Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921e.jpg" width="353">
The August National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago at -0.18 was negative for the third month in the last four and that was enough to pull the three-month moving average of the CFNAI fell to 0.05, its lowest level in over a year.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_September2006.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#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">CFNAI</td>
<td>-0.18</td>
<td>-0.07</td>
<td>0.13</td>
<td>0.20</td>
<td>0.35</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
</body>
</html>

The August National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago at -0.18 was negative for the third month in the last four and that was enough to pull the three-month moving average of the CFNAI fell to 0.05, its [...]

Chicago Fed Nat'l Activity Index Negative Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921d.jpg" width="353">
In August, the number of mass layoff events rose for the third consecutive month. The 6.0% m/m increase pulled the y/y comparison positive for the first time since December.
During the last ten years there has been a (negative) 85% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected last month by mass layoffs surged 11.4% m/m but were up just 0.3% y/y. The number of persons affected by mass layoffs during the first eight months of this year fell 12.6% from the first eight months of 2005.
Increased layoffs in manufacturing (21.2% y/y) and information (-35.0% y/y) dominated the increase in claimants for unemployment insurance last month. Declines elsewhere were widespread.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Mass Layoffs</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>
<td class="firstcol">All US Industries (# Events, SA)</td>
<td>1,193</td>
<td>1,125</td>
<td>4.2%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>127,944</td>
<td>114,895</td>
<td>0.3%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
</tr>
</tbody>
</table>
</body>
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In August, the number of mass layoff events rose for the third consecutive month. The 6.0% m/m increase pulled the y/y comparison positive for the first time since December. During the last ten years there has been a (negative) 85% [...]

Mass Layoffs Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921b.jpg" width="353">
The composite index of leading economic indicators fell 0.2% in August for the second month. It was the fifth m/m decline in the index reported by the Conference Board this year and matched Consensus expectations.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 30%, the lowest level since May but the percentage of components that rose over a six month span improved marginally to 50%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921c.jpg" width="353">
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.1% after an unrevised 0.2% July gain. During the last six months all of the coincident series rose but in August the one month percentage increasing slipped to 75%. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators rose 0.3% as C&amp;I loans rose. Nevertheless, the ratio of coincident to lagging indicators which is a measure of actual economic performance versus excess fell.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/ppdp/2006/ppdp066.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/BCI/BCI.HTM">Business Cycle Indicators</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">Leading</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>3.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
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The composite index of leading economic indicators fell 0.2% in August for the second month. It was the fifth m/m decline in the index reported by the Conference Board this year and matched Consensus expectations. During the last ten [...]

Leading Economic Indicators Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921a.jpg" width="353">
Initial claims for unemployment insurance rose 7,000 last week to 318,000 reversing two weeks of moderate decline. Consensus expectations had been for 310,000 claims. Last year, claims surged in the aftermath of Hurricane Katrina.
The latest figure covers the survey period for September nonfarm payrolls and filings rose 4,000 (1.3%) from the August period.
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.
The four-week moving average of initial claims was unchanged at 315,000 (-15.0% y/y).
Continuing claims for unemployment insurance fell 29,000 after a 9,000 increase the prior week that was half the rise initially reported.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Would an Inflation Target Help Anchor U.S. Inflation Expectations? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-20.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">9/16/06</th>
<th scope="col">9/09/06</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>318</td>
<td>311</td>
<td>-24.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,461</td>
<td>-6.9%</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 rose 7,000 last week to 318,000 reversing two weeks of moderate decline. Consensus expectations had been for 310,000 claims. Last year, claims surged in the aftermath of Hurricane Katrina. The [...]

Initial Jobless Insurance Claims Rose More Than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921a.jpg" width="353">
Initial claims for unemployment insurance rose 7,000 last week to 318,000 reversing two weeks of moderate decline. Consensus expectations had been for 310,000 claims. Last year, claims surged in the aftermath of Hurricane Katrina.
The latest figure covers the survey period for September nonfarm payrolls and filings rose 4,000 (1.3%) from the August period.
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.
The four-week moving average of initial claims was unchanged at 315,000 (-15.0% y/y).
Continuing claims for unemployment insurance fell 29,000 after a 9,000 increase the prior week that was half the rise initially reported.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Would an Inflation Target Help Anchor U.S. Inflation Expectations? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-20.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<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">9/16/06</th>
<th scope="col">9/09/06</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>318</td>
<td>311</td>
<td>-24.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,461</td>
<td>-6.9%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921b.jpg" width="353">
The composite index of leading economic indicators fell 0.2% in August for the second month. It was the fifth m/m decline in the index reported by the Conference Board this year and matched Consensus expectations.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 30%, the lowest level since May but the percentage of components that rose over a six month span improved marginally to 50%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921c.jpg" width="353">
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.1% after an unrevised 0.2% July gain. During the last six months all of the coincident series rose but in August the one month percentage increasing slipped to 75%. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators rose 0.3% as C&amp;I loans rose. Nevertheless, the ratio of coincident to lagging indicators which is a measure of actual economic performance versus excess fell.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/ppdp/2006/ppdp066.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/BCI/BCI.HTM">Business Cycle Indicators</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">Leading</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>3.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
Mass Layoffs Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921d.jpg" width="353">
In August, the number of mass layoff events rose for the third consecutive month. The 6.0% m/m increase pulled the y/y comparison positive for the first time since December.
During the last ten years there has been a (negative) 85% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected last month by mass layoffs surged 11.4% m/m but were up just 0.3% y/y. The number of persons affected by mass layoffs during the first eight months of this year fell 12.6% from the first eight months of 2005.
Increased layoffs in manufacturing (21.2% y/y) and information (-35.0% y/y) dominated the increase in claimants for unemployment insurance last month. Declines elsewhere were widespread.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.

<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">Mass Layoffs</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>
<td class="firstcol">All US Industries (# Events, SA)</td>
<td>1,193</td>
<td>1,125</td>
<td>4.2%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>127,944</td>
<td>114,895</td>
<td>0.3%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity Index Negative Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921e.jpg" width="353">
The August National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago at -0.18 was negative for the third month in the last four and that was enough to pull the three-month moving average of the CFNAI fell to 0.05, its lowest level in over a year.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_September2006.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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#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">CFNAI</td>
<td>-0.18</td>
<td>-0.07</td>
<td>0.13</td>
<td>0.20</td>
<td>0.35</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Negative 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921f.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s September Index of General Business Conditions in the manufacturing sector was negative for the first month since April 2003. The figure fell to -0.4 from an unrevised, very firm 18.5 in August. Consensus expectations had been for a slight decline to 14.8.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
With the exceptions of inventories and employment, each of the sub indexes turned negative in September. The employment index, in fact, rose back into the middle of its range of the last year. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921g.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index dropped further m/m to the lowest level since April. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months also was negative for the first month since January 2001, though expectations for orders, shipments and employment remained positive.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0906.html">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/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</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">General Activity Index</td>
<td>-0.4</td>
<td>18.5</td>
<td>7.0</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>38.1</td>
<td>45.3</td>
<td>50.6</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
Israel's Economy Sees Slower Growth in the Face of War in Lebanon; Lebanon's Economy Falls Dramatically 
by <a href="/comment/Stone.html">Carol Stone</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921h.jpg" width="353">
The Israel&#39;s Central Statistics Bureau today reported its &quot;State of the Economy Index&quot; for August, along with its available components. When we last checked in on the Israeli economy, about six weeks ago, the war in Lebanon was still in full swing and in describing Q2 GDP, we wondered out loud what the war would do to the economy in Q3. Today&#39;s report gives a bit of an indication. The overall index is estimated to have risen 0.3% in each July and August, marginally less than June&#39;s 0.4%, but noticeably less than the 0.6%/month in each of the prior four months. So some slowdown is clearly in process.
The index has five components covering industry, domestic and foreign trade and employment in the business sector (about 70% of total employment). Only exports and imports are published yet for August, and both of these are more than keeping up with their average of the past year. Imports grew 5.2% in August compared with a 12-month average gain of 1.4% and exports were up 3.5% versus an average of 1.1%. Industrial production through July was continuing with some strength as well, with monthly increases well over 1% then and in June, compared with 0.9% monthly for the last 12 months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921i.jpg" width="353">
The slowing is more evident in demand and employment indicators. The employment data lag, with the latest values only covering June and a detailed industrial breakdown only through Q2. But business sector employment by this monthly indicator peaked in March and fell slightly in each of the following months. Since this information is all prior to the Lebanon war, there is no impact evident here. Further, employment had expanded with some vigor since early in 2004. So perhaps there is nothing more in the recent pattern than a pause after a strong uptrend.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921j.jpg" width="353">
Domestic sales, however, seem to be a different story. Revenues from trade and services dropped 2.5% in June and another 2.6% in July, erasing almost all of a nice rise over the nine months beginning last September. People could well hold back purchases or at least take a cautionary stance as political tensions mount. Fortuitously for their welfare, a truce was called quickly, and this likely helps the general economy as well.
In dramatic contrast, the impact of the war showed quickly and distinctly in Lebanon. Data offerings are fairly sparse, but a quick look at imports and exports, which were reported Monday by the Bank of Lebanon, shows a clear picture of significant economic damage. The third graph here tells the whole story.

<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/EMERGEMA/@M7/@M7.HTM">Israel: SA, % Chg</a></th>
<th scope="col">Weight (%)</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">Yr Ago (Mo. Avg)</th>
Yearly % Change
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Total Index</td>
<td>100</td>
<td>0.3</td>
<td>0.3</td>
<td>0.4</td>
<td>0.5</td>
<td>7.1</td>
<td>6.9</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>28</td>
<td>--</td>
<td>1.3</td>
<td>1.6</td>
<td>0.9</td>
<td>4.6</td>
<td>7.2</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>15</td>
<td>5.2</td>
<td>2.4</td>
<td>-2.3</td>
<td>1.4</td>
<td>2.3</td>
<td>14.6</td>
<td>-4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade &amp; Services Revenues</td>
<td>28</td>
<td>--</td>
<td>-2.6</td>
<td>-2.5</td>
<td>0.1</td>
<td>8.1</td>
<td>8.0</td>
<td>-0.6</td>
</tr>
<tr>
<td class="firstcol">Employees in Business Sector</td>
<td>19</td>
<td>--</td>
<td>--</td>
<td>-0.3</td>
<td>0.2</td>
<td>4.7</td>
<td>2.4</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>10</td>
<td>3.5</td>
<td>-10.2</td>
<td>9.4</td>
<td>1.1</td>
<td>7.1</td>
<td>17.4</td>
<td>4.4</td>
</tr>
</tbody>
</table>
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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/060920g.jpg" width="353">
Spain&#39;s National Institute of Statistics (INE) reported on labor costs today for Q2 2006. These costs, measured as monthly compensation per worker, picked up to a 3.5% growth rate year-on-year from 3.4% in Q1 and at or near 3.0% for the previous two calendar years. The data are in a simple format: in Haver&#39;s SPAIN database, they are available in euros and an index of 2000=100, for three sectors of the economy, industry, construction and services, and for the total and two components, earnings and &quot;other&quot;. So there are 12 numbers in each quarterly report for each the euro amount and the index level. Could such a small array be interesting? Indeed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920h.jpg" width="353">
In Q2, while labor costs accelerated in total, they slowed in basic industry and construction and not by small increments. The industry sector increased 3.5% following 4.5% in Q1. Construction gained 3.9% in the latest quarter, after 4.3% in Q1. But the rapidly expanding service sector had 3.8% growth in Q2, well more than the 3.2% in Q1. So labor compensation in services gained visibly even as it slowed in more traditional sectors. However, this may have been a transitory shift, as the average annual gains over the prior five years had the reverse pattern: industry and construction both had vigorous increases, 4.1% annually for industry and 4.7% for construction, with services at 3.6%. So it&#39;s hard to tell if the old-line economy is moving to a slower trend or just pausing after sizable gains in earlier periods. In fact, if anything, these data show how consistent the service sector has been, hovering all the while in a range around 3-1/2% average yearly gains.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920i.jpg" width="353">
Another significant point in this little array of data concerns the split between wages and &quot;other&quot; labor costs. Over the period 2000-2005, earnings grew at an average annual rate of 3.3%. But other labor compensation advanced at a 5.0% pace. These costs cover the same general items referred to in the US as &quot;supplements to wages and salaries&quot; or &quot;benefits&quot;: disability and unemployment, and also in Spain compensation for tools, uniforms and transportation, and similar job-related expenses. In both countries, these also cover employers&#39; payments into the social security system. And in Spain as in the US, to continue the parallel, these &quot;other&quot; costs are growing as a portion of total compensation: in 2000, &quot;other&quot; labor costs were 24.6% of compensation in Spain and by the first half of this year, they absorbed 26.7%. For the US, comparable shares were 16.5% in 2000 and 19.3% this year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Spain: Monthly Labor Cost/ Worker (&#128;, NSA)</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2197</td>
<td>2114</td>
<td>2122</td>
<td>2110</td>
<td>2058</td>
<td>1992</td>
<td>1758</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>3.5</td>
<td>3.4</td>
<td>3.4</td>
<td>2.9</td>
<td>3.0</td>
<td>4.2</td>
<td>3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Earnings</td>
<td>1624</td>
<td>1538</td>
<td>1575</td>
<td>1560</td>
<td>1521</td>
<td>1480</td>
<td>1326</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>3.1</td>
<td>3.0</td>
<td>3.4</td>
<td>2.6</td>
<td>2.8</td>
<td>3.8</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Other&quot;</td>
<td>574</td>
<td>575</td>
<td>547</td>
<td>550</td>
<td>531</td>
<td>512</td>
<td>432</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>4.9</td>
<td>4.4</td>
<td>3.5</td>
<td>3.6</td>
<td>3.6</td>
<td>5.4</td>
<td>5.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Other&quot; as % of Total</td>
<td>26.1</td>
<td>27.2</td>
<td>25.8</td>
<td>26.1</td>
<td>25.9</td>
<td>25.7</td>
<td>24.6</td>
</tr>
<tr>
<td class="firstcol">Memo: Similar US Share</td>
<td>19.3</td>
<td>19.3</td>
<td>19.4</td>
<td>19.4</td>
<td>19.1</td>
<td>19.0</td>
<td>16.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Spain's National Institute of Statistics (INE) reported on labor costs today for Q2 2006. These costs, measured as monthly compensation per worker, picked up to a 3.5% growth rate year-on-year from 3.4% in Q1 and at or near 3.0% for [...]

Spain's Labor Costs Pick Up in Q2; Benefits Outstrip Wage Gains

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920f.jpg" width="353">
The target interest rate for Federal funds was again held steady at 5.25% at today&#39;s meeting of the Federal Open Market Committee. Voting against the decision for the second time was Richmond Federal Reserve Bank President Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target.
The discount rate also was held steady at 6.25%.
Today&#39;s decision was widely expected by analysts.
The Fed&#39;s rationale for leaving rates unchanged indicated that &quot;The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.&quot;
Need for further rate increases was stressed by the Fed. &quot;The extent and timing of any additional firming that may be needed to address these (inflation) risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920e.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060920/default.htm">link</a>.
The accompanying chart plots the U.S. economy&#39;s actual rate of growth during the last two quarters versus its so called &quot;potential&quot;, i.e., growth in the labor force plus the growth in labor productivity. The economy&#39;s potential for 4% growth was exceeded slightly in the first half due to the 5.6% surge in 1Q&#39;06 growth.
Knut Wicksell: The Birth of Modern Monetary Policy from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/ei/ei0401.pdf">here</a>.
Modern Macroeconomics in Practice: How Theory is Shaping Policy from the Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/research/SR/SR376.pdf">here</a>.

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The target interest rate for Federal funds was again held steady at 5.25% at today's meeting of the Federal Open Market Committee. Voting against the decision for the second time was Richmond Federal Reserve Bank President Jeffrey M. [...]

Federal Funds Rate Again Held at 5.25%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920c.jpg" width="353">
After two weeks of respectable gain, the number of mortgage applications for purchase fell last week by 3.0%, according to the Mortgage Bankers Association. For the month so far, applications in September are 4.2% above the August average which fell 3.5% from July.
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.
Overall mortgage applications nevertheless rose 2.0% last week and the gain lifted the average level this month 4.3% above August.
Applications to refinance surged 9.5% after three weeks of slight decline. The average level of refis in September is up 4.2% from August which surged 13.3% m/m from July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose to 6.59 from 6.53% the week earlier and has averaged 6.55% this month versus 6.64% in August. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also rose w/w to 6.30% and 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>.

<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">09/15/06</th>
<th scope="col">09/08/06</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>595.8</td>
<td>584.2</td>
<td>-22.8%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>397.9</td>
<td>410.2</td>
<td>-20.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,748.7</td>
<td>1,597.0</td>
<td>-25.7%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
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After two weeks of respectable gain, the number of mortgage applications for purchase fell last week by 3.0%, according to the Mortgage Bankers Association. For the month so far, applications in September are 4.2% above the August [...]

Mortgage Purchase Application Recovery Stalled

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

260626E.jpg

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.

260626.jpg

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.

260626 2.jpg

**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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Chicago Fed Nat'l Activity Index Negative Again

Mass Layoffs Up

Leading Economic Indicators Fell

Initial Jobless Insurance Claims Rose More Than Expected

Initial Jobless Insurance Claims Rose More Than Expected

Spain's Labor Costs Pick Up in Q2; Benefits Outstrip Wage Gains

Federal Funds Rate Again Held at 5.25%

Mortgage Purchase Application Recovery Stalled