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/060816i.jpg" width="353">
Three Mediterranean regions reported Q2 GDP today. In Greece, total GDP eased 0.3% from Q1, Israel saw growth of 1.5% and the Palestinian Territories&#39; GDP fell 1.7%.
The Greek data featured a decline in domestic demand in Q2 after it rose sharply in Q1. The Q2 figures included a reduction in consumption and what might be termed a &quot;correction&quot; in fixed investment. This latter had been up strongly for three quarters running, so the latest period&#39;s decrease still left year-on-year growth of 14.0%, a nice recovery after a contraction in 2005. Consumption is somewhat steadier, maintaining four-quarter growth rates between 3% and 4%. Q2 total GDP was supported by an improvement in net exports. Country-source data for Greece are included in Haver&#39;s ALPMED database, with summary statistics in G10 and EUROSTAT. While the first two are updated by Haver soon after the data are released, the figures in EUROSTAT are available to us only after their staff have released them through their own channels and that database generally includes them some time later.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816j.jpg" width="353">
Israel&#39;s total GDP growth has been fairly steady at about a 6% annual pace for the last year, reflecting moderate gains in consumption and investment and strong exports. Obviously, these are Q2 data and do not cover any of the Israel/Hezbollah conflict, which began July 12. While economic impact is hardly a high priority in analyzing this war right now, the even-tempered performance of Israel&#39;s economy going into it will provide for interesting comparisons when Q3 data are produced.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816k.jpg" width="353">
The Palestinian Territories have a tiny economy, with GDP for 2005 totaling only $4.46 billion in fixed 1997 prices. The first two quarters of this year were weak, with a steep drop of 7.2% in Q1 followed by 1.7% in Q2. Recent data are available only for industrial sectors (not for expenditure categories), and these sectors are experiencing varied patterns. The latest declines came in industry and construction, while transportation is erratic but maintaining a modest growth trend. As with many of the world&#39;s organized economic areas, the service sector is expanding with some vigor, and Q2 was up 16.5% from a year ago. One hopes that has been maintained this quarter despite the tumult around them.
Data on Israel and the Palestinian Territories are contained in Haver&#39;s EMERGEMA database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GDP: % Changes</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Yr/Yr</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"><a href="http://www.haverselect.com/dlx/ALPMED/@A2/@A22/@A22.HTM">Greece*</a></td>
<td>-0.3</td>
<td>2.8</td>
<td>-0.2</td>
<td>4.1</td>
<td>3.7</td>
<td>4.7</td>
<td>4.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption</td>
<td>-1.1</td>
<td>1.5</td>
<td>0.5</td>
<td>3.5</td>
<td>3.6</td>
<td>4.4</td>
<td>3.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Fixed Investment</td>
<td>-4.7</td>
<td>7.4</td>
<td>4.5</td>
<td>14.0</td>
<td>-1.2</td>
<td>5.7</td>
<td>13.7</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEMA/@M7/@M702/@M702.HTM">Israel*</a></td>
<td>1.5</td>
<td>1.4</td>
<td>1.4</td>
<td>6.2</td>
<td>5.2**</td>
<td>4.8**</td>
<td>1.5**</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumption</td>
<td>1.2</td>
<td>1.8</td>
<td>0.0</td>
<td>2.7</td>
<td>3.1**</td>
<td>2.8**</td>
<td>-0.3**</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Fixed Investment</td>
<td>-2.4</td>
<td>2.2</td>
<td>2.2</td>
<td>3.1</td>
<td>2.9**</td>
<td>0.3**</td>
<td>-5.5**</td>
</tr>
<tr class="odd">
<td class="firstcol">Palestinian Territories*</td>
<td>-1.7</td>
<td>-7.2</td>
<td>2.3</td>
<td>1.7</td>
<td>4.9</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
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Three Mediterranean regions reported Q2 GDP today. In Greece, total GDP eased 0.3% from Q1, Israel saw growth of 1.5% and the Palestinian Territories' GDP fell 1.7%. The Greek data featured a decline in domestic demand in Q2 after it [...]

Q2 GDP Eases in Greece & Falls in the Palestinian Territories But Gains in Israel

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816g.jpg" width="353">
The total number of mortgage applications rose 1.4% last week following a 4.9% rise the week prior.
The gains were led by rebounding applications to refinance which rose 4.6% on top of a 7.1% increase during the first week of August. Refis are up 17.1% from the lows in June.
Conversely, purchase applications last week fell for the fourth week in the last five and posted a 0.8% dip which pulled purchase apps in August 2.5% below the July average.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816h.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage increased to 6.73%. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also rose to 6.42% 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.
In July, 35.4% of all loan applications were to refinance, down from 44.2% last July.
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>.
Property Debt Burdens from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-18.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/11/06</th>
<th scope="col">08/04/06</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>561.2</td>
<td>553.3</td>
<td>-26.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>385.9</td>
<td>388.9</td>
<td>-22.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,587.5</td>
<td>1,518.1</td>
<td>-30.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
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The total number of mortgage applications rose 1.4% last week following a 4.9% rise the week prior. The gains were led by rebounding applications to refinance which rose 4.6% on top of a 7.1% increase during the first week of August. [...]

Mortgage Applications Up With More Refinancings

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816f.jpg" width="353">
Housing starts fell for the fourth straight month in July, by 2.5% to 1.795M units. The decline slightly outpaced Consensus expectations for drop to 1.81M starts.
Total housing starts in July were 20.8% below the peak this past January.
Single-family starts fell 2.3% last month to 1.453M, down 20.0% from the January peak. Multi family starts also fell another 3.4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816e.jpg" width="353">
By region, single family housing starts dropped 9.5% (-25.8% y/y) in the West. In the Midwest starts also fell by 2.3% (-18.9% y/y) and single family starts in the South slipped 0.5% (-9.1% y/y). In the Northeast stats rose 12.2% (-26.3% y/y).
Building permits fell for the sixth consecutive month, dropping another 6.5%.
The July 2006 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/BoardDocs/snloansurvey/200608/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">July</th>
<th scope="col">June</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>1,795</td>
<td>1,841</td>
<td>-13.3%</td>
<td>2,073</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,452</td>
<td>1,486</td>
<td>-16.6%</td>
<td>1,719</td>
<td>1,604</td>
<td>1,505</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>343</td>
<td>355</td>
<td>3.9%</td>
<td>354</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,747</td>
<td>1,869</td>
<td>-20.8%</td>
<td>2,159</td>
<td>2,058</td>
<td>1,888</td>
</tr>
</tbody>
</table>
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Housing starts fell for the fourth straight month in July, by 2.5% to 1.795M units. The decline slightly outpaced Consensus expectations for drop to 1.81M starts. Total housing starts in July were 20.8% below the peak this past [...]

July Housing Starts Down Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816d.jpg" width="353">
Total U.S. industrial output increased 0.4% last month. The gain was a bit light versus Consensus expectations for a 0.5% rise though it followed an unrevised 0.8% jump during June.
Hot temperatures throughout the country fueled a 2.0% (0.5% y/y) surge in utility output. In fact, cooling degree days during July set a new record high.
Factory sector output rose a more moderate 0.2% following the unrevised 0.8% June jump. The rise lifted the starting point for 3Q 2.5% (AR) above the prior quarter&#39;s average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816c.jpg" width="353">
Production of durable consumer goods fell a whopping 3.2% (+1.1% y/y) as output of automotive products dropped 6.2% (-0.5%) and output of appliances &amp; furniture fell for the fourth straight month, down 0.7% (-2.0% y/y. Nondurable consumer goods output increased 0.8% (2.0% y/y) as clothing output jumped 1.7% (8.4% y/y).
Business equipment production surged 1.1% due to a 1.9% (7.7% y/y) spike in output of industrial &amp; other equipment. Production of information processing &amp; equipment also rose a firm 0.9% (19.5% y/y).Factory output overall less the hi-tech industries ticked up just 0.1% (4.6% y/y).
Overall capacity utilization rose to 82.4% in July, its highest level in six years. Factory sector utilization was stable m/m at 80.7%.

<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/output.htm">Production &amp; Capacity</a></th>
<th scope="col">July</th>
<th scope="col">June</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">Industrial Production</td>
<td>0.4%</td>
<td>0.8%</td>
<td>4.8%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Manufacturing (NAICS)</td>
<td>0.2%</td>
<td>0.8%</td>
<td>5.8%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.3%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.1%</td>
<td>0.8%</td>
<td>12.2%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>82.4%</td>
<td>82.3%</td>
<td>80.4% (7/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Total U.S. industrial output increased 0.4% last month. The gain was a bit light versus Consensus expectations for a 0.5% rise though it followed an unrevised 0.8% jump during June. Hot temperatures throughout the country fueled a [...]

Industrial Production Up With Temperatures

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816a.jpg" width="353">
Consumer prices (CPI-U) during July rose an expected 0.4%, the average rate of monthly increase for the last five months. A somewhat more moderate increase, however, was posted by prices less food &amp; energy. The 0.2% increase compared to a 0.3% average of the last five months and was lower than expectations for a 0.3% gain.
The 2.9% m/m spike in energy prices reflected a 5.3% (29.6% y/y) surge in gasoline prices, although weekly gasoline prices have since stabilized in August somewhat at $3.00 per gallon. Natural gas &amp; electricity prices in July ticked up 0.1% (10.5% y/y) after five consecutive months of decline.
Core goods prices fell 0.1% after three months of 0.1% increase. Furniture &amp; bedding costs reversed the prior month&#39;s increase with a 0.3% decline (+1.4% y/y) while apparel prices dropped 1.2% (0.0% y/y). Appliance prices increased 0.3% (1.1% y/y) and new &amp; used motor vehicle prices rose 0.2% (0.5% y/y). Tobacco prices were unchanged in July (3.6% y/y) while medical care commodity prices rose 0.3% (3.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816b.jpg" width="353">
Core services prices rose 0.4%, the same as during the prior two months. Shelter prices increased another 0.4% (3.6% y/y) as the rental equivalence measure of owners&#39; primary residences rose 0.4% (3.7% y/y) and rents also rose 0.4% (3.6% y/y). Public transportation costs moderated somewhat from prior months&#39; strength and increased 0.4% (5.0% y/y).Education cost inflation ticked up to 0.6% (6.0% y/y) but medical care services price inflation dipped to 0.2% (4.0% y/y).
Food &amp; beverage prices rose 0.2% though meat, fish &amp; poultry prices fell 0.6% (+0.2% y/y). Fruit &amp; vegetable prices jumped for the second consecutive month and rose 0.9% (3.7% y/y) while dairy prices ticked up another 0.1% (-0.5% y/y).
The chained CPI, which adjusts for shifts in the mix of consumer purchases, rose 0.1% while less food &amp; energy prices were unchanged last month.
The Effects of Rounding on the Consumer Price Index from the U.S. Bureau of Labor Statistics can be found <a href="http://www.bls.gov/ore/pdf/ec060090.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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</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&nbsp;</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.2%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.5%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.4%</td>
<td>0.4%</td>
<td>3.6%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>2.9%</td>
<td>-0.9%</td>
<td>20.5%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.1%</td>
<td>0.3%</td>
<td>3.5%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.1%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
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Consumer prices (CPI-U) during July rose an expected 0.4%, the average rate of monthly increase for the last five months. A somewhat more moderate increase, however, was posted by prices less food & energy. The 0.2% increase compared [...]

Core CPI Moderate As Energy Costs Jumped, Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816a.jpg" width="353">
Consumer prices (CPI-U) during July rose an expected 0.4%, the average rate of monthly increase for the last five months. A somewhat more moderate increase, however, was posted by prices less food &amp; energy. The 0.2% increase compared to a 0.3% average of the last five months and was lower than expectations for a 0.3% gain.
The 2.9% m/m spike in energy prices reflected a 5.3% (29.6% y/y) surge in gasoline prices, although weekly gasoline prices have since stabilized in August somewhat at $3.00 per gallon. Natural gas &amp; electricity prices in July ticked up 0.1% (10.5% y/y) after five consecutive months of decline.
Core goods prices fell 0.1% after three months of 0.1% increase. Furniture &amp; bedding costs reversed the prior month&#39;s increase with a 0.3% decline (+1.4% y/y) while apparel prices dropped 1.2% (0.0% y/y). Appliance prices increased 0.3% (1.1% y/y) and new &amp; used motor vehicle prices rose 0.2% (0.5% y/y). Tobacco prices were unchanged in July (3.6% y/y) while medical care commodity prices rose 0.3% (3.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816b.jpg" width="353">
Core services prices rose 0.4%, the same as during the prior two months. Shelter prices increased another 0.4% (3.6% y/y) as the rental equivalence measure of owners&#39; primary residences rose 0.4% (3.7% y/y) and rents also rose 0.4% (3.6% y/y). Public transportation costs moderated somewhat from prior months&#39; strength and increased 0.4% (5.0% y/y).Education cost inflation ticked up to 0.6% (6.0% y/y) but medical care services price inflation dipped to 0.2% (4.0% y/y).
Food &amp; beverage prices rose 0.2% though meat, fish &amp; poultry prices fell 0.6% (+0.2% y/y). Fruit &amp; vegetable prices jumped for the second consecutive month and rose 0.9% (3.7% y/y) while dairy prices ticked up another 0.1% (-0.5% y/y).
The chained CPI, which adjusts for shifts in the mix of consumer purchases, rose 0.1% while less food &amp; energy prices were unchanged last month.
The Effects of Rounding on the Consumer Price Index from the U.S. Bureau of Labor Statistics can be found <a href="http://www.bls.gov/ore/pdf/ec060090.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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</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&nbsp;</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.2%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.5%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.4%</td>
<td>0.4%</td>
<td>3.6%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>2.9%</td>
<td>-0.9%</td>
<td>20.5%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.1%</td>
<td>0.3%</td>
<td>3.5%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.1%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Industrial Production Up With Temperatures 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816d.jpg" width="353">
Total U.S. industrial output increased 0.4% last month. The gain was a bit light versus Consensus expectations for a 0.5% rise though it followed an unrevised 0.8% jump during June.
Hot temperatures throughout the country fueled a 2.0% (0.5% y/y) surge in utility output. In fact, cooling degree days during July set a new record high.
Factory sector output rose a more moderate 0.2% following the unrevised 0.8% June jump. The rise lifted the starting point for 3Q 2.5% (AR) above the prior quarter&#39;s average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816c.jpg" width="353">
Production of durable consumer goods fell a whopping 3.2% (+1.1% y/y) as output of automotive products dropped 6.2% (-0.5%) and output of appliances &amp; furniture fell for the fourth straight month, down 0.7% (-2.0% y/y. Nondurable consumer goods output increased 0.8% (2.0% y/y) as clothing output jumped 1.7% (8.4% y/y).
Business equipment production surged 1.1% due to a 1.9% (7.7% y/y) spike in output of industrial &amp; other equipment. Production of information processing &amp; equipment also rose a firm 0.9% (19.5% y/y).Factory output overall less the hi-tech industries ticked up just 0.1% (4.6% y/y).
Overall capacity utilization rose to 82.4% in July, its highest level in six years. Factory sector utilization was stable m/m at 80.7%.

<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/output.htm">Production &amp; Capacity</a></th>
<th scope="col">July</th>
<th scope="col">June</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">Industrial Production</td>
<td>0.4%</td>
<td>0.8%</td>
<td>4.8%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Manufacturing (NAICS)</td>
<td>0.2%</td>
<td>0.8%</td>
<td>5.8%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.3%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.1%</td>
<td>0.8%</td>
<td>12.2%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>82.4%</td>
<td>82.3%</td>
<td>80.4% (7/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
July Housing Starts Down Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816f.jpg" width="353">
Housing starts fell for the fourth straight month in July, by 2.5% to 1.795M units. The decline slightly outpaced Consensus expectations for drop to 1.81M starts.
Total housing starts in July were 20.8% below the peak this past January.
Single-family starts fell 2.3% last month to 1.453M, down 20.0% from the January peak. Multi family starts also fell another 3.4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816e.jpg" width="353">
By region, single family housing starts dropped 9.5% (-25.8% y/y) in the West. In the Midwest starts also fell by 2.3% (-18.9% y/y) and single family starts in the South slipped 0.5% (-9.1% y/y). In the Northeast stats rose 12.2% (-26.3% y/y).
Building permits fell for the sixth consecutive month, dropping another 6.5%.
The July 2006 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/BoardDocs/snloansurvey/200608/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">July</th>
<th scope="col">June</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>1,795</td>
<td>1,841</td>
<td>-13.3%</td>
<td>2,073</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,452</td>
<td>1,486</td>
<td>-16.6%</td>
<td>1,719</td>
<td>1,604</td>
<td>1,505</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>343</td>
<td>355</td>
<td>3.9%</td>
<td>354</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,747</td>
<td>1,869</td>
<td>-20.8%</td>
<td>2,159</td>
<td>2,058</td>
<td>1,888</td>
</tr>
</tbody>
</table>
Mortgage Applications Up With More Refinancings 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816g.jpg" width="353">
The total number of mortgage applications rose 1.4% last week following a 4.9% rise the week prior.
The gains were led by rebounding applications to refinance which rose 4.6% on top of a 7.1% increase during the first week of August. Refis are up 17.1% from the lows in June.
Conversely, purchase applications last week fell for the fourth week in the last five and posted a 0.8% dip which pulled purchase apps in August 2.5% below the July average.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816h.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage increased to 6.73%. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also rose to 6.42% 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.
In July, 35.4% of all loan applications were to refinance, down from 44.2% last July.
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>.
Property Debt Burdens from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-18.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/11/06</th>
<th scope="col">08/04/06</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>561.2</td>
<td>553.3</td>
<td>-26.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>385.9</td>
<td>388.9</td>
<td>-22.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,587.5</td>
<td>1,518.1</td>
<td>-30.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Q2 GDP Eases in Greece & Falls in the Palestinian Territories But Gains in Israel 
by <a href="/comment/Stone.html">Carol Stone</a> August 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816i.jpg" width="353">
Three Mediterranean regions reported Q2 GDP today. In Greece, total GDP eased 0.3% from Q1, Israel saw growth of 1.5% and the Palestinian Territories&#39; GDP fell 1.7%.
The Greek data featured a decline in domestic demand in Q2 after it rose sharply in Q1. The Q2 figures included a reduction in consumption and what might be termed a &quot;correction&quot; in fixed investment. This latter had been up strongly for three quarters running, so the latest period&#39;s decrease still left year-on-year growth of 14.0%, a nice recovery after a contraction in 2005. Consumption is somewhat steadier, maintaining four-quarter growth rates between 3% and 4%. Q2 total GDP was supported by an improvement in net exports. Country-source data for Greece are included in Haver&#39;s ALPMED database, with summary statistics in G10 and EUROSTAT. While the first two are updated by Haver soon after the data are released, the figures in EUROSTAT are available to us only after their staff have released them through their own channels and that database generally includes them some time later.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816j.jpg" width="353">
Israel&#39;s total GDP growth has been fairly steady at about a 6% annual pace for the last year, reflecting moderate gains in consumption and investment and strong exports. Obviously, these are Q2 data and do not cover any of the Israel/Hezbollah conflict, which began July 12. While economic impact is hardly a high priority in analyzing this war right now, the even-tempered performance of Israel&#39;s economy going into it will provide for interesting comparisons when Q3 data are produced.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816k.jpg" width="353">
The Palestinian Territories have a tiny economy, with GDP for 2005 totaling only $4.46 billion in fixed 1997 prices. The first two quarters of this year were weak, with a steep drop of 7.2% in Q1 followed by 1.7% in Q2. Recent data are available only for industrial sectors (not for expenditure categories), and these sectors are experiencing varied patterns. The latest declines came in industry and construction, while transportation is erratic but maintaining a modest growth trend. As with many of the world&#39;s organized economic areas, the service sector is expanding with some vigor, and Q2 was up 16.5% from a year ago. One hopes that has been maintained this quarter despite the tumult around them.
Data on Israel and the Palestinian Territories are contained in Haver&#39;s EMERGEMA database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GDP: % Changes</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Yr/Yr</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"><a href="http://www.haverselect.com/dlx/ALPMED/@A2/@A22/@A22.HTM">Greece*</a></td>
<td>-0.3</td>
<td>2.8</td>
<td>-0.2</td>
<td>4.1</td>
<td>3.7</td>
<td>4.7</td>
<td>4.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption</td>
<td>-1.1</td>
<td>1.5</td>
<td>0.5</td>
<td>3.5</td>
<td>3.6</td>
<td>4.4</td>
<td>3.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Fixed Investment</td>
<td>-4.7</td>
<td>7.4</td>
<td>4.5</td>
<td>14.0</td>
<td>-1.2</td>
<td>5.7</td>
<td>13.7</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEMA/@M7/@M702/@M702.HTM">Israel*</a></td>
<td>1.5</td>
<td>1.4</td>
<td>1.4</td>
<td>6.2</td>
<td>5.2**</td>
<td>4.8**</td>
<td>1.5**</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumption</td>
<td>1.2</td>
<td>1.8</td>
<td>0.0</td>
<td>2.7</td>
<td>3.1**</td>
<td>2.8**</td>
<td>-0.3**</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Fixed Investment</td>
<td>-2.4</td>
<td>2.2</td>
<td>2.2</td>
<td>3.1</td>
<td>2.9**</td>
<td>0.3**</td>
<td>-5.5**</td>
</tr>
<tr class="odd">
<td class="firstcol">Palestinian Territories*</td>
<td>-1.7</td>
<td>-7.2</td>
<td>2.3</td>
<td>1.7</td>
<td>4.9</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
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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/060815g.jpg" width="353">
The Composite Leading Indicator (MBONCUE-SUE) in Turkey is casting some doubt on the continuance of the period of good economic growth and relatively low inflation that the country has experience over the past few years. As can be seen in the first chart the year over year growth in industrial production has ranged between 5% and 9% while the year over year increase in consumer prices has declined from around 22% in 2003 to 8.6% in 2004 and 8.2% in 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815h.jpg" width="353">
Turkey&#39;s composite leading indicator is expressed in three differ forms: (1) Trend Restored (2) Cycle and (3) a six month moving average. All three forms have declined in June and July and, except for Trend Restored, they are below July, 2005 and the Trend Restored form is only 0.51% above July, 2005. The second chart shows the Trend Restored and Cycle. The six-month rate of change shows a similar trend.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815i.jpg" width="353">
The Business Tendency Survey increased in June but has declined in July from 104.4 to 102.4. This measure is so designed that values above 100 represent a preponderance of optimists, values below 100, a preponderance of pessimists and a value of 100, balance between optimists and pessimists. Although the current value is 2.4 points above 100, indicating a preponderance of optimists, it is well below the recent peak of 110.3 in February, 2004. 

<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/EMERGEMA/@M3/@M308/@M308.HTM">Turkey</a></th>
<th scope="col">Jul&nbsp; 06</th>
<th scope="col">Jun 06</th>
<th scope="col">Jul 05</th>
<th scope="col">M/M %</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">Composite Leading Indicator</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Trend Restored&nbsp;</td>
<td>146.25</td>
<td>148.02</td>
<td>145.51</td>
<td>-1.20</td>
<td>0.51</td>
<td>146.13</td>
<td>141.15</td>
<td>132.27</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Cycle</td>
<td>102.79</td>
<td>105.25</td>
<td>104.86</td>
<td>-1.40</td>
<td>-1.97</td>
<td>105.41</td>
<td>144.40</td>
<td>100.30</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Six-month Rate of Change</td>
<td>-2.43</td>
<td>0.09</td>
<td>2.49</td>
<td>-2.52*</td>
<td>-4.92*</td>
<td>3.52</td>
<td>5.14</td>
<td>6.81</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Tendency Survey</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Confidence Index (100=Balance , &gt;100=Optimistic, &lt;100=Pessimistic</td>
<td>102.4</td>
<td>104.4</td>
<td>103.5</td>
<td>-2.20</td>
<td>2.10</td>
<td>122.8</td>
<td>106.8</td>
<td>104.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The Composite Leading Indicator (MBONCUE-SUE) in Turkey is casting some doubt on the continuance of the period of good economic growth and relatively low inflation that the country has experience over the past few years. As can be [...]

Turkey's Leading Composite Indicators and Business Confidence: Harbingers of Lower Growth?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815e.jpg" width="353">
The National Association of Home Builders (NAHB) reported that the August Composite Housing Market Index at 32 fell another 18% from 39 in July to the lowest level since February, 1991. Consensus expectations were for only a small decline to 38. 
During the last twenty years there has been a 75% correlation between the y/y change in the Composite Index and the change in single family housing starts. 
The sub-indexes covering sales of single family homes (-50.7% y/y) and sales in the next six months (-48.1% y/y) were both down sharply again m/m. 
An index of the traffic of prospective home buyers fell further in August. At 21 (-58% y/y) it was the lowest since January, 1991 and the second lowest since the index began in 1985.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815f.jpg" width="353"> 
Housing markets in all regions of the U.S. weakened this month. The index in the Northeast was off 8.1% (-51.4% y/y). In the Midwest the index dropped 25% (-66.7% y/y). The West was down 19.2% (-50.6% y/y) and the South declined 18% (-44.6% y/y). 
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions good than poor. 
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</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">Composite Housing Market Index</td>
<td>32</td>
<td>39</td>
<td>67</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815c.jpg" width="353">
The producer price index for finished goods edged up 0.1% in July, in line with Consensus expectations. The index had increased by 0.5% in June. 
Prices for finished goods excluding food and energy unexpectedly fell 0.3% in July after rising 0.2% the previous month. Consensus estimates had been a 0.1% gain. Prices of light trucks dropped 3.1% compared with an increase of 0.4% in June. Prices in July were also lower for passenger cars (-0.8%) and civilian aircraft (-0.1%). 
The finished energy goods index rose 1.3% (+16.2% y/y) in July after a 0.7% rise in June. Residential electric power prices advanced 1.8% after a 2.8% drop in June. Residential natural gas also rose (+0.9%) compared with a 3.7% decline in June. Gasoline prices moderated somewhat in July (+0.7%) after huge increases in March through June. The gasoline price index in July was 33.7% higher than a year ago. 
The lack of inflationary pressure in finished goods was not shown in the intermediate and crude goods indexes. Intermediate goods prices rose 0.5% in July after a 0.7% increase in June. Excluding food and energy, the intermediate goods index was 0.7% higher compared with an 0.8% advance the prior month. Intermediate energy prices were down last month (-0.1%) led by diesel fuel which declined by 5.0% after rising 5.4% in June. The indexes for jet fuel, residential fuel and home heating oil were all lower in July as well. Industrial and commercial natural gas prices rose, as did liquefied petroleum gas prices. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815d.jpg" width="353">
Materials prices for nondurable manufacturing increased 0.2% last month after a 1.0% advance in June. The index for materials for durable goods manufacturing climbed 2.3% in July compared with a 1.1% gain the previous month. Prices for materials for construction moved up 0.7% after a 0.3% rise in June. 
The PPI for crude materials soared 3.1% in July after declining 1.7% in June. Crude energy materials prices rose 4.8% led by natural gas (+1.2%) and crude petroleum (+9.4%). Crude energy prices had dropped by 6.8% in June. Prices of crude materials less food and energy increased 1.3% following a rise of 1.7% in June. 

<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/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</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">Finished Goods </td>
<td>0.1%&nbsp;</td>
<td>0.5%</td>
<td>4.1%&nbsp;</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Core </td>
<td>-0.3%</td>
<td>0.2%</td>
<td>&nbsp;1.3%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods </td>
<td>0.5%</td>
<td>0.7%</td>
<td>8.8%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Core </td>
<td>0.7%</td>
<td>0.8%</td>
<td>7.9%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods </td>
<td>3.1%&nbsp;</td>
<td>-1.7%</td>
<td>&nbsp;6.7%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
<td>25.1%</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Core </td>
<td>1.3%</td>
<td>1.7%</td>
<td>&nbsp;34.6%</td>
<td>4.8%</td>
<td>&nbsp;26.5%</td>
<td>12.4%</td>
</tr>
</tbody>
</table>


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815a.jpg" width="353">
Manufacturing activity in New York State grew in August but at the slowest pace in 2006. The Empire State Manufacturing Index of General Business Conditions, reported by the Federal Reserve Bank of New York, fell 6.24 points to 10.34 in August. Consensus expectations had been for a lesser decline to 14.25.
Since the series&#39; inception in 2001 there has been a 75% correlation between the index level and the three month change in U.S. factory sector industrial production.
The indexes for new orders &amp; shipments remained positive and higher than previous month&#39;s indexes but unfilled orders went into negative territory. The index of inventories was negative for the third consecutive month. The index of employment was positive but remained at a low level, indicating a modest increase in employment.
Pricing pressure continued to ease. Since 2001 there has been an 88% correlation between the index of prices paid and the three month change in the core intermediate materials PPI.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815b.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
New York manufacturers were less optimistic in August. The Empire State index of expectations for business conditions in six months dropped 10 points to 35.20 with 48% of respondents expecting an improvement in conditions versus 57% during the previous month.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

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</table>
<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/@S511/@S511.HTM">Empire State Manufacturing Survey</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">General Business Conditions (diffusion index)</td>
<td>10.34</td>
<td>16.58</td>
<td>22.61</td>
<td>15.56</td>
<td>28.79</td>
<td>15.98</td>
</tr>
</tbody>
</table>


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815g.jpg" width="353">
The Composite Leading Indicator (MBONCUE-SUE) in Turkey is casting some doubt on the continuance of the period of good economic growth and relatively low inflation that the country has experience over the past few years. As can be seen in the first chart the year over year growth in industrial production has ranged between 5% and 9% while the year over year increase in consumer prices has declined from around 22% in 2003 to 8.6% in 2004 and 8.2% in 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815h.jpg" width="353">
Turkey&#39;s composite leading indicator is expressed in three differ forms: (1) Trend Restored (2) Cycle and (3) a six month moving average. All three forms have declined in June and July and, except for Trend Restored, they are below July, 2005 and the Trend Restored form is only 0.51% above July, 2005. The second chart shows the Trend Restored and Cycle. The six-month rate of change shows a similar trend.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060815i.jpg" width="353">
The Business Tendency Survey increased in June but has declined in July from 104.4 to 102.4. This measure is so designed that values above 100 represent a preponderance of optimists, values below 100, a preponderance of pessimists and a value of 100, balance between optimists and pessimists. Although the current value is 2.4 points above 100, indicating a preponderance of optimists, it is well below the recent peak of 110.3 in February, 2004. 

<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/EMERGEMA/@M3/@M308/@M308.HTM">Turkey</a></th>
<th scope="col">Jul&nbsp; 06</th>
<th scope="col">Jun 06</th>
<th scope="col">Jul 05</th>
<th scope="col">M/M %</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">Composite Leading Indicator</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Trend Restored&nbsp;</td>
<td>146.25</td>
<td>148.02</td>
<td>145.51</td>
<td>-1.20</td>
<td>0.51</td>
<td>146.13</td>
<td>141.15</td>
<td>132.27</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Cycle</td>
<td>102.79</td>
<td>105.25</td>
<td>104.86</td>
<td>-1.40</td>
<td>-1.97</td>
<td>105.41</td>
<td>144.40</td>
<td>100.30</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Six-month Rate of Change</td>
<td>-2.43</td>
<td>0.09</td>
<td>2.49</td>
<td>-2.52*</td>
<td>-4.92*</td>
<td>3.52</td>
<td>5.14</td>
<td>6.81</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Tendency Survey</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Confidence Index (100=Balance , &gt;100=Optimistic, &lt;100=Pessimistic</td>
<td>102.4</td>
<td>104.4</td>
<td>103.5</td>
<td>-2.20</td>
<td>2.10</td>
<td>122.8</td>
<td>106.8</td>
<td>104.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Home Builders (NAHB) reported that the August Composite Housing Market Index at 32 fell another 18% from 39 in July to the lowest level since February, 1991. Consensus expectations were for only a small [...]

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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Tian Yong Woon

In this week's Letter, we explore the significant pullback in oil prices that followed the US-Iran memorandum of understanding and consider its broader economic implications. The agreement saw a fragile ceasefire ensue and a gradual resumption of shipping flows through the Strait of Hormuz (chart 1). We acknowledge that this major pullback will certainly be welcome to policymakers across the region and beyond. Previously elevated energy prices had added to the fiscal burdens of governments and sharpened the dilemma facing central banks (chart 2). That dilemma pits the need to rein in inflation against the risk of choking off economic growth. That said, while one source of inflationary pressure seems to be ebbing, another looks to be emerging on the horizon. It stems from a potential "Super El Niño" event, which meteorologists have been warning about for some time now. Asia sits at the centre of such risks, as past strong El Niño events have directly and adversely affected crop production (chart 3). The impact is not limited to potential surges in headline inflation via food supply shocks, especially in Asia. It extends directly to growth as well (chart 4), given the nontrivial share of GDP that agriculture still commands in many Asian economies (chart 5). Should price pressures simply rotate from energy to food, government subsidies may follow suit (chart 6). Central bankers, for their part, may find themselves unable to ease off the tightening pedal just yet. Some Asian economies, however, would still manage to offset such a growth shock through other engines. Electronics and semiconductors, buoyed by the current AI upcycle, offer one such cushion for the more fortunate. For others, lacking such offsets, the agricultural hit may simply have to be borne in full.

**The US-Iran conflict and oil prices**
The recent memorandum of understanding between the US and Iran, aimed at working towards a final deal, has already brought visible relief to crude oil markets (chart 1). This relief has held despite the renewed tensions that have followed the agreement, which markets seem to have largely looked past. The easing in prices should go a long way towards unwinding the inflation concerns that elevated oil prices had previously stoked. Much of the pullback reflects anticipation of the substantial supply now expected to return to global markets. Yet some shipping trackers, such as the IMF's, already point to a marked pickup in traffic through the Strait of Hormuz. Even so, those volumes still remain well below the levels seen before the conflict began in the region. 

260629T1.jpg

**Oil prices and inflation in Asia**
Should this normalisation of shipping flows through the Strait of Hormuz persist, it would support a corresponding easing in oil prices and energy inflation. That moderation in energy costs would, in turn, help bring down broader headline inflation across the economy. As chart 2 shows, energy has been a large contributor to headline inflation in recent years, though other important forces have been at play too. Such an outcome, in which restored oil supply cools energy inflation, would be a welcome development for central bankers. They face the delicate task of reining in price pressures without tightening policy so far that growth stalls or tips into contraction. That said, while one driver of price pressures now seems to be ebbing, albeit not without the risk of renewed tensions, another source of inflation is building on the horizon.

260629T2.jpg

**Risks of a “Super El Niño”**
As meteorological agencies have warned for some time, the world may be on the cusp of a Super El Niño. The probability of such an event has risen sharply in recent months. Were it to materialise, it would unleash a range of disruptions from the second half of this year, chief among them shifts in weather and climate patterns that can severely dent crop yields. Asian staples such as rice, wheat and palm oil are especially exposed, since strong El Niño events tend to bring drier conditions and reduced rainfall, in turn cutting output across affected economies in the region. Chart 3 illustrates just how tightly some crops are bound to these conditions: SOI readings correlate closely with certain economies' production, notably Thailand's rice harvest, underscoring how dependent such output remains on the weather. These supply shortfalls would then feed inflationary pressures through the food channel. So central bankers may not be able to rest entirely easy following the easing of tensions between the US and Iran, finding themselves wrestling with a fresh set of emerging inflation risks instead.

260629T3.jpg

Delving deeper, an examination of recent strong El Niño episodes against the growth of Asian economies' agricultural sectors shows that extreme weather weighs not just on food prices but on economic growth itself. As chart 4 shows, previous major El Niño episodes—notably in 2014–16 and 2023–24—were associated with weaker agricultural growth across parts of Asia, with India and Thailand appearing particularly vulnerable. This is understandable, since these episodes coincided with reduced crop production and, in turn, lower crop revenue. Should these past episodes serve as a gauge and given that the coming event is potentially the worst on record, these economies stand to suffer once more should it hit as hard as feared.

260629T4.jpg

Beyond the sensitivity of individual economies to extreme El Niño events, vulnerability also depends on the size of the agricultural sector itself. Economies where agriculture accounts for a larger share of output are naturally more exposed to weather-related disruptions. As chart 5 shows, economies such as India, Indonesia and, to a lesser extent, Vietnam carry a comparatively higher share of agriculture in their GDP, which presents a further source of risk. That said, this dimension should not be read in isolation, since the eventual impact would turn on a combination of factors: the degree of exposure, the intensity of El Niño's effect on each economy's agricultural output, and the actual weather conditions that come to pass.

260629T5.jpg

Bringing it all together, the recent de-escalation between the US and Iran and the early normalisation of flows through the Strait of Hormuz are certainly welcome news. Businesses, consumers and policymakers alike stand to benefit from the relief that lower energy prices would bring. Yet the formation of extreme El Niño conditions presents a looming inflation risk over the months ahead. It may displace energy as the dominant driver, shifting the pressure from the energy channel to the food channel. For Asia's central bankers, this could mean they are unable to ease off the tightening pedal just yet (chart 6). Food inflation may simply pick up where energy inflation leaves off, keeping price pressures elevated for longer. Regional governments, too, may have to redirect funds from energy subsidies to food subsidies should the supply shock play out. On growth, however, the picture may prove more uneven across the region than a single narrative suggests. Economies exposed to the current AI upcycle could keep leaning on those sectors for continued support. Those less exposed, by contrast, may simply have to absorb the hit to agriculture with little to offset it.

260629T6.jpg

Asia

Economic Letter from Asia: Oil Down, Emerging Risks

Winnie Tapasanun

260625H9.jpg

260625I9.jpg

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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

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

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

France

French Industry and Services Confidence Diverge in June

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Calmer Waters, New Currents

Michael J. Moran

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

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

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

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

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

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

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

Economy in Brief

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