise since June.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Consumer Confidence Surveys: Can They Help Us Forecast Consumer Spending in Real Time? from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/br_q3-2006-1_consumer_confidence.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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">09/30/06</th>
<th scope="col">09/23/06</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">Total Weekly Chain Store Sales</td>
<td>463.0</td>
<td>464.2</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Challenger Layoffs Up Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003c.jpg" width="353">
For September, announced job cuts reported by Challenger, Grey &amp; Christmas jumped for the second month. The 35,037 increase to 100,315 was to the highest level since January. The three month moving average of layoff announcements also rose 19.5% to its highest level since April.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
A sharply higher level of layoffs in automotive (464.2% y/y), commodities (77.2% y/y), consumer goods (9.5% y/y), industrial goods (-16.1% y/y), and insurance (396.0% y/y) boosted the total. These were offset by declines in retail (-82.7% y/y), financial (-26.5% y/y), real estate and transportation (-90.8% y/y).
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans more than tripled m/m (87.9% y/y).
Remarks by Fed Governor Randall S. Kroszner titled What Drives Productivity Growth? Implications for the Economy and Prospects for the Future can be found <a href="http://www.federalreserve.gov/BoardDocs/Speeches/2006/20060927/default.htm"> 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/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</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>
<td class="firstcol">Announced Job Cuts</td>
<td>100,315</td>
<td>65,278</td>
<td>39.6%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
</tbody>
</table>
 Avoiding Pitfalls in Comparing Retail Sales Among Countries   
by <a href="/comment/Curley.html">Louise Curley</a> October 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003d.jpg" width="353">
Comparisons of retail sales among countries are beset by different definitions and by different units. Some countries report sales only in index form, others only in their national currencies. Some countries include sales of motor vehicle and parts; others do not. Some counties report sales both including and excluding motor vehicles and parts.
Today three countries--France, Australia and Hong Kong--reported retail sales. Yesterday Germany reported. The easiest comparison to make is between Germany and France. The volume of retail sales is reported in the EUROSTAT data base where concepts are harmonized. One can be reasonably certain that the difference in trends of retail sales in the two countries, shown in Chart 1, is a substantive one and not due to statistical quirks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003f.jpg" width="353">
If one wishes to compare retail sales in Germany with those in Hong Kong one should note that the German concept excludes motor vehicles and parts while the Hong Kong concept includes them. Fortunately, however in the GERMANY data base, there is a memorandum item--Retail Sales including motor vehicle and parts. This series has a base of 2003 and the retail sales series in Hong Kong from the EMERGEPR data base has a base of October, 2004-September, 2005. One could change the Hong Kong index to base 2003=100 or, as we did change both to 2000=100 to be comparable with the other charts. The two series with base 2000=100 are shown in Chart 2.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003e.jpg" width="353">
Another problem comes up when one series is in local currency and another in index form. Such is the case if one want to compare retail sales in France and Australia. The Australian data are given in millions of Australian Dollars, while the French data are given in terms of value and volume indexes. Both concepts, fortunately, exclude motor vehicles and parts. One simple approach is to take the Australian data from the ANZ data base, and, by using the advanced function, put the data in index form with 2000=100, the same base as the French value index that is found in the FRANCE data base.This comparison is shown in Chart 3.
The second and third charts, like the first show comparisons that reflect substantive differences and not statistical quirks. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Retail Sales</th>
<th scope="col">Aug&nbsp; 06</th>
<th scope="col">Jul 06</th>
<th scope="col">Aug 05</th>
<th scope="col">M/M %&nbsp;&nbsp;</th>
<th scope="col">Y/Y %&nbsp;&nbsp;&nbsp;</th>
<th scope="col">2005&nbsp;&nbsp;</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GERMANY&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Vol Retail Sales, ex motor vehicles &amp; pts (2000=100)</td>
<td>104.3</td>
<td>104.3</td>
<td>104.1</td>
<td>0.00</td>
<td>0.19</td>
<td>103.2</td>
<td>101.6</td>
<td>100.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Val Retail Sales, ex motor vehicles &amp; pts&nbsp; (2000=100)</td>
<td>105.6</td>
<td>105.5</td>
<td>104.5</td>
<td>0.09</td>
<td>1.05</td>
<td>103.7</td>
<td>101.6</td>
<td>100.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Val Retail Sales, incl&nbsp; motor vehicles &amp; pts (2000=100)</td>
<td>107.1</td>
<td>106.3</td>
<td>104.4</td>
<td>0.75</td>
<td>2.59</td>
<td>103.9</td>
<td>101.8</td>
<td>100.2</td>
</tr>
<tr class="odd">
<td class="firstcol"> FRANCE</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Val Retail Sales, ex motor vehicles &amp; pts (2000=100)</td>
<td>116.3</td>
<td>116.1</td>
<td>114.1</td>
<td>0.68</td>
<td>2.25</td>
<td>114.7</td>
<td>113.2</td>
<td>109.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Vol Retail Sales, ex motor vehicles &amp; pts&nbsp; (2000=100)&nbsp;</td>
<td>n.a.</td>
<td>123.5</td>
<td>120.6</td>
<td>n.a</td>
<td>n.a</td>
<td>121.3</td>
<td>119.3</td>
<td>115.0</td>
</tr>
<tr>
<td class="firstcol">AUSTRALIA</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;Retail Sales (Mil A$)</td>
<td>18.176</td>
<td>18031</td>
<td>17212.3</td>
<td>0.25</td>
<td>5.60</td>
<td>217396</td>
<td>198214</td>
<td>175956</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Retail Sales 2000=100)</td>
<td>146.4</td>
<td>146.0</td>
<td>138.6</td>
<td>0.25</td>
<td>5.60</td>
<td>137.2</td>
<td>133.1</td>
<td>124.5 vA</td>
</tr>
<tr class="odd">
<td class="firstcol">HONG KONG</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Val Retail Sales (2000=100)</td>
<td>118.8</td>
<td>117.4</td>
<td>109.4</td>
<td>1.20</td>
<td>8.61</td>
<td>109.6</td>
<td>102.7</td>
<td>92.6</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002j.jpg" width="353">
The Bank of Japan&#39;s Tankan Survey released this morning shows a greater than expected increase in the headline series (Diffusion index for large manufacturers&#39; current conditions) from 21% in June to 24% in September and was 5 percentage points above June, 2005. A weakening of the yen and a fall in oil prices since the June survey has contributed to the increase in economic activity. Confidence in current conditions also improved for medium sized manufactures--from 13% to 14%--while that for small manufacturers declined--from 7% to 6%. The trends of the diffusion indexes of actual conditions in the large and small manufacturers are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002g.jpg" width="353">
While Japanese manufacturers were more confident in their appraisal of current conditions, they were less confident in their appraisal of the future. The diffusion index for large manufacturers&#39; appraisal of the future fell from 22% to 21%, that for medium manufacturers fell from 13% to 11% while that for small firms remained unchanged at 7%. The contrast between the optimistic appraisal of current conditions and less sanguine appraisal of the future for large corporations is shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002i.jpg" width="353">
The IFO Survey of German business released last week showed the same general trends as the Tankan Survey--an improved appraisal of current conditions and less sanguine view of the outlook. We suggested, in that in case of Germany, that the decline in the appraisal of the future was more likely to reflect caution rather than alarm as current conditions had rec<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002h.jpg" width="353">ently been much better than anticipated. (See Chart 3) In the case of Japan, actual business conditions for all industries have been better than expectations since the series began in 2004 until the second and third quarters of this year when they equaled expectations. (See Chart 4)
With the economy in the United States slowing, attention is being brought to bear on the prospects for growth in the next two largest industrial economies. While these surveys suggest some deceleration in growth may be in the cards for Japan and Germany, the trend of growth in both countries continues to recover from the depressed years of the recent past. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J809/@J809.HTM">Japan TANKAN (%)</a></th>
<th scope="col">3Q 06</th>
<th scope="col">2Q 06</th>
<th scope="col">3Q&nbsp; 05</th>
<th scope="col">Q/Q Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp; Dif&nbsp;</th>
<th scope="col">2006&nbsp;&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ACTUAL CONDITIONS&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Large Corporations&nbsp;</td>
<td>24</td>
<td>21</td>
<td>19</td>
<td>3</td>
<td>5</td>
<td></td>
<td>18</td>
<td>21</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Medium Corporations</td>
<td>14</td>
<td>13</td>
<td>5</td>
<td>1</td>
<td>9</td>
<td></td>
<td>7</td>
<td>10</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Small Corporations</td>
<td>6</td>
<td>7</td>
<td>3</td>
<td>-1</td>
<td>3</td>
<td></td>
<td>3</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">FORECASTS</td>
<td>4Q 06</td>
<td>3Q 06</td>
<td>4Q&nbsp; 05</td>
<td>Q/Q Dif&nbsp;&nbsp;</td>
<td>Y/Y&nbsp; Dif&nbsp;</td>
<td>2006&nbsp;&nbsp;</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Large Corporations&nbsp;</td>
<td>21</td>
<td>22</td>
<td>18</td>
<td>-1</td>
<td>3</td>
<td>21</td>
<td>16</td>
<td>15</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Medium Corporations</td>
<td>11</td>
<td>13</td>
<td>6</td>
<td>-2</td>
<td>7</td>
<td>11</td>
<td>4</td>
<td>4</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Small Corporations</td>
<td>7</td>
<td>7</td>
<td>1</td>
<td>0</td>
<td>6</td>
<td>7</td>
<td>1</td>
<td>-2</td>
</tr>
</tbody>
</table>
</body>
</html>

The Bank of Japan's Tankan Survey released this morning shows a greater than expected increase in the headline series (Diffusion index for large manufacturers' current conditions) from 21% in June to 24% in September and was 5 [...]

Japan's "Tankan" Like Germany's "IFO" Confident of the Present but Cautious of the Future

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002d.jpg" width="353">
The August value of construction put in place rose a modest 0.3% after a little revised 1.0% drop during July. Consensus expectations had been for a 0.4% decline. Despite the latest increase the level of 3Q activity remained 1.0% below 2Q.
Residential building dropped another 1.4%, the fifth sharp slide in as many months. New single family building dropped 2.7% (-9.3% y/y) and the August level was down 12.5% from the peak in February. Moving in the other direction the value of spending on improvements rose 1.1%% (0.8% y/y).
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.
Nonresidential building jumped 3.4% after an upwardly revised 1.3% July rise. Office construction surged 3.1% (27.5% y/y) while multi-retail building jumped 10.8% (51.1% y/y). Building by the factory sector surged 8.2% (28.4% y/y) to the highest level since 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002e.jpg" width="353">
Public construction spending reversed all of the prior month&#39;s revised decline with a 1.1% increase due to across the board gains. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose 0.4% (17.6% y/y).
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.
Are Investors More Risk-Averse During Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20061001/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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">August</th>
<th scope="col">July</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>-1.0%</td>
<td>4.5%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.1%</td>
<td>-1.0%</td>
<td>2.9%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.4%</td>
<td>-2.2%</td>
<td>-5.1%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>3.4%</td>
<td>1.3%</td>
<td>23.8%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.1%</td>
<td>-1.2%</td>
<td>9.7%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body>
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The August value of construction put in place rose a modest 0.3% after a little revised 1.0% drop during July. Consensus expectations had been for a 0.4% decline. Despite the latest increase the level of 3Q activity remained 1.0% [...]

U.S. Construction Spending Up Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002a.jpg" width="353">
The September composite index of manufacturing sector activity from the Institute for Supply Management fell to 52.9 from 54.5 during the prior month. The decline was the fourth in the last five months and left the index down five points from the year ago peak of 58.1 Consensus expectations had been for a more moderate decline m/m to 53.5.
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.
At 61.0 the price index, which is not included in the composite, dropped to its lowest level since last November. 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/061002c.jpg" width="353">
The percentage of respondents reporting higher prices fell to its lowest level (36%) since February.
A lower employment component, which fell to 49.4 from a four month high of 54.0 in August, accounted for much of the m/m decline in the composite. 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.
The inventories index also fell sharply m/m while all of the other component series fell modestly with the exception of new orders which was unchanged m/m. The new orders index, however, at 54.2 is down sharply from the December 2003 high of 71.6.
The new export orders index fell modestly m/m to 55.3 and is down roughly three points from the recent high in January of 58.5. 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 back to the middle of its range since early 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002b.jpg" width="353">
Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization from the Board of Governors of the Federal Reserve System is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200623/200623abs.html">here</a>.
Economic Revitalization Through the Arts: The Creative Economy from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/spring/revitalization.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">September</th>
<th scope="col">August</th>
<th scope="col">Sept. &#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>52.9</td>
<td>54.5</td>
<td>58.0</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>61.0</td>
<td>73.0</td>
<td>78.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
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</body>
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The September composite index of manufacturing sector activity from the Institute for Supply Management fell to 52.9 from 54.5 during the prior month. The decline was the fourth in the last five months and left the index down five [...]

ISM Composite & Price Indexes Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002a.jpg" width="353">
The September composite index of manufacturing sector activity from the Institute for Supply Management fell to 52.9 from 54.5 during the prior month. The decline was the fourth in the last five months and left the index down five points from the year ago peak of 58.1 Consensus expectations had been for a more moderate decline m/m to 53.5.
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.
At 61.0 the price index, which is not included in the composite, dropped to its lowest level since last November. 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/061002c.jpg" width="353">
The percentage of respondents reporting higher prices fell to its lowest level (36%) since February.
A lower employment component, which fell to 49.4 from a four month high of 54.0 in August, accounted for much of the m/m decline in the composite. 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.
The inventories index also fell sharply m/m while all of the other component series fell modestly with the exception of new orders which was unchanged m/m. The new orders index, however, at 54.2 is down sharply from the December 2003 high of 71.6.
The new export orders index fell modestly m/m to 55.3 and is down roughly three points from the recent high in January of 58.5. 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 back to the middle of its range since early 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002b.jpg" width="353">
Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization from the Board of Governors of the Federal Reserve System is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200623/200623abs.html">here</a>.
Economic Revitalization Through the Arts: The Creative Economy from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/spring/revitalization.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">September</th>
<th scope="col">August</th>
<th scope="col">Sept. &#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>52.9</td>
<td>54.5</td>
<td>58.0</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>61.0</td>
<td>73.0</td>
<td>78.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Up Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002d.jpg" width="353">
The August value of construction put in place rose a modest 0.3% after a little revised 1.0% drop during July. Consensus expectations had been for a 0.4% decline. Despite the latest increase the level of 3Q activity remained 1.0% below 2Q.
Residential building dropped another 1.4%, the fifth sharp slide in as many months. New single family building dropped 2.7% (-9.3% y/y) and the August level was down 12.5% from the peak in February. Moving in the other direction the value of spending on improvements rose 1.1%% (0.8% y/y).
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.
Nonresidential building jumped 3.4% after an upwardly revised 1.3% July rise. Office construction surged 3.1% (27.5% y/y) while multi-retail building jumped 10.8% (51.1% y/y). Building by the factory sector surged 8.2% (28.4% y/y) to the highest level since 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002e.jpg" width="353">
Public construction spending reversed all of the prior month&#39;s revised decline with a 1.1% increase due to across the board gains. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose 0.4% (17.6% y/y).
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.
Are Investors More Risk-Averse During Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20061001/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">August</th>
<th scope="col">July</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>-1.0%</td>
<td>4.5%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.1%</td>
<td>-1.0%</td>
<td>2.9%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.4%</td>
<td>-2.2%</td>
<td>-5.1%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>3.4%</td>
<td>1.3%</td>
<td>23.8%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.1%</td>
<td>-1.2%</td>
<td>9.7%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Japan's "Tankan" Like Germany's "IFO" Confident of the Present but Cautious of the Future  
by <a href="/comment/Curley.html">Louise Curley</a> October 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002j.jpg" width="353">
The Bank of Japan&#39;s Tankan Survey released this morning shows a greater than expected increase in the headline series (Diffusion index for large manufacturers&#39; current conditions) from 21% in June to 24% in September and was 5 percentage points above June, 2005. A weakening of the yen and a fall in oil prices since the June survey has contributed to the increase in economic activity. Confidence in current conditions also improved for medium sized manufactures--from 13% to 14%--while that for small manufacturers declined--from 7% to 6%. The trends of the diffusion indexes of actual conditions in the large and small manufacturers are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002g.jpg" width="353">
While Japanese manufacturers were more confident in their appraisal of current conditions, they were less confident in their appraisal of the future. The diffusion index for large manufacturers&#39; appraisal of the future fell from 22% to 21%, that for medium manufacturers fell from 13% to 11% while that for small firms remained unchanged at 7%. The contrast between the optimistic appraisal of current conditions and less sanguine appraisal of the future for large corporations is shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002i.jpg" width="353">
The IFO Survey of German business released last week showed the same general trends as the Tankan Survey--an improved appraisal of current conditions and less sanguine view of the outlook. We suggested, in that in case of Germany, that the decline in the appraisal of the future was more likely to reflect caution rather than alarm as current conditions had rec<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002h.jpg" width="353">ently been much better than anticipated. (See Chart 3) In the case of Japan, actual business conditions for all industries have been better than expectations since the series began in 2004 until the second and third quarters of this year when they equaled expectations. (See Chart 4)
With the economy in the United States slowing, attention is being brought to bear on the prospects for growth in the next two largest industrial economies. While these surveys suggest some deceleration in growth may be in the cards for Japan and Germany, the trend of growth in both countries continues to recover from the depressed years of the recent past. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J809/@J809.HTM">Japan TANKAN (%)</a></th>
<th scope="col">3Q 06</th>
<th scope="col">2Q 06</th>
<th scope="col">3Q&nbsp; 05</th>
<th scope="col">Q/Q Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp; Dif&nbsp;</th>
<th scope="col">2006&nbsp;&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ACTUAL CONDITIONS&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Large Corporations&nbsp;</td>
<td>24</td>
<td>21</td>
<td>19</td>
<td>3</td>
<td>5</td>
<td></td>
<td>18</td>
<td>21</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Medium Corporations</td>
<td>14</td>
<td>13</td>
<td>5</td>
<td>1</td>
<td>9</td>
<td></td>
<td>7</td>
<td>10</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Small Corporations</td>
<td>6</td>
<td>7</td>
<td>3</td>
<td>-1</td>
<td>3</td>
<td></td>
<td>3</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">FORECASTS</td>
<td>4Q 06</td>
<td>3Q 06</td>
<td>4Q&nbsp; 05</td>
<td>Q/Q Dif&nbsp;&nbsp;</td>
<td>Y/Y&nbsp; Dif&nbsp;</td>
<td>2006&nbsp;&nbsp;</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Large Corporations&nbsp;</td>
<td>21</td>
<td>22</td>
<td>18</td>
<td>-1</td>
<td>3</td>
<td>21</td>
<td>16</td>
<td>15</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Medium Corporations</td>
<td>11</td>
<td>13</td>
<td>6</td>
<td>-2</td>
<td>7</td>
<td>11</td>
<td>4</td>
<td>4</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Small Corporations</td>
<td>7</td>
<td>7</td>
<td>1</td>
<td>0</td>
<td>6</td>
<td>7</td>
<td>1</td>
<td>-2</td>
</tr>
</tbody>
</table>
</body>
</html>

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929f.jpg" width="353">
Some weeks ago, Japan released its updated and rebased CPI. This week, New Zealand has done so. Consumers buy new products at new outlets. The compilation of inflation measures has to keep up with these spending changes. New Zealand last reweighted its CPI in 2002 and it last reselected its sample of retail outlets in 1999. This new formulation does both of these and adds some new techniques for monitoring spending behavior. In total, the inflation pattern is little altered by these changes, possibly because the revision process is frequent enough to prevent outmoded products and methods from overstaying their usefulness.
New Zealand&#39;s CPI is quarterly. The new index is based at 1000 in the so-called &quot;June quarter&quot;. The previous base period was June 1999, and on that base, the June 2006 figure was 1202. The new series, rebased to June 1999, puts the June 2006 number at 1203.4 (easily shown in DLXVG3 using the &quot;advanced functions&quot; feature and choosing &quot;Index&quot; with 19992 as the period and 1000 as the index level). Inflation over the past year has been 4.0% according to both the new and old series.
As with the Japanese revisions, a number of items were removed and new added. The listing provided by Statistics New Zealand shows 20 entirely new items, 13 old ones replaced and 10 deleted. All together, 685 items are priced. Among these changes, new entries include bottled water, nasal sprays, laptop computers and surfboards. Canned soups replaced powdered soup mixes and MP3 players replaced portable CD players. DVD players had already been introduced, but player/recorders were added this time. Refrigerators without freezers were dropped, as were hairspray and clothes lines.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929g.jpg" width="353">
The Statistics New Zealand staff studied population changes and consequently shifted more of its polling to cities, particularly Auckland. They used private market research firms&#39; data on transactions which were obtained from analysis of barcode scanning. This enabled the staff to select more frequently used supermarkets and appliance dealers. They also found that lower priced outlets were taking an increasing share of business.
As readers can tell, we are fascinated by the selection of items in the new New Zealand CPI and also the various methodologies the New Zealanders have applied to revise their consumer price index. This discussion is incomplete in skipping over a change in seasonal adjustment policy and from the use of additive computations to geometric means, along with other actions. All of the techniques are explored in an informative and readable working paper on their website, available <a href="http://www2.stats.govt.nz/domino/external/pasfull/pasfull.nsf/4c2567ef00247c6a4c2567be0008d2f8/4c2567ef00247c6acc2571f60075d218?OpenDocument">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ANZ/@A2/@A204/@A2041/@A2041.HTM">New Zealand, CPI Indexes, NSA</a></th>
<th scope="col">Q2 2006 &quot;June&quot;</th>
<th scope="col">Q1 2006 &quot;March&quot;</th>
<th scope="col">Q4 2005 &quot;Dec.&quot;</th>
Annual Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">June 2006 = 1000</td>
<td>1000</td>
<td>986</td>
<td>981</td>
<td>968</td>
<td>939</td>
<td>918</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Yr/Yr % Chg</td>
<td>4.0</td>
<td>3.4</td>
<td>3.3</td>
<td>3.0</td>
<td>2.3</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">June 1999 = 1000, Y/Y % Chg</td>
<td>4.0</td>
<td>3.3</td>
<td>3.2</td>
<td>3.0</td>
<td>2.3</td>
<td>1.7</td>
</tr>
</tbody>
</table>
</body>
</html>

Some weeks ago, Japan released its updated and rebased CPI. This week, New Zealand has done so. Consumers buy new products at new outlets. The compilation of inflation measures has to keep up with these spending changes. New Zealand [...]

New Zealand Restructures Its CPI; MP3 Players Are In, Hairspray Is Out. Inflation Through June Remains at 4%

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).

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/7ru7psqeY4U7sp8qLdH3J7?utm_source=generator&si=328378479dd94509" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

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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New Zealand Restructures Its CPI; MP3 Players Are In, Hairspray Is Out. Inflation Through June Remains at 4%