Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320b.jpg" width="353">
The Composite Index of Leading Economic Indicators fell 0.2% last month following four months of increase, reported the Conference Board. The decline about matched Consensus expectations for a 0.3% drop but it was accompanied by a revision to January which halved that month&#39;s gain to 0.5% from the 1.1% surge estimated initially.
During the last ten years there has been a 43% correlation between the six-month change in the leading indicators and quarterly growth in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 50% in February from 70% in January although over six months the breadth of gain in the leaders surged back to 90%.
Higher initial claims for unemployment insurance, easier vendor performance, lower consumer expectations and lower building permits made large negative contributions to last month&#39;s decline in the leading index.
The minimal 0.01 percentage point positive contribution from the spread between yields on the 10 year Treasury Note and the Fed funds rate was the was the second in two months. The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.3% following an unchanged reading for January, initially reported at +0.2%. All of the four component series rose both last month and during the last six months. During the last ten years there has been a 64% correlation between the change in the coincident indicators and real GDP.
The lagging indicators rose just 0.1% following a downwardly revised 0.5% January gain. Over the last six months, three quarters of the series&#39; components rose. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, reversed most of the prior month&#39;s decline.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">6 Month Chg., AR</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.2%</td>
<td>0.5%</td>
<td>4.7%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.7%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
ECRI Leading Index: Momentum Strength Diminished 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320a.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) slipped 0.1% last week. The decline was the fifth in the last six weeks and lowered the index&#39;s six month growth rate to 3.0% from an early February high of 5.1%.
During the last ten years there has been a 53% correlation between the change in the weekly leading index and US real GDP growth during the following quarter. The correlation has risen to 71% during the last five years.
The very recent deceleration in the leaders&#39; growth follows improvement early this year. That slowdown mirrors the pattern of slightly slower growth in the leading series from the Conference Board and the OECD.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">3/10/06</th>
<th scope="col">12/30/05</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">Weekly Leading Index</td>
<td>136.8</td>
<td>135.7</td>
<td>0.8%</td>
<td>134.5</td>
<td>132.6</td>
<td>124.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>3.0%</td>
<td>3.1%</td>
<td>&nbsp;</td>
<td>1.9%</td>
<td>4.2%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
 Inflation at the Producer Level Heats up in Germany 
by <a href="/comment/Curley.html">Louise Curley</a> March 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320c.jpg" width="353">
Producer prices in Germany rose 0.7% in February. Prices of intermediate goods were up 0.56%, those of investment goods fell 0.10% and prices of consumer goods were unchanged. The rise was due almost entirely to continued rising energy costs. As the first chart shows, energy price increases have greatly exceeded those of the index excluding construction and energy since early 2005, widening the gap between the two series
The rise in February was larger than expected and is likely to increase inflation concerns of the European Central Bank (ECB). The ECB has already raised its key interest rate from 2%, which had been in place since June 2003, to 2.25% last December and again in March to 2.5%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320d.jpg" width="353">
While the ECB focuses on the consumer price index, it is mindful of the potential impact that rising producer prices may have on consumer prices. The second chart shows the course of consumer and producer prices over the past five years.The rise in producer prices over the past year has been bigger and more persistent than previous rises and is, therefore, more likely to have a significant impact on consumer prices.
Even if energy prices should stabilize or decline, these second-round effects of the high energy prices could soon begin to affect consumer prices particularly as the economy continues to show signs of increased activity. Early this month, February new orders, both foreign and domestic were reported to have increased and last week, Manpower reported that German employers intended to increase employment in the first two quarters of this year.

<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/GERMANY/@D4/@D45/@D45.HTM">German Producer&nbsp; Price Index (2000=100)</a></th>
<th scope="col">Feb 06</th>
<th scope="col">Jan 06</th>
<th scope="col">Feb 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005&nbsp; </th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total ex construction</td>
<td>114.9</td>
<td>114.1</td>
<td>108.5</td>
<td>0.70</td>
<td>5.89</td>
<td>110.7</td>
<td>105.8</td>
<td>104.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Intermediate goods&nbsp;</td>
<td>108.2</td>
<td>107.6</td>
<td>106.4</td>
<td>0.56</td>
<td>1.69</td>
<td>106.5</td>
<td>103.2</td>
<td>100.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Investment goods</td>
<td>103.3</td>
<td>103.4</td>
<td>102.9</td>
<td>-0.10</td>
<td>0.39</td>
<td>103.0</td>
<td>102.1</td>
<td>101.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer goods</td>
<td>107.7</td>
<td>107.7</td>
<td>106.4</td>
<td>0.00</td>
<td>1.22</td>
<td>106.9</td>
<td>105.2</td>
<td>104.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>148.8</td>
<td>145.8</td>
<td>121.2</td>
<td>2.06</td>
<td>22.77</td>
<td>131.5</td>
<td>115.4</td>
<td>112.6</td>
</tr>
<tr>
<td class="firstcol">Total ex construction &amp; energy&nbsp;</td>
<td>106.7&nbsp;</td>
<td>106.4</td>
<td>105.5</td>
<td>0.28&nbsp;</td>
<td>1.14&nbsp;</td>
<td>105.5&nbsp;</td>
<td>103.5&nbsp;</td>
<td>102.0&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Consumer Price Index</td>
<td>109.4</td>
<td>109.2</td>
<td>107.1</td>
<td>0.18</td>
<td>2.15</td>
<td>108.3</td>
<td>106.2</td>
<td>104.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The Composite Index of Leading Economic Indicators fell 0.2% last month following four months of increase, reported the Conference Board. The decline about matched Consensus expectations for a 0.3% drop but it was accompanied by a [...]

Leading Economic Indicators Fell

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/060317c.jpg" width="353">
This morning, the Bureau of Labor Statistics published January employment and unemployment data for US metropolitan areas. These are contained in Haver&#39;s EMPLR database. The database includes labor force, employment, unemployment and unemployment rates for states, Census regions, metro areas and smaller municipalities. The data for states and some of the metro areas are available seasonally adjusted, but the data shown here for 8 selected large US metro areas are all not seasonally adjusted.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317d.jpg" width="353">
We spoke yesterday and the day before about labor market conditions in Europe and commented that such conditions can vary widely, even in neighboring regions there. The same is true here, as seen in the differences between Los Angeles and San Francisco. The economies of these two West Coast cities surely have differing characters, and this appears in the employment trends and the level of the unemployment rates. Employment growth in LA has generally been stronger, but the unemployment rate in San Francisco tends to be lower.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317e.jpg" width="353">
Denver, with a fairly consistent growth trend over the past several years nevertheless has an unemployment rate slightly higher than the national average, at least in the latest month. We are pleasantly surprised by the good growth in our own locale, New York City, over the past two years, a nice cyclical rebound after the 2001 recession and the developments associated with 9/11.
Such major non-economic events can have a pointed economic impact, of course. Hurricane Katrina was devastating to the economy of New Orleans, and these figures show how dramatic that has been. Employment in the New Orleans-Metairie-Kenner MSA is off by nearly 200,000 from a year ago. The unemployment rate there is more than 50% higher than for the nation as a whole. Notably, though, employment has edged upward in the last three months. The increase totals only 2,900, but it&#39;s certainly a step in the right direction for that city.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317f.jpg" width="353">
Finally, Houston may be a beneficiary of migration out of New Orleans. Even though the September &quot;reference week&quot; for labor market data was very soon after the storm, that month showed a marked and unusual increase in the Houston area labor force. Compared with the total drop in New Orleans, this 24,700 increase is just a fraction, but September has often been a month when the Houston labor force declines, implying that a special factor was in play. A boost to employment in Houston seems to have come just in January, when the normal post-Christmas drop in the number employed did not take place, but instead held just about steady with December. In the previous 16 years of data, the smallest decrease in January was 14,000.
It is often said that &quot;all politics is local&quot;. The widely varying developments in labor markets reported this week in both entire adjoining countries and individual US cities suggest that much of economics must be local too. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
Jan 2006
<th scope="col">Mo/Mo % Chg</th>
<th scope="col">Jan 2005</th>
<th scope="col">Yr/Yr % Chg</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">Unemployment Rate</td>
<td>Number Employed</td>
</tr>
<tr>
<td class="firstcol">Total US</td>
<td>5.1</td>
<td>141,481</td>
<td>-1.0</td>
<td>138,682</td>
<td>2.0</td>
<td>1.8</td>
<td>1.1</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Los Angeles</td>
<td>4.9</td>
<td>6,117</td>
<td>-2.9</td>
<td>6,032</td>
<td>1.4</td>
<td>2.9</td>
<td>1.4</td>
<td>0.5</td>
</tr>
<tr>
<td class="firstcol">San Francisco</td>
<td>4.4</td>
<td>2,078</td>
<td>-3.1</td>
<td>2,067</td>
<td>0.5</td>
<td>2.2</td>
<td>-0.3</td>
<td>-2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Denver</td>
<td>5.3</td>
<td>1,238</td>
<td>-0.3</td>
<td>1,222</td>
<td>1.3</td>
<td>1.2</td>
<td>2.1</td>
<td>1.6</td>
</tr>
<tr>
<td class="firstcol">Houston</td>
<td>5.6</td>
<td>2,512</td>
<td>-0.0</td>
<td>2,422</td>
<td>3.7</td>
<td>2.4</td>
<td>1.4</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orleans</td>
<td>7.8</td>
<td>394</td>
<td>0.2</td>
<td>582</td>
<td>-32.4</td>
<td>-9.6</td>
<td>1.5</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Chicago</td>
<td>5.6</td>
<td>4,466</td>
<td>-0.2</td>
<td>4,440</td>
<td>0.6</td>
<td>0.8</td>
<td>1.2</td>
<td>-0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Boston</td>
<td>4.7</td>
<td>2,317</td>
<td>-1.4</td>
<td>2,311</td>
<td>0.2</td>
<td>0.1</td>
<td>0.0</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">New York</td>
<td>5.1</td>
<td>8,742</td>
<td>-0.5</td>
<td>8,570</td>
<td>2.0</td>
<td>1.6</td>
<td>1.3</td>
<td>-0.2</td>
</tr>
</tbody>
</table>
</body>
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This morning, the Bureau of Labor Statistics published January employment and unemployment data for US metropolitan areas. These are contained in Haver's EMPLR database. The database includes labor force, employment, unemployment and [...]

"All Economics Is Local": Labor Markets in US Cities

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317b.jpg" width="353">
The index of consumer sentiment remained unchanged early this month versus February at 86.7, according to the University of Michigan. Consensus expectations for an increase to 88.0.
Sentiment figures are not seasonally adjusted and during the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The current conditions index ticked up 0.6% m/m after a 4.3% decline during February. The index of personal finances rose just 0.9% (-3.4% y/y) after the 5.1% February collapse and the reading of buying conditions for large household goods remained unchanged (-0.6% y/y). Consumers&#39; assessment of gov&#39;t economic policy fell to the lowest level this year. The index level of 80 (-14.0% y/y) compared to an average of 88 during 2005.
Consumer expectations slipped 0.4% from February, the third consecutive monthly decline. The economic outlook deteriorated sharply with the index of expected business conditions during the next twelve months off 5.2% (-12.5% y/y).
The mean expected inflation rate for the next twelve months rose m/m to 3.8%, still well below the 5.5% expected in October &amp; September.
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.
Consumer Sentiment, the Economy, and the News Media from the Federal Reserve board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200451/200451abs.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">March (p)</th>
<th scope="col">Feb</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>86.7</td>
<td>86.7</td>
<td>-6.4%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.2</td>
<td>105.6</td>
<td>-1.7%</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>74.2</td>
<td>74.5</td>
<td>-10.4%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
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The index of consumer sentiment remained unchanged early this month versus February at 86.7, according to the University of Michigan. Consensus expectations for an increase to 88.0. Sentiment figures are not seasonally adjusted and [...]

U.S. Consumer Sentiment Unchanged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317a.jpg" width="353">
Overall industrial output surged an expected 0.7% during February. The rise, however, was entirely due to a 7.9% rebound in utility output as winter temperatures returned to normal. Utility output had fallen 11.5% during the record warm January.
Factory sector production was unchanged following the upwardly revised 0.8% January increase and m/m declines in output were widespread amongst industries.
Motor vehicles &amp; parts fell 0.8% (-2.0% y/y) after a 2.4% spurt in January. Excluding motor vehicles, factory output inched up 0.1% (4.8% y/y). That increase very much reflected a 1.2% (19.0% y/y) jump in output of computer &amp; electronic components. Excluding both autos and high tech, factory output was unchanged (+3.6% y/y) during February.
Output of primary metals slipped 0.1% (+4.2% y/y) last month and the 0.5% (+4.6% y/y) decline in machinery output was the second in a row. Electrical equipment &amp; appliance output dropped 1.7% (+7.3% y/y) but furniture &amp; related products output rose 1.3% (-1.6% y/y).
The 0.2% decline (+1.5% y/y) in nondurables output reflected a 0.5% (+2.4% y/y) fall in apparel output and a 1.8% (-4.2% y/y) drop in petroleum &amp; coal production.
Total capacity utilization rose to 81.2% although factory sector utilization reversed a bit of the prior month&#39;s jump and fell to 80.4% versus an average 78.9% during 2005.
Greenspan&#39;s Unconventional View of the Long-Run Inflation/Output Trade-off from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20060101/cover.pdf"> 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/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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 Industrial Production</td>
<td>0.7%</td>
<td>-0.3%</td>
<td>3.3%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.0%</td>
<td>0.8%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &nbsp; Consumer Goods</td>
<td>0.8%</td>
<td>-0.8%</td>
<td>1.8%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; &nbsp; Business Equipment</td>
<td>0.1%</td>
<td>1.2%</td>
<td>10.4%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.2%</td>
<td>80.8%</td>
<td>80.0% (2/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
</body>
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Overall industrial output surged an expected 0.7% during February. The rise, however, was entirely due to a 7.9% rebound in utility output as winter temperatures returned to normal. Utility output had fallen 11.5% during the record [...]

Industrial Production Up As Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317a.jpg" width="353">
Overall industrial output surged an expected 0.7% during February. The rise, however, was entirely due to a 7.9% rebound in utility output as winter temperatures returned to normal. Utility output had fallen 11.5% during the record warm January.
Factory sector production was unchanged following the upwardly revised 0.8% January increase and m/m declines in output were widespread amongst industries.
Motor vehicles &amp; parts fell 0.8% (-2.0% y/y) after a 2.4% spurt in January. Excluding motor vehicles, factory output inched up 0.1% (4.8% y/y). That increase very much reflected a 1.2% (19.0% y/y) jump in output of computer &amp; electronic components. Excluding both autos and high tech, factory output was unchanged (+3.6% y/y) during February.
Output of primary metals slipped 0.1% (+4.2% y/y) last month and the 0.5% (+4.6% y/y) decline in machinery output was the second in a row. Electrical equipment &amp; appliance output dropped 1.7% (+7.3% y/y) but furniture &amp; related products output rose 1.3% (-1.6% y/y).
The 0.2% decline (+1.5% y/y) in nondurables output reflected a 0.5% (+2.4% y/y) fall in apparel output and a 1.8% (-4.2% y/y) drop in petroleum &amp; coal production.
Total capacity utilization rose to 81.2% although factory sector utilization reversed a bit of the prior month&#39;s jump and fell to 80.4% versus an average 78.9% during 2005.
Greenspan&#39;s Unconventional View of the Long-Run Inflation/Output Trade-off from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20060101/cover.pdf"> 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/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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 Industrial Production</td>
<td>0.7%</td>
<td>-0.3%</td>
<td>3.3%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.0%</td>
<td>0.8%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &nbsp; Consumer Goods</td>
<td>0.8%</td>
<td>-0.8%</td>
<td>1.8%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; &nbsp; Business Equipment</td>
<td>0.1%</td>
<td>1.2%</td>
<td>10.4%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.2%</td>
<td>80.8%</td>
<td>80.0% (2/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317b.jpg" width="353">
The index of consumer sentiment remained unchanged early this month versus February at 86.7, according to the University of Michigan. Consensus expectations for an increase to 88.0.
Sentiment figures are not seasonally adjusted and during the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The current conditions index ticked up 0.6% m/m after a 4.3% decline during February. The index of personal finances rose just 0.9% (-3.4% y/y) after the 5.1% February collapse and the reading of buying conditions for large household goods remained unchanged (-0.6% y/y). Consumers&#39; assessment of gov&#39;t economic policy fell to the lowest level this year. The index level of 80 (-14.0% y/y) compared to an average of 88 during 2005.
Consumer expectations slipped 0.4% from February, the third consecutive monthly decline. The economic outlook deteriorated sharply with the index of expected business conditions during the next twelve months off 5.2% (-12.5% y/y).
The mean expected inflation rate for the next twelve months rose m/m to 3.8%, still well below the 5.5% expected in October &amp; September.
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.
Consumer Sentiment, the Economy, and the News Media from the Federal Reserve board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200451/200451abs.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">March (p)</th>
<th scope="col">Feb</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>86.7</td>
<td>86.7</td>
<td>-6.4%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.2</td>
<td>105.6</td>
<td>-1.7%</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>74.2</td>
<td>74.5</td>
<td>-10.4%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
"All Economics Is Local": Labor Markets in US Cities 
by <a href="/comment/Stone.html">Carol Stone</a> March 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317c.jpg" width="353">
This morning, the Bureau of Labor Statistics published January employment and unemployment data for US metropolitan areas. These are contained in Haver&#39;s EMPLR database. The database includes labor force, employment, unemployment and unemployment rates for states, Census regions, metro areas and smaller municipalities. The data for states and some of the metro areas are available seasonally adjusted, but the data shown here for 8 selected large US metro areas are all not seasonally adjusted.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317d.jpg" width="353">
We spoke yesterday and the day before about labor market conditions in Europe and commented that such conditions can vary widely, even in neighboring regions there. The same is true here, as seen in the differences between Los Angeles and San Francisco. The economies of these two West Coast cities surely have differing characters, and this appears in the employment trends and the level of the unemployment rates. Employment growth in LA has generally been stronger, but the unemployment rate in San Francisco tends to be lower.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317e.jpg" width="353">
Denver, with a fairly consistent growth trend over the past several years nevertheless has an unemployment rate slightly higher than the national average, at least in the latest month. We are pleasantly surprised by the good growth in our own locale, New York City, over the past two years, a nice cyclical rebound after the 2001 recession and the developments associated with 9/11.
Such major non-economic events can have a pointed economic impact, of course. Hurricane Katrina was devastating to the economy of New Orleans, and these figures show how dramatic that has been. Employment in the New Orleans-Metairie-Kenner MSA is off by nearly 200,000 from a year ago. The unemployment rate there is more than 50% higher than for the nation as a whole. Notably, though, employment has edged upward in the last three months. The increase totals only 2,900, but it&#39;s certainly a step in the right direction for that city.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317f.jpg" width="353">
Finally, Houston may be a beneficiary of migration out of New Orleans. Even though the September &quot;reference week&quot; for labor market data was very soon after the storm, that month showed a marked and unusual increase in the Houston area labor force. Compared with the total drop in New Orleans, this 24,700 increase is just a fraction, but September has often been a month when the Houston labor force declines, implying that a special factor was in play. A boost to employment in Houston seems to have come just in January, when the normal post-Christmas drop in the number employed did not take place, but instead held just about steady with December. In the previous 16 years of data, the smallest decrease in January was 14,000.
It is often said that &quot;all politics is local&quot;. The widely varying developments in labor markets reported this week in both entire adjoining countries and individual US cities suggest that much of economics must be local too. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
Jan 2006
<th scope="col">Mo/Mo % Chg</th>
<th scope="col">Jan 2005</th>
<th scope="col">Yr/Yr % Chg</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">Unemploy ment Rate</td>
<td>Number Employed</td>
</tr>
<tr>
<td class="firstcol">Total US</td>
<td>5.1</td>
<td>141,481</td>
<td>-1.0</td>
<td>138,682</td>
<td>2.0</td>
<td>1.8</td>
<td>1.1</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Los Angeles</td>
<td>4.9</td>
<td>6,117</td>
<td>-2.9</td>
<td>6,032</td>
<td>1.4</td>
<td>2.9</td>
<td>1.4</td>
<td>0.5</td>
</tr>
<tr>
<td class="firstcol">San Francisco</td>
<td>4.4</td>
<td>2,078</td>
<td>-3.1</td>
<td>2,067</td>
<td>0.5</td>
<td>2.2</td>
<td>-0.3</td>
<td>-2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Denver</td>
<td>5.3</td>
<td>1,238</td>
<td>-0.3</td>
<td>1,222</td>
<td>1.3</td>
<td>1.2</td>
<td>2.1</td>
<td>1.6</td>
</tr>
<tr>
<td class="firstcol">Houston</td>
<td>5.6</td>
<td>2,512</td>
<td>-0.0</td>
<td>2,422</td>
<td>3.7</td>
<td>2.4</td>
<td>1.4</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orleans</td>
<td>7.8</td>
<td>394</td>
<td>0.2</td>
<td>582</td>
<td>-32.4</td>
<td>-9.6</td>
<td>1.5</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Chicago</td>
<td>5.6</td>
<td>4,466</td>
<td>-0.2</td>
<td>4,440</td>
<td>0.6</td>
<td>0.8</td>
<td>1.2</td>
<td>-0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Boston</td>
<td>4.7</td>
<td>2,317</td>
<td>-1.4</td>
<td>2,311</td>
<td>0.2</td>
<td>0.1</td>
<td>0.0</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">New York</td>
<td>5.1</td>
<td>8,742</td>
<td>-0.5</td>
<td>8,570</td>
<td>2.0</td>
<td>1.6</td>
<td>1.3</td>
<td>-0.2</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/060316e.jpg" width="353">
Yesterday here, we talked about the persistent sluggishness of employment in the UK. A few weeks ago, we had a similar discussion about Germany. While these two large European economies are seeing their labor markets struggle, those of some other countries are doing comparatively better.
Even in France, where riots in early November highlighted the plight of one specific segment of the labor force, employment is actually rising. The increase is not large, but in Q4, there were 20,500 new jobs in manufacturing and services industries, bringing their total to 15.489 million, a new high. As in many Western countries, the gains are all in the service sector and for France, especially in consulting and other business services. Unemployment in France has also continued to decrease, with the 9.6% rate in December and January the lowest since January 2003. The sensitive youth age range, under 25, saw an uptick in January to 22.2%, but this remains below the high last May of 22.8%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316f.jpg" width="353">
In the Netherlands, as seen in the graph, employment fell sharply in 2003, much more so than in France, but it bounced back, particularly over the past six months. While not reaching a new peak, Dutch employment has regained more than half of its 184,000 drop between February 2003 and February 2005. Unemployment in the Netherlands is falling, with the rate down to 6.1% in January from a peak of 6.7% in February 2005. By age group, progress here is actually most noticeable in the younger segments. Unemployment for those under 25 was 12.1%, compared to 13.4% early in 2005 and as high as 14.5% in late 2004. Adult workers under 45 face only 5.6% unemployment, down slightly over the past year. Older workers, ages 45-64, also have unemployment rates in the mid-5% range, but they have remained stubbornly at that level all through the past 15 months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316g.jpg" width="353">
In one of the smaller European nations, Slovenia, jobs have increased modestly over the last year. In January, employment was 816,600, up from an average of 813,100 for all of last year and 809,700 for January a year ago. Unemployment increased slightly this January, but it has undergone a secular decline throughout almost the entirety of Slovenia&#39;s period of independence, carrying the rate down to just over 10% from 15% in late 1992. [Note that the data collection method changed at the beginning of 2005, accounting for the sudden jump in employment then. The labor force increased by a commensurate amount so the unemployment rate was not affected.]
Thus, labor markets can behave differently even in neighboring regions and among differing demographic groups within the same region. And as we see here, big economies don&#39;t necessarily have advantages over small ones in the ability to provide job opportunities for everyone. 

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col"></th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">France:&nbsp; &nbsp; Mfg &amp; Services Employees (Mil.)</td>
<td>--</td>
<td>15.49</td>
<td>15.47</td>
<td>15.44</td>
<td>15.47</td>
<td>15.42</td>
<td>15.43</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>--</td>
<td>5.13</td>
<td>5.14</td>
<td>5.18</td>
<td>5.15</td>
<td>5.20</td>
<td>5.28</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>--</td>
<td>10.35</td>
<td>10.33</td>
<td>10.26</td>
<td>10.32</td>
<td>10.22</td>
<td>10.15</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jan 2006</td>
<td>Dec 2005</td>
<td>--</td>
<td>Year Ago</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>9.6</td>
<td>9.6</td>
<td>--</td>
<td>10.1</td>
<td>9.9</td>
<td>10.0</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands: Total Employment*</td>
<td>6.99</td>
<td>6.97</td>
<td>--</td>
<td>6.90</td>
<td>6.91</td>
<td>6.92</td>
<td>7.00</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>6.1</td>
<td>6.2</td>
<td>--</td>
<td>6.7</td>
<td>6.5</td>
<td>6.5</td>
<td>5.4</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Slovenia: Employment (Thous.)</td>
<td>816.6</td>
<td>816.2</td>
<td>--</td>
<td>809.7</td>
<td>813.1</td>
<td>782.2</td>
<td>777.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>10.2</td>
<td>10.3</td>
<td>--</td>
<td>10.1</td>
<td>10.1</td>
<td>10.6</td>
<td>11.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Yesterday here, we talked about the persistent sluggishness of employment in the UK. A few weeks ago, we had a similar discussion about Germany. While these two large European economies are seeing their labor markets struggle, those [...]

France, Netherlands & Slovenia See Better Labor Market Conditions in Late 2005 and Early 2006

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316h.jpg" width="353">
The March Philadelphia Fed Index of General Business Conditions in the manufacturing sector gave back 3.1 points of the 12.1 point improvement last month. The decline to 12.3 compared to Consensus expectations for a lesser decline to 14.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
Declines in the sub indexes were broad based although new orders rose sharply to the highest level since October 2004 and shipments rose moderately. Unfilled orders fell sharply as did delivery times. The index covering the number of employees halved and fell to 5.4. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months halved and fell to 14.6. Expectations for employment also moved moderately lower.
The prices paid index fell sharply though the index of future prices fell only moderately. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0306.html">here</a>.
Global Imbalances or Bad Accounting? The Missing Dark Matter in the Wealth of Nations, analysis from the NBER and the Harvard University - John F. Kennedy School of Government is available <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=878096"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>12.3</td>
<td>15.4</td>
<td>14.2</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>17.2</td>
<td>30.5</td>
<td>28.6</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
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The March Philadelphia Fed Index of General Business Conditions in the manufacturing sector gave back 3.1 points of the 12.1 point improvement last month. The decline to 12.3 compared to Consensus expectations for a lesser decline to [...]

Philadelphia Fed Business Activity Index Off

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316d.jpg" width="353">
Initial claims for unemployment insurance rose for the third consecutive week. Last week&#39;s gain of 5,000 to 309,000 followed a little revised 9,000 increase the prior period and it was to the highest level this year. Consensus expectations had been for 300,000 claims.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims increased to 296,500 (-8.0% y/y), its highest level since mid-January.
Continuing unemployment insurance claims fell 49,000 to 2.445M, a five year low, and reversed all of a downwardly revised 17,000 gain the prior week.
The insured rate of unemployment was stable at 1.9% for the fifth week.
The Trend Growth Rate of Employment: Past, Present and Future from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/1q06clar.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">03/11/06</th>
<th scope="col">03/04/06</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>
<td class="firstcol">Initial Claims</td>
<td>309</td>
<td>304</td>
<td>-6.1%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,445</td>
<td>-7.6%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance rose for the third consecutive week. Last week's gain of 5,000 to 309,000 followed a little revised 9,000 increase the prior period and it was to the highest level this year. Consensus [...]

Initial Claims for Jobless Insurance Higher Again

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

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

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Sandy Batten

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The luster fell a bit off the employment rose in June with nonfarm payrolls rising 57,000 against expectations of a 115,000 increase, according to today’s report from the Bureau of Labor Statistics. Moreover, the increases previously reported for April and May were revised down by a total of 74,000. Upon revision, payrolls increased 148,000 in April versus 179,000 previously reported and rose 129,000 in May versus 172,000 previously reported. The average increase over the past three months fell to 111,000 from 164,000 in May while the average increase over the past six months rose to 92,000 in June, its highest reading since February 2025, from 80,000 in May. Both remain on a modest uptrend and much stronger than payroll gains last year. In 2025, monthly payroll gains averaged only 10,000.

The weaker-than-expected payroll report was reinforced by a weak report from the **household survey**. While the number of unemployed fell 213,000 and the unemployment rate edged down to 4.2% from 4.3% in May, the number of employed slumped 507,000 in June, the largest monthly decline since May 2025 (with population adjustment to January 2026). The labor force plunged 720,000 with the labor force participation rate falling to 61.5%, its lowest level since March 2021.

Growth of average hourly earnings (AHE), a key variable for the Federal Reserve, was relatively well behaved in June. AHE increased 0.3% m/m, the same monthly gain as in May, in line with expectations. The y/y rate of advance edged up to 3.5% in June from 3.4% in May. Wage growth in private services-producing firms picked up in June, rising 0.4% m/m (3.4% y/y) versus 0.2% m/m (3.2% y/y) in May. Goods-producing wages increased 0.2% m/m in June after 0.3% monthly gains in both April and May with the y/y rate holding at 4.1%.

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In the **establishment survey**, private-sector employment was also weaker than expected in June, increasing only 49,000 against an expected 115,000 increase. Moreover, April and May figures were also revised down by a total of 50,000. Government employment rose 8,000 following a 32,000 increase in May. Private goods-producing employment increased 10,000, its largest monthly gain in three months with an 11,000 gain in construction and a 3,000 rise in manufacturing jobs, the first increase in three months. In contrast, services-producing employment increased only 39,000 in June, its weakest monthly performance in four months. Private education and health services jobs posted another solid gain of 69,000, up from 45,000 in May. However, retail jobs fell 7,500, their first monthly decline in four months, and leisure and hospitality jobs slumped 61,000, their largest monthly decline since December 2020, after increasing 40,000 in May. There had been speculation in the market that the World Cup would generate additional leisure and hospitality jobs, but this obviously failed to pan out. On a brighter note, although the one-month payroll diffusion index, a measure of the breadth of job gains, slipped to 54.4 in June from 56.0 in May, it remained well above the key 50 level that indicates that more industries were adding jobs than losing them.

The length of the workweek was unchanged at 34.3 hours in June with the aggregate weekly hours index edging up 0.1% m/m, the same monthly gain as in May. The aggregate hours index rose 1.3% q/q saar in Q2, the fastest quarterly gain in four quarters, providing a solid base for Q2 real GDP growth. The goods-producing workweek was unchanged at 40.1 hours, the highest since January 2023, while the private service-producing workweek edged down to 33.2 hours from 33.3 hours in May.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- U.S. nonfarm payrolls increased 57,000 in June with meaningful downward revisions to both April and May.
- The market consensus looked for a 115,000 increase.
- The unemployment rate edged down to 4.2% from 4.3%, due mostly to a large decrease in the labor force.
- Average hourly earnings rose 0.3% m/m (3.5% y/y), in line with expectations.

U.S. Payroll Employment Gains Smaller than Expected in June

Andrew Cates

**Tightening Bias Intact, but Unevenly Distributed**
The July Blue Chip Financial Forecasts survey's expectations for policy rate changes over the next twelve months reveal a striking divergence across the major advanced economies, as chart 1 below makes clear. Across the board, the rate outlook is higher than it was in late February, before the US-Iran conflict escalated: the energy price shock and its inflationary consequences have left an imprint on the panel's thinking, even as oil prices have since retreated. Japan tops the list with an expected increase of around 40 basis points, reflecting the building pressure on the Bank of Japan to respond to yen weakness and still-elevated domestic inflation. Canada and the euro area also sit firmly in positive territory, with expected increases of around 30 and 20 basis points respectively. The US and the UK, by contrast, are in negative territory — the US barely so, the UK more distinctly, with the panel pencilling in modest rate reductions over the coming year. This pattern is not simply a reflection of where each economy sits in the inflation cycle. It also encodes a judgement about the current stance of monetary policy: in Japan, the euro area and Canada, policy is likely seen as insufficiently tight relative to the inflation challenge, and the conflict has reinforced that view. In the US and UK, by contrast, policy is judged to be closer to or already beyond neutral, meaning the next move is more likely to be an easing than a further tightening — even if, in the US case, that easing has been pushed well into 2027.

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**When Will the Next Move Come?**
Chart 2 below adds a timing dimension to the rate outlook, showing where the BCFF panel currently places the next policy move for the Fed, ECB, Bank of England and Bank of Japan. For the BoJ, the distribution is concentrated around the near term, with a significant share of respondents expecting action in September or October — consistent with the building pressure illustrated in chart 1 and with the BoJ’s next scheduled decision on 31 July. For the ECB, September or later than November emerge as the most likely timing for the next step. The Bank of England panel is more spread, with a meaningful share expecting action to come later. For the Fed, the dominant view places the next move firmly in the ‘later’ category, consistent with the BCFF consensus that the Fed funds rate will hold through the rest of 2026, with a first cut not expected until Q2 2027. Under chair Kevin Warsh, the June FOMC meeting delivered a hawkish dot plot that shifted some participants toward a hike before year-end, but the panel as a whole has not moved that far.

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**Headline Up, Core Contained: The Inflation Picture Across Advanced Economies**
One of the more reassuring features of the current inflation episode has been the limited pass-through from energy prices to underlying price dynamics. Across the advanced economies, headline CPI inflation has risen materially since the conflict escalated in March, driven overwhelmingly by consumer energy costs. Core inflation — stripping out food and energy — has edged higher, but only modestly, suggesting that second-round effects remain contained for now. In the United States, the pressures are arguably more alarming, with core PCE rising sharply between February and May to its highest level since October 2023. In the euro area, the focus this week has been firmly on Eurostat's June flash CPI estimate, published yesterday. Headline inflation fell back to 2.8% from a peak of 3.2% in May, as energy costs — the main driver of the surge since the conflict began — eased meaningfully. Crucially, core inflation also ticked down, and services inflation retreated as well. The June data therefore tell a broadly reassuring story: the energy shock is unwinding without leaving a lasting imprint on underlying price dynamics — precisely what the ECB will have been hoping for.

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**Consumer Price Expectations: Are Households Convinced?**
The aggregate inflation picture looks relatively contained at the macro level, but whether households are similarly reassured is a separate question. Chart 4 below draws on the European Commission's consumer survey data on price expectations — one of the more timely and widely watched indicators of inflation psychology in the euro area. The survey captures whether consumers expect prices to rise, stay the same or fall over the coming twelve months, and its relationship with actual inflation outturns has historically been close. A sustained elevation in consumer price expectations risks becoming self-fulfilling, feeding into wage demands and pricing behaviour in ways that complicate the ECB's task considerably. The June survey, however, brought an encouraging development: expectations fell steeply, suggesting that households have begun to register the reversal in energy prices and the broader easing of the inflationary impulse. That said, the absolute level of expectations remains elevated relative to the pre-conflict period, and one month's decline does not constitute a trend. Whether the June reading marks the beginning of a sustained normalisation — or proves a temporary dip before expectations re-anchor at a higher level — will be one of the key variables shaping the ECB's decision calculus in the months ahead.

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**Japan: A Weak Yen at the Worst Possible Time**
Japan occupies a particularly uncomfortable position in the current global conjuncture. The yen has depreciated to levels not seen since December 1986, with USD/JPY touching 162 this week. The move reflects the persistence of a large interest rate differential: even as the Bank of Japan has continued its gradual tightening, the Fed’s hawkish pivot under chair Kevin Warsh — with the mid-June FOMC dot plot signalling a possible hike before year-end — has reinforced the carry trade dynamics weighing on the currency. For Japan, which imports virtually all of its energy, yen weakness at a time of still-elevated global oil prices is a double burden, amplifying domestic inflation and squeezing real incomes. Verbal warnings from Japan’s Finance Ministry have had only a modest and short-lived effect on the exchange rate. The Bank of Japan’s next policy decision is on 31 July, and the pressure to act more decisively is building. The BCFF panel’s July survey revised upward its expectation for a stronger US dollar against the yen over the coming year — consistent with the fundamental picture that chart 5 below describes.

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**AI: Optimism on the Technology, Scepticism on the Price**
Returning to the BCFF survey, its special questions reveal a panel that continues to look beyond the current cyclical turbulence toward a longer-horizon structural narrative. On artificial intelligence, respondents are broadly optimistic: 45% expect a noticeable impact on US productivity and growth within one to three years, with a further 45% believing those effects are already becoming evident. That is a striking degree of conviction about a technology whose macro-level productivity impact remains, by most empirical measures, still to fully materialise. Yet the same panellists are considerably more cautious about financial markets than about the technology itself. Nearly all respondents believe that expected AI gains are already fully reflected — or even over-reflected — in current asset prices. Chart 6 below captures this tension. It is a combination — high conviction on transformative potential, high scepticism on current valuations — that has historically been associated with stretched risk premia and vulnerability to disappointment, even where the underlying technology story ultimately proves correct.

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Global financial markets have had a more settled feel this week, reflecting the continued unwinding of the geopolitical risk premium that had built up during the worst of the US-Iran conflict. Oil prices have fallen further, equity markets have been broadly supported, and incoming inflation data — notably the euro area’s June flash CPI estimate — have come in below expectations. The US holiday-shortened week ahead, with Independence Day on Friday, is likely to keep volumes thin and activity subdued. The bigger picture, however, remains one of tension between a more benign near-term inflation trajectory and central banks that may not yet be ready to stand down. In the charts below we look first at what the latest Blue Chip Financial Forecasts (BCFF) survey reveals about the expected change in and timing of policy rates across the major economies (charts 1 and 2), then at the divergence between headline and core inflation across the advanced economies (chart 3), and at what euro area consumers are more specifically expecting about inflation in the period ahead (chart 4). We turn next to Japan and the yen’s slide this week to 40-year lows (chart 5), and finally to the BCFF survey’s special questions on artificial intelligence and asset valuations (chart 6).

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Charts of the Week: Forecasters Hold Firm

Winnie Tapasanun

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The ISM U.S. manufacturing PMI fell to a lower-than-expected 53.3 in June, the first m/m fall since February, following a 1.3-point increase to 54.0 in May, according to data from the Institute for Supply Management. The June reading, above the 50 expansion-contraction threshold, indicated the U.S. manufacturing sector expanded for the sixth straight month, albeit at a slightly slower pace. A reading of 53.8 for June had been expected in the Action Economics Forecast Survey. The June manufacturing PMI, while above a contraction-level 49.0 in June 2025 and a low of 47.0 in October 2024, remained below a peak of 63.8 in March 2021.

The production index declined to 52.2 in June from 54.3 in May, indicating production expanded for the eighth consecutive month but at the slowest pace since December. The index was above a low of 44.8 in April 2025 but below a peak of 66.5 in March 2021. In June, 19.0% (NSA) of respondents reported higher production while 13.0% reported lower production. The new orders index slipped to 56.0 in June from 56.8 in May, signaling new orders grew for the sixth straight month following four successive months of contraction. The index remained well above a low of 41.8 in January 2023 but below a high of 67.0 in May 2021. In June, 22.3% (NSA) of respondents reported higher new orders while 13.4% reported declines. The inventories index climbed to 51.4 in June from 49.9 in May, marking the first expansion since April 2025. The index was slightly below a high of 52.7 in March 2025 but above a low of 43.8 in October 2024. Meanwhile, the supplier deliveries index fell to 57.4 in June from 60.6 in May and April, indicating slowing delivery performance for the seventh consecutive month after faster deliveries in November. In June, 18.1% (NSA) of respondents reported slower delivery speeds while 3.4% reported faster speeds.

On the labor front, the employment index improved to 49.7 in June from 48.6 in May, showing employment contracted for the 33rd straight month but at the slowest contraction pace since January 2025. The index was above a low of 44.1 in November 2025 but below a high of 56.5 in March 2022. In June, 16.2% (NSA) of respondents reported higher employment while 13.8% reported lower hiring.

On the pricing front, the prices paid index fell to a still-high 73.0 (NSA) in June, a 9.1-point drop—the largest decline since July 2022—from 82.1 in May, indicating raw materials prices rose for the 21st straight month but at the slowest rising pace since February. The index remained well above a low of 39.4 in December 2022 but below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. In June, 55.1% (NSA) of respondents reported higher prices while 9.2% reported price declines.

In other ISM series not included in the composite index, the new export orders index fell to 48.5 in June from 50.6 in May, indicating new export orders contracted for the third time in four months. The index was up from a low of 40.1 in May 2025 but down from a high of 52.4 in January 2025 and a peak of 57.1 in February 2022. The imports index edged down to 52.9 in June from 53.0 in May, suggesting imports expanded for the fifth successive month. The index was below its recent high of 54.9 in February but above a low of 39.9 in May 2025. The order backlog index decreased to 50.5 (NSA) in June from 52.2 in May, showing backlog levels grew at the slowest pace in six months. The index was below a high of 56.6 in February and a peak of 70.6 in May 2021 but well above a low of 37.5 in May 2023.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- ISM Mfg. PMI down slightly to 53.3 in June; sixth straight month above 50.
- Production (52.2) expands for the eighth consecutive mth.; new orders (56.0) for the sixth successive mth.
- Employment (49.7) contracts for the 33rd straight mth.; at the slowest contraction pace since Jan. ’25.
- Prices Index (73.0) at a four-month low, still indicating prices rising for the 21st consecutive mth.
- Exports (48.5) contract for the third time in four mths.; imports (52.9) continue to grow.

U.S. ISM Manufacturing PMI Still Expansionary in June; New Orders and Production Growing at a Slower Pace; Employment Contracting

Michael J. Moran

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The monthly report on construction activity receives scant attention in the financial press, and investors and traders in financial markets typically pay little heed. However, it is a valuable report for economists, as it provides a broad-based view of building activity, covering private residential and business construction, as well as government-related activity. The figures feed into the calculation of GDP. Unfortunately, results have been soft since early 2025.

Total construction activity rose 0.1 percent in May, marking the third consecutive increase. However, the gains have not been especially large, averaging 0.3%, and they have barely dented the string of weak readings in the preceding 17 months. The year-over-year change in May totaled -1.5%.

Private residential construction, the largest component of the total (41% share), rose 0.3% in May, adding to an average gain of 1.1% in the prior two months and leaving a year-over-year increase of 1.8% (chart, upper left). Most of the advance in the past year was the result of improvements to existing homes (up 8.1%). Construction of new multi-family units has shown little net change in the past year or so, while new single-family building has traced a mild downward trend (off 4.0% in the past year). Public construction has been flat in the past year, with both the federal government and state and local governments showing little net change (chart, upper right).

Private nonresidential construction (34% of the total) has received considerable press attention in the past few years because of explosive growth in the building of data centers. Growth has indeed been vigorous. Building started in 2020 and grew moderately at first, but this sector took off in 2022, about the time when artificial intelligence models became publicly available (chart, lower left, in levels to show the strong trend more clearly). Average annual growth for the three years ended 2025 totaled 48%.

Interestingly, despite the rapid growth in the building of data centers, the private nonresidential sector has been the weakest area of the construction report, with activity trending lower since early 2025 (chart, lower right). Some components of private nonresidential construction have held steady or improved (e.g. amusement & recreation, electric power), but three areas stand out on the soft side: general office, commercial, and manufacturing.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- Building activity in the US was firm in 2023 and 2024, but it has lost ground since then.
- Government-related construction and private residential building have been little changed in the past year or so.
- Private nonresidential construction has been notably weak, despite robust activity in the building of data centers.

Construction in May: Another Soft Reading

Robert Brusca

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The manufacturing PMI values for June showed more worsening than improving, with 10 of 18 reporters showing conditions unchanged or getting worse on a month-to-month basis. However, taking into account the size of the changes across the various reporters, the median PMI rating for manufacturing in June improved to 51.4, an increase of 0.5 points from the month before. The month-to-month deterioration is relatively broad; however, it's also relatively mixed, and when taking the size of the changes into account, there's actually a monthly improvement.

The chart shows that manufacturing has been undergoing improvements generally since late last year, although in the last few months, there has been a topping, a capping, and in some cases a backtracking from the recent high readings. That action reflects the onset of hostilities between the United States and Iran and the on-again, off-again situation with the Strait of Hormuz being open or closed.

Over three months compared to six months ago, the average readings show deterioration in only 5 of 18 reporters. This clearly reflects what we see in the chart, which is a recent improvement over three months compared to six months. The next comparison of 6-month averages to 12-month averages finds that only four reporters are worse off over six months than they were over 12 months. Those four are Mexico, India, Indonesia, and Vietnam. Over 12 months compared to 12 months ago, conditions are better everywhere except in India.

In addition, we can evaluate the manufacturing performance by ranking the current month's observation in a queue of data back to January 2022, a period of about 4½ years. Viewed over that span, only four countries have readings in June below their period medians. Those are Indonesia, India, Turkey, and Russia. All the rest have readings above the 50th percentile, putting them above their historic medians. Japan has an exceptionally strong reading in June relative to its history, posting a 95.4 percentile standing. Mexico, China, Malaysia, and Taiwan also post strong standings, in their 80th percentile.

The median queue standing for the entire group is a 69.2 percentile standing, which is still quite strong. Other summary measures of sequential diffusion show that the proportion of reporters improving over 12 months is 94.4%, compared to 72.2% over 6 months and 61.1% over 3 months. The breadth of this improvement is shrinking over the near-term horizons; however, the tendency for improvement is unmistakable.

Average readings for certain groups at the bottom of the table show that the United States, the United Kingdom, EMU countries, Canada, and Japan, on an unweighted basis, have steady improvements in place from 12 months to six months to three months, with a one-month reading even stronger. The BRIC countries have readings that are marginally stronger but are staying in a tight low range around 50.8 to 51.5. The Asian average shows an improvement from 12 months to 6 months and then backtracking, with the current 3-month diffusion values just slightly above 51, around 51.5.

The global economy has shown some significant improvement recently in the manufacturing sector, and this has occurred despite the ongoing war in Ukraine and stepped-up hostilities involving Iran, including the on-again, off-again closure of the Strait of Hormuz. Oil prices have spiked and have since come down substantially. However, the outlook for peace remains clouded as both sides continue to talk positively about an agreement and a ceasefire, then turn around and violate near-term conditions they have set. This makes it very difficult to handicap the future.

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Philadelphia Fed Business Activity Index Off

Initial Claims for Jobless Insurance Higher Again