Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales fell another 0.7% last week following a 0.4% slip the prior period.
Sales for all of June fell 0.4% from the May average which fell 0.4% from April. During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.3% (-2.7% y/y) for the second consecutive week.
The Seasonal Cycle and the Business Cycle from the Federal reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060701/cover.pdf"> here</a>.
Retail gasoline prices rose seven cents in the opening week of July to an average $2.93 per gallon (31.8% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/31/06</th>
<th scope="col">06/24/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>468.3</td>
<td>473.6</td>
<td>2.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales fell another 0.7% last week following a 0.4% slip the prior period. Sales for all of June fell 0.4% from the May average which fell 0.4% from [...]

Chain Store Sales Fell Again, Gasoline Prices Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales fell another 0.7% last week following a 0.4% slip the prior period.
Sales for all of June fell 0.4% from the May average which fell 0.4% from April. During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.3% (-2.7% y/y) for the second consecutive week.
The Seasonal Cycle and the Business Cycle from the Federal reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060701/cover.pdf"> here</a>.
Retail gasoline prices rose seven cents in the opening week of July to an average $2.93 per gallon (31.8% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/31/06</th>
<th scope="col">06/24/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>468.3</td>
<td>473.6</td>
<td>2.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
ADP Nat'l Employment Report Indicates Strength in June 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705a.jpg" width="353">
The Nat&#39;l Employment Report published by ADP, the payroll processors for many employers, indicated that private nonfarm payrolls in June rose 368,000. The rise was the strongest increase in the brief history of the survey.
For the prior month the increase in ADP&#39;s measure of private nonfarm payrolls of 122,000 was accompanied by a meager 67,000 rise in May private nonfarm payrolls as published by the Bureau of Labor Statistics. The June figure from BLS will be published this Friday.
ADP has compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which grew an average of 11,333 per month over the last year.
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/FINAL_NER_JUNE_Report.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.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/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">June</th>
<th scope="col">May</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">Nonfarm Private Payroll Employment (Chg.)</td>
<td>368,000</td>
<td>122,000</td>
<td>2.1%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>
U.S. Vehicle Sales Up a Bit 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706a.jpg" width="353">
US light vehicle sales in June rose 1.3% m/m to 16.30M units and recaptured a piece of the prior month&#39;s 3.9% drop, according to the Autodata Corporation. Consensus expectations had been for sales of 16.4M units.
Overall light truck sales rose 3.6% (-17.2% y/y) last month as sales of imported light trucks rose 2.3% m/m (5.1% y/y) and domestic truck sales recovered all of the prior month&#39;s decline with a 3.9% rise (-20.2% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706b.jpg" width="353">
Auto sales slipped for the second consecutive month in June with a 1.2% decline (+3.1% y/y). Domestic car sales fell 0.2% (-1.8% y/y) while sales of imported autos fell 3.1% (+14.7% y/y).
Imports&#39; share of the US light vehicle market slipped to 23.7% from a record 24.5% during May but remained up versus 20.4% during all of last year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.30</td>
<td>16.10</td>
<td>-8.7%</td>
<td>16.92</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.69</td>
<td>7.79</td>
<td>3.1%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.61</td>
<td>8.31</td>
<td>-17.2%</td>
<td>9.27</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
High & Dry: June Temperature Near Record and Rainfall Well Below Average 
by <a href="/comment/Stone.html">Carol Stone</a> July 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705c.jpg" width="353">
The national average temperature in June was 71.4&deg;F, up 1.8&deg; from last June and 2.25&deg; higher than the average of the last 86 years. In that 86- year span, only 1933 saw a higher June figure, 72.0&deg;, although several years have been above 71.0&deg;.
Rainfall was a little short this June, and although not nearly a record low, was much less than the last several years. The national average amount was 2.58&quot;, compared with 3.15&quot; in June 2005 and 3.52&quot; in June 2004. These were relatively wet times, though, as seen in the table below, with an average since 1921 of 2.92&quot;.
These data come from the National Climatic Data Center, a branch of the Commerce Department in the division known as the National Oceanic and Atmospheric Administration. The National Weather Service is another part of the same Administration. Haver maintains temperature and precipitation by region and state in our REGIONAL database and the national averages are in USECON.
In assessing these data, we made use of some tools in Excel along with the DLX add-in for Excel. Copying codes into a spreadsheet is really easy with the latest versions of DLXVG3. Putting it in &quot;Excel mode&quot; leaves the menus visible. In Excel, we place the cursor in the cell where the first code will appear. In DLXVG3, we highlight the menu item we want, or to get a whole list, we can just click to the left of the first menu item we want and paint down the list as far as needed. Magically (seemingly), the codes and the database name will appear in the spreadsheet.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705d.jpg" width="353">
Instead of the typical date-span entry, we begin to enter the dates manually: for June of each year, we would type in 192106 and 192206. Then, we highlight those cells, grab the box on the corner and drag it down as far as needed. Excel will see the pattern in the dates and replicate it all the way down the column. In setting the range, we&#39;ll need to highlight the entire area covering the columns of codenames and the rows of dates. Then when we retrieve the data we&#39;ll have June of each year for 86 years for whichever items are of interest to us.
For instance, I retrieved temperatures for the nine special weather regions and used Excel functions to find the maximum, minimum, median and mean. A quick look at these figures and the bottom row of data shows that only one region, the West, set a new temperature record in June, but seven of the nine regions had above-average temperatures for the month. The maximums for each show that most records occurred many years ago: three in the early 1950s, one in 1943 and one in 1933, the same year as the national record. Besides the West, recent records were in the Southwest in 2002 and in the West North Central states in 1988.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EH/@EH03/@EH03.HTM">June Weather</a></th>
<th scope="col">June 2006</th>
<th scope="col">June 2005</th>
<th scope="col">June 2004</th>
Averages for Junes
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2001-2006</td>
<td>1976-2000</td>
<td>1951-1975</td>
<td>1921-2006</td>
</tr>
<tr>
<td class="firstcol">Temperature (degrees F)</td>
<td>71.4</td>
<td>69.6</td>
<td>68.5</td>
<td>69.78</td>
<td>69.24</td>
<td>68.26</td>
<td>69.15</td>
</tr>
<tr class="odd">
<td class="firstcol">Precipitation (inches)</td>
<td>2.58</td>
<td>3.15</td>
<td>3.52</td>
<td>3.07</td>
<td>2.93</td>
<td>2.85</td>
<td>2.92</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/060703e.jpg" width="353">
We&#39;ve haven&#39;t commented on the Bank of Japan&#39;s TANKAN report since December, so even though we just talked about Japan&#39;s employment data on Friday, this information bears examination promptly as well. Large manufacturing firms, the widely followed &quot;headline&quot; segment, saw business conditions in June at +21%, up 1 point from March&#39;s 20% reading (a %-balance measure: % favorable less % unfavorable). This result was just below the group&#39;s forecast of 22%. They anticipate another 21% in September.
All size firms in all industries also firmed by 1 point from March, from +5% to +6% in June. This performance met their expectations and they look to repeat the +6% in September. All large firms have been holding at 20% with a prospect for 21% in September. Medium-sized companies moved up from +7% in March to +8% in June and hope for +9% in the next period. Small firms continue to struggle, however, with a -2% reading in this survey, a little better than March&#39;s -3%, although they look to some deterioration over the summer to -4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703f.jpg" width="353">
The large manufacturing companies report that their sales growth this fiscal year continues to come mainly from export customers, with a projection of a 5.2% gain; fiscal 2005 ended with a substantial 11.7% rise, 3.1% more than their last estimate. This year&#39;s estimate represents a 6.0 point upward revision of the previous export sales forecast. Domestic sales are not doing as well. The FY2005 outcome was 5.1% growth, even with the previous estimate, but the expectation for this year is just 1.7%, a downward revision of 0.9-point from the last forecast. A breakout by customer is not shown for other firm sizes or industries, but they all expect further gains in total sales this fiscal year and have raised their forecasts after 2005 came in better than forecast.
News reports highlighted forecasts for capital investment this year. Last year&#39;s actual spending amounts were in fact somewhat lower than forecast, albeit at still good rates; for example, large manufacturing firms expanded capital spending by 13.9%, but this was 2.6% lower than expected. However, rather than revising down this year&#39;s forecasts after that modest shortfall, these firms raised their 2006 plans by 8.2 points to 16.4%. This high number prompted a number of analysts to assert that it would add to the evidence favoring an increase in the BoJ&#39;s target overnight call rate at its meeting next week (July 13 &amp; 14). The employment data we reported on Friday and another positive CPI for May (+0.6% year/year) also add to that argument. The call rate, which has been virtually 0% since September 2001, edged upward to 0.02% (2 basis points) last Friday, end-June.
Finally, as we call to your attention frequently, the TANKAN survey was dramatically reorganized two years ago, most significantly changing the very definition of &quot;size&quot; from employee-based to capital-based. Thus, for example, firms counted as &quot;small&quot; before because they employed fewer than 300 people might now be &quot;large&quot; because they have substantial capital; this is particularly true for high-tech companies. Thus, we continue to separate data for the two periods in the survey in our JAPAN database. However, in the Haver database &quot;G10&quot;, where we include some customized series that we calculate, we show a long history for &quot;all firms&quot;, which would not have been affected by the modified size criterion. That series, seen in the second graph, was +6 this quarter, the highest reading since December 1991, 14-1/2 years ago.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Conditions:&nbsp; % Favorable minus % Unfavorable</th>
June 2006
March 2006
December 2005
<th scope="col">Sept 2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Forecast for Sept</td>
<td>Actual</td>
<td>Forecast for June</td>
<td>Actual</td>
<td>Forecast for Mar</td>
<td>Actual</td>
<td>Forecast for Dec</td>
</tr>
<tr>
<td class="firstcol">All Firms</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>5</td>
<td>4</td>
<td>5</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Firms*</td>
<td>21</td>
<td>20</td>
<td>20</td>
<td>20</td>
<td>18</td>
<td>19</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol">Manufacturing (&quot;Headline Series&quot;)</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>20</td>
<td>19</td>
<td>21</td>
<td>18</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonmanufacturing</td>
<td>21</td>
<td>20</td>
<td>19</td>
<td>18</td>
<td>17</td>
<td>17</td>
<td>16</td>
</tr>
<tr>
<td class="firstcol">Medium-Sized Firms**</td>
<td>9</td>
<td>8</td>
<td>8</td>
<td>7</td>
<td>5</td>
<td>5</td>
<td>3</td>
</tr>
<tr class="odd">
<td class="firstcol">Small Firms***</td>
<td>-4</td>
<td>-2</td>
<td>-2</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-5</td>
</tr>
</tbody>
</table>
</body>
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We've haven't commented on the Bank of Japan's TANKAN report since December, so even though we just talked about Japan's employment data on Friday, this information bears examination promptly as well. Large manufacturing firms, the [...]

Japan's "TANKAN" Steady at Higher Readings; High Investment Forecast Adds to Expectations of Hike in BoJ Interest Rate

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703c.jpg" width="353">
The value of construction put in place fell another 0.4% in May following a little revised 0.2% slip during April. Consensus expectations had been for a 0.2% gain and revisions to the data extended back to January 2003.
Lower residential building activity led the decline during May with a 0.8% drop. New single family building fell a notable 1.7% (+3.7% y/y) after a similar drop the month prior. Spending on multi-family projects slipped a more moderate 0.5% (+23.1% y/y) while the value of spending on improvements jumped 1.8% (-6.8% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP. During April and May the value of residential building activity was down 1.3% from the 1Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703d.jpg" width="353">
Nonresidential building slipped 0.3% following downwardly revised during prior months but the 2Q level so far is up 3.1% from the prior quarter. Office construction added 0.2% to the 2.5% surge during April (8.8% y/y) and commercial building slipped 0.8% (+5.4% y/y). Multi-retail building jumped another 5.1% (36.9% y/y) as building activity at shopping malls (39.3% y/y) and shopping centers (57.7% y/y) was firm.
Public construction spending increased 0.7% though construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose just 0.1% (16.3% y/y) after several months of strong gain.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>6.0%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.6%</td>
<td>-0.3%</td>
<td>5.3%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.8%</td>
<td>-1.2%</td>
<td>2.4%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>1.6%</td>
<td>12.7%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.7%</td>
<td>0.5%</td>
<td>8.7%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place fell another 0.4% in May following a little revised 0.2% slip during April. Consensus expectations had been for a 0.2% gain and revisions to the data extended back to January 2003. Lower [...]

U.S. Construction Spending Off Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703a.jpg" width="353">
The June Composite Index of factory sector activity reported by the Institute of Supply Management (ISM) slipped to 53.8 from 54.4 the month prior. Consensus expectations had been for a slight increase to 55.0.
During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
A 4.2 point drop in the employment index to 48.7 dropped the reading below the break even level of 50 for the first time in over a year. During the last twenty years there has been a 66% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The production index also fell for the second consecutive month to its lowest (55.1) since early 2003 and the inventory index (46.9) fell for the fourth month this year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703b.jpg" width="353">
New orders (57.9) improved for the first month in the last four and recovered most of the prior two months&#39; decline. New export orders slipped modestly m/m and at 55.4 were down from the highs of the prior nine months. During the last nineteen years there has been a 68% correlation between the level of the ISM export index and the y/y change in real exports of goods.
An index of order backlogs rose moderately to 54.0 following two months of sharp decline while the import index was unchanged at a still strong 56.5.
The price index slipped modestly following several m/m jumps earlier this year. During the last twenty years there has been a 91% correlation between the price index and the three month change in the PPI for intermediate goods less food &amp; energy.
The Puzzling Convergence in Foreign Exchange Volatility from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/aiet/20060701/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</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 Index</td>
<td>53.8</td>
<td>54.4</td>
<td>54.0</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>57.9</td>
<td>53.7</td>
<td>57.2</td>
<td>57.4</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>76.5</td>
<td>77.0</td>
<td>50.5</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
</body>
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The June Composite Index of factory sector activity reported by the Institute of Supply Management (ISM) slipped to 53.8 from 54.4 the month prior. Consensus expectations had been for a slight increase to 55.0. During the last twenty [...]

ISM Index Disappointing Again in June, but Orders Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703a.jpg" width="353">
The June Composite Index of factory sector activity reported by the Institute of Supply Management (ISM) slipped to 53.8 from 54.4 the month prior. Consensus expectations had been for a slight increase to 55.0.
During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
A 4.2 point drop in the employment index to 48.7 dropped the reading below the break even level of 50 for the first time in over a year. During the last twenty years there has been a 66% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The production index also fell for the second consecutive month to its lowest (55.1) since early 2003 and the inventory index (46.9) fell for the fourth month this year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703b.jpg" width="353">
New orders (57.9) improved for the first month in the last four and recovered most of the prior two months&#39; decline. New export orders slipped modestly m/m and at 55.4 were down from the highs of the prior nine months. During the last nineteen years there has been a 68% correlation between the level of the ISM export index and the y/y change in real exports of goods.
An index of order backlogs rose moderately to 54.0 following two months of sharp decline while the import index was unchanged at a still strong 56.5.
The price index slipped modestly following several m/m jumps earlier this year. During the last twenty years there has been a 91% correlation between the price index and the three month change in the PPI for intermediate goods less food &amp; energy.
The Puzzling Convergence in Foreign Exchange Volatility from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/aiet/20060701/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</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 Index</td>
<td>53.8</td>
<td>54.4</td>
<td>54.0</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>57.9</td>
<td>53.7</td>
<td>57.2</td>
<td>57.4</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>76.5</td>
<td>77.0</td>
<td>50.5</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Off Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703c.jpg" width="353">
The value of construction put in place fell another 0.4% in May following a little revised 0.2% slip during April. Consensus expectations had been for a 0.2% gain and revisions to the data extended back to January 2003.
Lower residential building activity led the decline during May with a 0.8% drop. New single family building fell a notable 1.7% (+3.7% y/y) after a similar drop the month prior. Spending on multi-family projects slipped a more moderate 0.5% (+23.1% y/y) while the value of spending on improvements jumped 1.8% (-6.8% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP. During April and May the value of residential building activity was down 1.3% from the 1Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703d.jpg" width="353">
Nonresidential building slipped 0.3% following downwardly revised during prior months but the 2Q level so far is up 3.1% from the prior quarter. Office construction added 0.2% to the 2.5% surge during April (8.8% y/y) and commercial building slipped 0.8% (+5.4% y/y). Multi-retail building jumped another 5.1% (36.9% y/y) as building activity at shopping malls (39.3% y/y) and shopping centers (57.7% y/y) was firm.
Public construction spending increased 0.7% though construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose just 0.1% (16.3% y/y) after several months of strong gain.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>6.0%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.6%</td>
<td>-0.3%</td>
<td>5.3%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.8%</td>
<td>-1.2%</td>
<td>2.4%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>1.6%</td>
<td>12.7%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.7%</td>
<td>0.5%</td>
<td>8.7%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Japan's "TANKAN" Steady at Higher Readings; High Investment Forecast Adds to Expectations of Hike in BoJ Interest Rate 
by <a href="/comment/Stone.html">Carol Stone</a> July 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703e.jpg" width="353">
We&#39;ve haven&#39;t commented on the Bank of Japan&#39;s TANKAN report since December, so even though we just talked about Japan&#39;s employment data on Friday, this information bears examination promptly as well. Large manufacturing firms, the widely followed &quot;headline&quot; segment, saw business conditions in June at +21%, up 1 point from March&#39;s 20% reading (a %-balance measure: % favorable less % unfavorable). This result was just below the group&#39;s forecast of 22%. They anticipate another 21% in September.
All size firms in all industries also firmed by 1 point from March, from +5% to +6% in June. This performance met their expectations and they look to repeat the +6% in September. All large firms have been holding at 20% with a prospect for 21% in September. Medium-sized companies moved up from +7% in March to +8% in June and hope for +9% in the next period. Small firms continue to struggle, however, with a -2% reading in this survey, a little better than March&#39;s -3%, although they look to some deterioration over the summer to -4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703f.jpg" width="353">
The large manufacturing companies report that their sales growth this fiscal year continues to come mainly from export customers, with a projection of a 5.2% gain; fiscal 2005 ended with a substantial 11.7% rise, 3.1% more than their last estimate. This year&#39;s estimate represents a 6.0 point upward revision of the previous export sales forecast. Domestic sales are not doing as well. The FY2005 outcome was 5.1% growth, even with the previous estimate, but the expectation for this year is just 1.7%, a downward revision of 0.9-point from the last forecast. A breakout by customer is not shown for other firm sizes or industries, but they all expect further gains in total sales this fiscal year and have raised their forecasts after 2005 came in better than forecast.
News reports highlighted forecasts for capital investment this year. Last year&#39;s actual spending amounts were in fact somewhat lower than forecast, albeit at still good rates; for example, large manufacturing firms expanded capital spending by 13.9%, but this was 2.6% lower than expected. However, rather than revising down this year&#39;s forecasts after that modest shortfall, these firms raised their 2006 plans by 8.2 points to 16.4%. This high number prompted a number of analysts to assert that it would add to the evidence favoring an increase in the BoJ&#39;s target overnight call rate at its meeting next week (July 13 &amp; 14). The employment data we reported on Friday and another positive CPI for May (+0.6% year/year) also add to that argument. The call rate, which has been virtually 0% since September 2001, edged upward to 0.02% (2 basis points) last Friday, end-June.
Finally, as we call to your attention frequently, the TANKAN survey was dramatically reorganized two years ago, most significantly changing the very definition of &quot;size&quot; from employee-based to capital-based. Thus, for example, firms counted as &quot;small&quot; before because they employed fewer than 300 people might now be &quot;large&quot; because they have substantial capital; this is particularly true for high-tech companies. Thus, we continue to separate data for the two periods in the survey in our JAPAN database. However, in the Haver database &quot;G10&quot;, where we include some customized series that we calculate, we show a long history for &quot;all firms&quot;, which would not have been affected by the modified size criterion. That series, seen in the second graph, was +6 this quarter, the highest reading since December 1991, 14-1/2 years ago.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Conditions:&nbsp; % Favorable minus % Unfavorable</th>
June 2006
March 2006
December 2005
<th scope="col">Sept 2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Forecast for Sept</td>
<td>Actual</td>
<td>Forecast for June</td>
<td>Actual</td>
<td>Forecast for Mar</td>
<td>Actual</td>
<td>Forecast for Dec</td>
</tr>
<tr>
<td class="firstcol">All Firms</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>5</td>
<td>4</td>
<td>5</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Firms*</td>
<td>21</td>
<td>20</td>
<td>20</td>
<td>20</td>
<td>18</td>
<td>19</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol">Manufacturing (&quot;Headline Series&quot;)</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>20</td>
<td>19</td>
<td>21</td>
<td>18</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonmanufacturing</td>
<td>21</td>
<td>20</td>
<td>19</td>
<td>18</td>
<td>17</td>
<td>17</td>
<td>16</td>
</tr>
<tr>
<td class="firstcol">Medium-Sized Firms**</td>
<td>9</td>
<td>8</td>
<td>8</td>
<td>7</td>
<td>5</td>
<td>5</td>
<td>3</td>
</tr>
<tr class="odd">
<td class="firstcol">Small Firms***</td>
<td>-4</td>
<td>-2</td>
<td>-2</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-5</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060630d.jpg" width="353">
For Japan, as was the case yesterday with Germany, the last time we wrote about the labor market was three months ago. Back then, we were all excited about rising employment in Japan and falling unemployment, particularly for February. In the intervening months, however, Japanese labor conditions have hesitated somewhat, although employment has been basically stable with February&#39;s strong performance.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060630e.jpg" width="353">
In May, employment gained 270,000 after a cumulative loss of 280,000 in March and April. The total amount in May, 63.91 million workers, remains above the levels of all but two months in the last 4 1/2 years. The highest was 63.93 million in September 2005, followed by February&#39;s 63.92 million. Other months, as evident from the graph and the table below, have been noticeably weaker.
The news headlines today highlighted May&#39;s low unemployment rate, 4.0%, which, as seen in the second graph, is the lowest since early 1998. However, our own enthusiasm was tempered by a look at labor force data. Japan&#39;s Ministry of Internal Affairs and Communications doesn&#39;t publish the labor force series on a seasonally adjusted basis, but we can calculate it by adding employment and unemployment. Last time we assessed these data, we were pleased to describe growth in the labor force, which meant that the decline in unemployment was coming from the strength of employment. This time, though, as we describe above, employment has been flat for three months and the second graph shows that the labor force has also stopped growing. Thus, May&#39;s dip in unemployment is not a sign of further strength, but of hesitation by workers, who likely remain skittish about the prospects for continuing growth.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060630f.jpg" width="353">
At the same time, we don&#39;t want to downplay the employment performance. Two key sectors, manufacturing and construction are looking better. The third graph indicates that these have both stabilized after declines that began in about 1997. These industry data are not seasonally adjusted either, so they&#39;re a bit erratic. But manufacturing is notable for not experiencing the jobs decline that has characterized the spring months in several recent years; instead, gains from last summer have largely held, a situation we see as impressive with the competition Japan manufacturing faces from its neighbors. Construction job gains are a good sign that investment is picking up, a quite tangible expression of confidence.

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">May</th>
<th scope="col">April</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">Personal Income</td>
<td>0.4%</td>
<td>0.7%</td>
<td>5.4%</td>
<td>5.4%</td>
<td>5.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.4%</td>
<td>0.7%</td>
<td>6.7%</td>
<td>6.5%</td>
<td>6.5%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-1.7%</td>
<td>-1.6%</td>
<td>0.0% (May &#39;05)</td>
<td>-0.5%</td>
<td>1.7%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.4%</td>
<td>0.5%</td>
<td>3.3%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>
</body>
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For Japan, as was the case yesterday with Germany, the last time we wrote about the labor market was three months ago. Back then, we were all excited about rising employment in Japan and falling unemployment, particularly for [...]

Japan Employment Hesitates, But Remains High; Unemployment Rate at 8-Year Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060630c.jpg" width="353">
Consumer sentiment during all of June improved 7.3% from the prior month to 84.9 according to the University of Michigan. The increase recovered most of a 9.5% slump during May, built on the rise that was reported earlier and exceeded Consensus expectations for a reading of 82.5.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The reading of current economic conditions rose 9.3% as the index of current personal finances rose 10.8% (-7.4% y/y). Buying conditions for large household goods were judged to be 8.2% better (-7.6% y/y) than during May.
Expectations for the economy rose for just the second month this year. The 5.6% June gain reflected an 8.6% rise in business conditions expected during the next year. But long term (5 year) expectations for business conditions fell for the fourth month in the last five (-23.3% y/y). Consumers&#39; opinion about gov&#39;t economic policy fell 3.9% m/m (-20.4% y/y).
Expected inflation during the next year slipped modestly to 4.4% and the five to ten year expected rate of inflation also fell to 3.5%.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">June (Final)</th>
<th scope="col">June (Prelim.)</th>
<th scope="col">May</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">Consumer Sentiment</td>
<td>84.9</td>
<td>82.4</td>
<td>79.1</td>
<td>-11.6%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>105.0</td>
<td>103.1</td>
<td>96.1</td>
<td>-7.2%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>72.0</td>
<td>69.2</td>
<td>68.2</td>
<td>-15.3%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer sentiment during all of June improved 7.3% from the prior month to 84.9 according to the University of Michigan. The increase recovered most of a 9.5% slump during May, built on the rise that was reported earlier and exceeded [...]

U.S. Consumers' Spirits Rose Further as Inflation Expectations Fell

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

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**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

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**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

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**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

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**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

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**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

260423Z6.jpg

Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

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Charts of the Week: Risks Build, Markets Shrug

Sandy Batten

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The National Activity Index published by the Federal Reserve Bank of Chicago (CFNAI) slipped to -0.20 in March from an upwardly revised +0.03 in February (previously (-0.11). This is the lowest monthly reading since last November. Smoothing out the monthly volatility, the index's three-month moving average (CFNAI-MA3) declined to -0.03 in March from an upwardly revised +0.03 in February (previously -0.01).

This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that readings on the 3-month average of -0.70 or below are consistent with the economy being in a recession. Therefore, even though the March reading on the 3-month average was negative, it indicates that the US economy is still growing, just slightly slower than trend, and is well away from recessionary conditions. The 3-month average would be much deeper in negative territory if the economy was at risk of contracting.

The National Activity Index is a composite of 85 economic indicators, grouped into four major categories: production and income; employment, unemployment, and hours worked; personal consumption and housing; sales, orders, and inventories. Three of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. Production-related indicators contributed –0.20 to the CFNAI in March, down from +0.13 in February. The sales, orders, and inventories category's contribution to the CFNAI was –0.01 in March, down from +0.05 in February. Employment-related indicators contributed +0.02 to the CFNAI in March, up from –0.15 in February. The personal consumption and housing category's contribution to the CFNAI was –0.01 in March, down from a neutral value in February.

The CFNAI Diffusion Index, which measures the breadth of the change in the component series and is also a three-month moving average, increased to –0.04 in March from –0.08 in February. This is the highest reading since February 2025. A reading of zero indicates that all of the indicators are growing at their long-term average. If all of the underlying indicators in a given month are below their long-run averages, the diffusion index will equal -1. If all of the indicators are above their long-run averages, it will equal +1. Thirty-four of the 85 individual indicators made positive contributions to the CFNAI in March, while 51 made negative contributions. Forty-three indicators improved from February to March, while 40 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions.

These figures are available in Haver's **SURVEYS** database.

- The monthly reading fell to -0.20 in March from an upwardly revised +0.03 in February.
- The three-month average slipped from +0.03 to -0.03.
- Despite the slip in March, the index points to near-trend economic growth and is well above recession territory.

Chicago Fed National Activity Index Slipped in March

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose by 6,000 to 214,000 in the week ending April 18, from 208,000 in the week ending April 11, revised from 207,000. The four-week average rose 750 to 210,750 in the week ending April 18, from 210,000 the April 11 week, revised from 209,750. The Action Economics/Haver Analytics Survey looked for 210,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 12,000 to 1.821 million in the week ending April 11, from 1.809 million in the week ending April 4. The four-week moving average rose to 1.812 million in the latest week from 1.811 million in the March 28 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 4, the highest unemployment rates were in New Jersey (2.51%), Massachusetts (2.37%), Rhode Island (2.31%), Washington (2.25%), Minnesota (2.11%), and California (2.02%). The lowest rates were in Florida (0.30%), Louisiana (0.31%), Arkansas (0.35%), Alabama (0.36%), North Carolina (0.39%), Tennessee (0.46%), South Dakota (0.47%), Kansas and Virginia (both 0.49%). Rates in other notable states include New York (1.92%), Illinois (1.82%), Pennsylvania (1.52%), and Texas (1.04%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims rose by 6,000 to 214,000.
- Continuing claims rose by 12,000 to 1.821 million.
- The insured unemployment rate remained at 1.2%.


U.S. Initial Unemployment Claims Rose in the Week of April 18

Winnie Tapasanun

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Mortgage applications rose 7.9% w/w (29.9% y/y) in the week ending April 17 following a 1.8% rebound in the week ending April 10, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the second successive w/w gain and the largest since the February 27 week, lifting the index to 303.3, its highest level since the March 20 week. Applications for loans to purchase a house jumped 10.1% (14.5% y/y) in the April 17 week, the biggest w/w increase since the January 9 week, after a 1.0% decline in the previous week. Applications for loan refinancing rose 5.8% (51.9% y/y) in the April 17 week following a 5.1% rebound in the April 10 week.

The effective interest rate on a 30-year fixed-rate loan fell 7bps to 6.53% in the week ending April 17 from 6.60% in the week ending April 10; it was above a low of 6.29% in the week of September 20, 2024 but below a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages dropped 12bps to 5.92% in the April 17 week from 6.04% in the previous week; it was up from a low of 5.60% in the week of September 20, 2024 but down from a high of 7.44% in the week of October 27, 2023. The rate on 30-year jumbo loans declined 5bps to 6.56% in the April 17 week from 6.61% in the prior week; it was above its most recent low of 6.25% in the February 27 week but below a high of 7.99% in the week of October 27, 2023. These three rates hit their lowest levels since the March 13 week. Meanwhile, the rate on a 5-year ARM edged up to 5.81% in the April 17 week, the first w/w increase in four weeks, from 5.80% in the previous week (the lowest since the March 6 week); it was above its most recent low of 5.38% in the February 20 week but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan fell to 44.2% of total applications in the week ending April 17—the sixth w/w fall in seven weeks and the lowest level since the week of August 1, 2025—after rising to 45.5% in the week ending April 10; those numbers remained below a peak of 61.9% in the January 16 week. The adjustable-rate mortgage (ARM) share of activity declined to a three-week-low 8.0% in the April 17 week from 8.4% in the prior week; it was below a peak of 12.9% in the week of September 12, 2025 but above a low of 4.7% in the week of January 3, 2025.

The average size of a mortgage loan, up for the third consecutive week, rose 1.2% w/w (3.4% y/y) to $399,900 in the April 17 week, the highest level since the March 13 week, after a 1.3% increase to $395,000 in the April 10 week. The average size of a purchase loan eased 0.1% (+3.6% y/y) to $455,600 in the April 17 week, the fourth w/w decline in five weeks, following a 1.8% rebound to $456,100 in the prior week. The average size of a loan to refinance a mortgage climbed 2.4% (10.7% y/y) to $329,500 in the April 17 week after a 1.5% rise to $321,800 in the previous week, marking the third successive w/w increase and the highest level since the March 20 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications +10.1% w/w, biggest increase since the Jan. 9 week; refinancing loan applications +5.8% w/w, second consecutive rise.
- Effective interest rate on 30-year fixed loans down 7bps to 6.53%, a five-week low.
- Average loan size up for the third straight week, highest level since the March 13 week.

U.S. Mortgage Applications Up 7.9% in the April 17 Week, Largest Gain Since Late February

Robert Brusca

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The National Bank of Belgium consumer survey for April registered -9, compared to a reading of -6 in March and +1 in February. Since the war in the Middle East began, confidence readings have declined steadily. However, the April consumer confidence reading of -9 still shows improvement from its level of -14 recorded 2 months ago. The index has a 37.8 percentile standing based on data back to 1991, which places it below its historic median: the median ranking occurs at a percentile standing of 50.

The responses to the survey are mixed and some of them are quite negative; however, a few also are quite upbeat. For now, the main message is that the survey is mixed. While most confidence readings tend to the weak side, there are a few that are actually quite encouraging.

**Economic Situation**
A survey on the economic situation shows improvement for the next 12 months; its April reading rose to -43 in April from -45 in March. However, with the onset of war, the March reading had fallen to -45 from -25 in February, so the month-to-month uptick in April is really small potatoes. The 12-month change in the outlook for the economic situation over the next 12 months is a tick better in April 2026 than it was in April 2025. Continuing the back and forth on its “bad but not that bad” swing, the queue reading of the index on data back to 1991 has only a 1.8 percentile standing, marking it as weaker than its current level less than 2% of the time and ending the back-and-forth on whether the reading is poor or not. It is very weak.

The assessment of the economic situation over the last 12 months deteriorated to -57 in April from -42 in March, and it also worsened compared to its level of a year ago. In addition, its standing is in the bottom 8% of its historic queue data.

**Prices**
Price trends give us some of the clearest and most negative views. Prices over the next 12 months improved slightly from March, moving to a reading of 50 in April from 53 in March. Still, the April reading of 50 is higher than its reading of 35 one year ago, and its standing is in the top 1% of all observations on data back to 1991. Those are dismal statistics. Price trends for the last 12 months are shown to have been slightly more stable but still with readings that had been historically worse, only about 15% of the time, marking the past inflation environment as having been poor as well.

**Unemployment**
The consumers’ unemployment forecast went up in April to a reading of +6 from -3 in March; it had deteriorated to -3 in March from -11 in February. A rising unemployment response reflects deterioration. People are assessing the possibility of unemployment as getting higher, although at +6 the April reading is substantially reduced compared to what it was a year ago at +21. The standing for the unemployment forecast is only in its 16.7 percentile of its historic queue of data, meaning that the likelihood of unemployment has been lower than this, only about 16% to 17% of the time.

**Major Household Purchases**
If you look at the environment to make major household purchases, the responses of consumers become slightly more convoluted since the question as to whether it's favorable to buy at present deteriorated sharply in April to -44 from -23 in March; that was a sharp deterioration from -20 a year ago. Ranking the current -44 reading on data back to 1991, this is the weakest or the worst favorability for spending on this timeline. So that particular sequence of data doesn't fit really well with the unemployment responses, although being unemployed and finding it's a favorable time to buy goods are different things; both do speak to the economic environment which we can see is somewhat touch and go.

The outlook for making major purchases over the next 12 months deteriorated slightly over the last few months, with a reading of -19 compared to -17 a year ago. That current reading has a 24.3 percentile standing, placing it in the lower quartile of its historic queue of data. This underlines that the spending environment has been poor throughout the last year compared to historic experience since the 1990s.

**The Financial Situation of Households**
The financial situation of households over the next 12 months deteriorated slightly in April to -5 from -3, and it had deteriorated in March to -3 from -2 in February. Even so, the April reading of  5 was stronger than -8 recorded one year ago. Still, if we let the ranking on data back to 1991 be the arbiter of whether the assessment of conditions is weak, the 10.6 percentile standing for the financial situation ahead and the 12.2 percentile standing for the financial situation of households over the last 12 months both indicate decisive weakness.

**The Current Situation**
The next reading is a bit of a surprise given the drumbeat of weakness that we see from the data above. The current situation appraisal did backtrack in April to 21 from 25 in March, but it's only slightly weaker than a reading of 22 in February. The April 2026 reading of 21 is slightly weaker than a reading of 25 one year ago. However, the April reading has a percentile standing on data back to 1991 at its 74.5 percentile, putting it right at the border of its top 25th percentile.

So, the current situation is appraised as a top 25-percentile standing, but the environment for making purchases over the next 12 months has a lower 24-percentile standing; and the current situation has a favorability for buying which is the worst that we've seen in the entire period. However, expectations of unemployment remain low. To round out this situation, the favorability to save over the next 12 months has a ranking in its 86-percentile, making it a top 15-percentile reading. The favorability to save at present has a 58-percentile standing, placing it above its historic median and slightly better than average. What we have are crosscurrents.

On balance, you see the consumers view their situation as having a lot of crosscurrents. In terms of the thing they fear the most, unemployment conditions are not considered to be at risk and the economic situation is appraised to be in the upper tier of where it has been since the 1990s even though the favorability of spending is the worst experience for consumers on that same timeline. But the inflation readings are unambiguously bad—and worsening.

It would appear from these crosscurrents that the Belgian consumer is ripe for being pushed one way or the other if events were to markedly either improve or to deteriorate.

Economy in Brief

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