Tom Moeller

The composite index of leading economic indicators ticked up 0.1% last month after an upwardly revised 0.6% gain during December which was initially pegged at 0.3%, according to the Conference Board. The uptick fell short of Consensus [...]

U.S. Leading Economic Indicators Rose

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221c.jpg" width="353">
French real Gross Domestic Product rose only 0.2% in the fourth quarter of 2005 over the third quarter. For the year, GDP was up 1.4%. A growing deficit on foreign trade continued to offset modest gains in domestic demand, that is, consumption plus investment as shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221d.jpg" width="353">
A stunning increase in new industrial orders in the fourth quarter of 2005, suggests that GDP growth in the current quarter could surprise on the upside. While new industrial orders are only a small part of the total economy, they are an important catalyst for future growth. There is a loose relationship between the change in new industrial orders and the change in real GDP one quarter later, as shown in the second chart. (We have aggregated the new industrial order series on a quarterly basis to facilitate comparison with GDP movements.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221e.jpg" width="353">
Total new orders increased 19.7% in the fourth quarter of 2005, the largest quarterly increase recorded since the series first began in 1998. Most of the rise was due to a big jump in foreign new orders which rose 20.5% in the quarter. This too was a record increase. Changes in total and foreign new orders are shown in the third chart, which covers the entire period for which the data are available. 

<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/FRANCE/FRANCE.HTM">France:&nbsp; GDP and New Industrial Orders</a></th>
<th scope="col">Q4 05</th>
<th scope="col">Q3 05</th>
<th scope="col">Q4 045</th>
<th scope="col">Q/Q %</th>
<th scope="col">Y/Y&nbsp; %</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">GDP (Bil. 2000 Euros)</td>
<td>391.2</td>
<td>390.4</td>
<td>386.5</td>
<td>0.2</td>
<td>1.2</td>
<td>1,556.8</td>
<td>1,535.4</td>
<td>1,504.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total Consumption</td>
<td>318.4</td>
<td>316.7</td>
<td>312.8</td>
<td>0.6</td>
<td>1.8</td>
<td>1,263.2</td>
<td>1,239.5</td>
<td>1,210.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Total Fixed Investment</td>
<td>77.4</td>
<td>76.9</td>
<td>74.9</td>
<td>0.6</td>
<td>3.3</td>
<td>306.5</td>
<td>296.7</td>
<td>290.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption+Investment</td>
<td>395.9</td>
<td>393.6</td>
<td>387.7</td>
<td>0.6</td>
<td>2.1</td>
<td>1,569.8</td>
<td>1,536.2</td>
<td>1,501.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Export of Goods &amp; Service</td>
<td>-8.9</td>
<td>-7.0</td>
<td>-5.1</td>
<td>-1.9*</td>
<td>-3.8*</td>
<td>-29.8</td>
<td>-14.1</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;New Industrial Orders (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>130.8</td>
<td>109.2</td>
<td>116.5</td>
<td>19.7</td>
<td>12.2</td>
<td>115.2</td>
<td>109.8</td>
<td>100.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>146.6</td>
<td>121.6</td>
<td>115.8</td>
<td>20.5</td>
<td>26.6</td>
<td>125.9</td>
<td>111.3</td>
<td>101.6</td>
</tr>
</tbody>
</table>
</body>
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French real Gross Domestic Product rose only 0.2% in the fourth quarter of 2005 over the third quarter. For the year, GDP was up 1.4%. A growing deficit on foreign trade continued to offset modest gains in domestic demand, that is, [...]

A Stunning Rise in French New Industrial Orders: Better GDP Growth Ahead?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221a.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) slipped during the last three weeks after picking up considerable momentum in early January. The index declined 0.9% last week after two back to back weekly declines of 0.1%.
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 76% during the last five years.
Despite the recent weakness, the six month growth rate of the leaders at 4.7% is much improved from last year&#39;s meandering growth rate of 1.9% which typified growth during much of the year.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.
How Should Monetary Policymakers Cope with Uncertainty?, a speech by Cathy E. Minehan, President and Chief Executive Officer, Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/news/speeches/cem/2006/010606.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">02/10/06</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>136.9</td>
<td>135.7</td>
<td>2.1%</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>4.7%</td>
<td>5.2%</td>
<td>&nbsp;</td>
<td>1.9%</td>
<td>4.2%</td>
<td>6.7%</td>
</tr>
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The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) slipped during the last three weeks after picking up considerable momentum in early January. The index declined 0.9% last week after [...]

ECRI Leading Index Down Recently, Momentum Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221b.jpg" width="353">
The Conference Board reported that the Composite Index of Leading Economic Indicators surged 1.1% last month, nearly twice the Consensus expectation, following an upwardly revised 0.3% increase during December.
The breadth of one month gain amongst the 10 components of the leading index improved to 70% in January although over six months the breadth of gain in the leaders slipped back to a still-high 70% from 90%.
Fewer initial claims for unemployment insurance and a higher real level of M2 made the largest positive contributions to last month&#39;s gain the leading index. Vendor performance, building permits and stock prices made lesser positive contributions.
The .01 percentage point positive contribution from the spread between yields on the 10 year Treasury Note and the Fed funds rate was the smallest since 2001. 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 0.2% following an unrevised 0.2% December increase. All of the four component series rose over 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 surged 0.7% following a revised 0.1% December decline. Higher C&amp;I loans and a longer duration of unemployment accounted for most of the increase. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell and reversed two months of gain.
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.
The Taxation of Equity, Dividends, and Stock Prices from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/ppdp/2005/ppdp051.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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>1.1%</td>
<td>0.3%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.5%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>3.4%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Conference Board reported that the Composite Index of Leading Economic Indicators surged 1.1% last month, nearly twice the Consensus expectation, following an upwardly revised 0.3% increase during December. The breadth of one [...]

Leading Economic Indicators Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221b.jpg" width="353">
The Conference Board reported that the Composite Index of Leading Economic Indicators surged 1.1% last month, nearly twice the Consensus expectation, following an upwardly revised 0.3% increase during December.
The breadth of one month gain amongst the 10 components of the leading index improved to 70% in January although over six months the breadth of gain in the leaders slipped back to a still-high 70% from 90%.
Fewer initial claims for unemployment insurance and a higher real level of M2 made the largest positive contributions to last month&#39;s gain the leading index. Vendor performance, building permits and stock prices made lesser positive contributions.
The .01 percentage point positive contribution from the spread between yields on the 10 year Treasury Note and the Fed funds rate was the smallest since 2001. 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 0.2% following an unrevised 0.2% December increase. All of the four component series rose over 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 surged 0.7% following a revised 0.1% December decline. Higher C&amp;I loans and a longer duration of unemployment accounted for most of the increase. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell and reversed two months of gain.
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.
The Taxation of Equity, Dividends, and Stock Prices from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/ppdp/2005/ppdp051.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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>1.1%</td>
<td>0.3%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.5%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>3.4%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
ECRI Leading Index Down Recently, Momentum Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221a.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) slipped during the last three weeks after picking up considerable momentum in early January. The index declined 0.9% last week after two back to back weekly declines of 0.1%.
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 76% during the last five years.
Despite the recent weakness, the six month growth rate of the leaders at 4.7% is much improved from last year&#39;s meandering growth rate of 1.9% which typified growth during much of the year.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.
How Should Monetary Policymakers Cope with Uncertainty?, a speech by Cathy E. Minehan, President and Chief Executive Officer, Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/news/speeches/cem/2006/010606.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">02/10/06</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>136.9</td>
<td>135.7</td>
<td>2.1%</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>4.7%</td>
<td>5.2%</td>
<td>&nbsp;</td>
<td>1.9%</td>
<td>4.2%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
A Stunning Rise in French New Industrial Orders:  Better GDP Growth Ahead? 
by <a href="/comment/Curley.html">Louise Curley</a> February 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221c.jpg" width="353">
French real Gross Domestic Product rose only 0.2% in the fourth quarter of 2005 over the third quarter. For the year, GDP was up 1.4%. A growing deficit on foreign trade continued to offset modest gains in domestic demand, that is, consumption plus investment as shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221d.jpg" width="353">
A stunning increase in new industrial orders in the fourth quarter of 2005, suggests that GDP growth in the current quarter could surprise on the upside. While new industrial orders are only a small part of the total economy, they are an important catalyst for future growth. There is a loose relationship between the change in new industrial orders and the change in real GDP one quarter later, as shown in the second chart. (We have aggregated the new industrial order series on a quarterly basis to facilitate comparison with GDP movements.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060221e.jpg" width="353">
Total new orders increased 19.7% in the fourth quarter of 2005, the largest quarterly increase recorded since the series first began in 1998. Most of the rise was due to a big jump in foreign new orders which rose 20.5% in the quarter. This too was a record increase. Changes in total and foreign new orders are shown in the third chart, which covers the entire period for which the data are available. 

<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/FRANCE/FRANCE.HTM">France:&nbsp; GDP and New Industrial Orders</a></th>
<th scope="col">Q4 05</th>
<th scope="col">Q3 05</th>
<th scope="col">Q4 045</th>
<th scope="col">Q/Q %</th>
<th scope="col">Y/Y&nbsp; %</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">GDP (Bil. 2000 Euros)</td>
<td>391.2</td>
<td>390.4</td>
<td>386.5</td>
<td>0.2</td>
<td>1.2</td>
<td>1,556.8</td>
<td>1,535.4</td>
<td>1,504.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total Consumption</td>
<td>318.4</td>
<td>316.7</td>
<td>312.8</td>
<td>0.6</td>
<td>1.8</td>
<td>1,263.2</td>
<td>1,239.5</td>
<td>1,210.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Total Fixed Investment</td>
<td>77.4</td>
<td>76.9</td>
<td>74.9</td>
<td>0.6</td>
<td>3.3</td>
<td>306.5</td>
<td>296.7</td>
<td>290.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption+Investment</td>
<td>395.9</td>
<td>393.6</td>
<td>387.7</td>
<td>0.6</td>
<td>2.1</td>
<td>1,569.8</td>
<td>1,536.2</td>
<td>1,501.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Export of Goods &amp; Service</td>
<td>-8.9</td>
<td>-7.0</td>
<td>-5.1</td>
<td>-1.9*</td>
<td>-3.8*</td>
<td>-29.8</td>
<td>-14.1</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;New Industrial Orders (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>130.8</td>
<td>109.2</td>
<td>116.5</td>
<td>19.7</td>
<td>12.2</td>
<td>115.2</td>
<td>109.8</td>
<td>100.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>146.6</td>
<td>121.6</td>
<td>115.8</td>
<td>20.5</td>
<td>26.6</td>
<td>125.9</td>
<td>111.3</td>
<td>101.6</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060220a.jpg" width="353">
Italian industrial sales rose 2.3% in December and new orders rose 3.0%. At year end sales were 11.7% above December 2004 and new orders were up 3.3% The strong performance of industrial sales and new orders in 2005 is shown in the first chart.
The recovery in industrial sales has been one of the factors in the recent modest improvement in the Italian economy. After four years of decline, industrial production averaged an increase of 1.15% in 2005 and ended the year 2.0% above December 2004.
The cloud on the horizon is the merchandise trade balance. It was a negative 1,679 million euros in December, 2005, a deterioration of 530 million euros from November and one of 1,243 million euros from December, 2004. As a result of the growing monthly trade deficits, the merchandise trade deficit for all of 2005 rose to 11,169 million euros from a deficit of 1,946 million in 2004, as shown in the second chart. The problem that arises with the deficit is that one of the means to remedy a trade deficit, currency depreciation, is not available to the individual members of the Euro Zone.
In spite of the cloud, business confidence has improved, albeit slowly, since early 2005 and in January, 2006, was at its highest level since May, 2002 Consumer confidence weakened in the last two months, but in January was still at the highest level since September, 2003.Business and consumer confidence measures are shown in the third chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060220b.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060220c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J5.HTM">Italy</a></th>
<th scope="col">Dec 05</th>
<th scope="col">Nov 05</th>
<th scope="col">Dec 04</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">Industrial Sales (2000=100)</td>
<td>113.2</td>
<td>110.0</td>
<td>101.4</td>
<td>3.00</td>
<td>11.74</td>
<td>107.6</td>
<td>104.1</td>
<td>101.8</td>
</tr>
<tr>
<td class="firstcol">Industrial New Orders (2000=1000</td>
<td>107.2</td>
<td>104.8</td>
<td>103.8</td>
<td>2.29</td>
<td>3.28</td>
<td>102.8</td>
<td>98.9</td>
<td>95.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Production (200=1990</td>
<td>96.7</td>
<td>95.6</td>
<td>94.8</td>
<td>1.15</td>
<td>2.00</td>
<td>95.7</td>
<td>96.7</td>
<td>97.3</td>
</tr>
<tr>
<td class="firstcol">Deficit on Merchandise Trade (Mil. Euros)</td>
<td>-1,679</td>
<td>-1,141</td>
<td>-436</td>
<td>-538</td>
<td>-1,243</td>
<td>-11,169</td>
<td>-1,946</td>
<td>2,974</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jan 06</td>
<td>Dec 05</td>
<td>Jan 05</td>
<td>M/M %</td>
<td>Y/Y %</td>
<td>2005&nbsp; </td>
<td>2004&nbsp;</td>
<td>2003&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Confidence (2000=100)</td>
<td>92.7</td>
<td>91.2</td>
<td>88.2</td>
<td>1.65</td>
<td>5.10</td>
<td>87.5</td>
<td>89.5</td>
<td>88.0</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence (1980=100)</td>
<td>106.4</td>
<td>108.2</td>
<td>103.2</td>
<td>-1.66</td>
<td>3.10</td>
<td>104.2</td>
<td>101.4</td>
<td>106.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Final goods</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></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>
</tbody>
</table>
</body>
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Italian industrial sales rose 2.3% in December and new orders rose 3.0%. At year end sales were 11.7% above December 2004 and new orders were up 3.3% The strong performance of industrial sales and new orders in 2005 is shown in the [...]

Cross Currents in the Italian Economy: Industrial Sales and New Orders Rising, Trade Deficit Exploding

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/060217g.jpg" width="353">
Japan&#39;s GDP grew at a 5.5% annual rate in Q4, making three strong quarters during 2005 and bringing the Q4/Q4 growth to 4.2%. Calculations of GDP have changed in recent years, so long history is not available on this same basis, but this Q4/Q4 advance is likely the strongest performance of the Japanese economy since about 1990. Moreover, the recent range of growth is similar to the magnitudes of the halcyon period of the late 1980s. [Note that &quot;real GDP&quot; is now defined in chain prices, but is available only since 1994. Fixed-weight GDP is available back to 1980, but Q4 on this basis will not be published until after the second release next month of the chained Q4 data. So exact information on these historical comparisons is not yet available.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217h.jpg" width="353">
In Q4, household consumption grew at a 3.2% pace; this wasn&#39;t the highest of the year, but it brought the four-quarter growth to 3.3%, which was the highest since Q1 1997 (4.0%). The year 2005 as a whole saw 2.2% consumption growth, the largest since 1996. Similar comparisons apply to investment outlays (fixed capital formation): four-quarter growth of 6.0% is indeed the strongest since the current &quot;official&quot; GDP series begins in 1994, and the yearly total of 3.9% is the largest since 4.7% in 1996. [The good gains in 1996, it might be noted, were marked by substantial anticipatory buying ahead of an increase in Japan&#39;s consumption tax, so growth then was stimulated somewhat artificially, unlike the present, more fundamental progress.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217i.jpg" width="353">
Net exports made a major contribution to Q4 GDP, with a continuing double-digit pace (annualized) for growth in exports, 13% in the quarter, the third consecutive such increase. Imports declined in chain-price terms, due to a substantial increase in import prices.
We have noted here several times recently that various price measures in Japan have started to stabilize following their long bout of deflation. The GDP deflator and other related price aggregates in the national accounts are still generally falling, though, as seen in the accompanying graph. However, in the latest quarter the role of that surge in import prices is evident as the total deflator is off 1.6% from a year earlier, but that for domestic demand (which nets out exports and imports) is down &quot;only&quot; 0.6%. But the increasing vigor of domestic demand suggests the possibility of reflation of the Japanese economy. In fact, investors picked this element to focus on in the wake of the better-than-expected growth report. Stock prices fell as investors evidently interpreted the good growth as a sign that the Bank of Japan&#39;s liquefying monetary policy might be shifted to a less accommodative stance.

<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/JAPAN/@J2/@J201/@J201.HTM">Japan (SAAR, %)</a></th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total GDP</td>
<td>5.5</td>
<td>1.4</td>
<td>5.4</td>
<td>2.8</td>
<td>2.3</td>
<td>1.8</td>
<td>0.1</td>
</tr>
<tr>
<td class="firstcol">Household Consumption</td>
<td>3.2</td>
<td>1.7</td>
<td>3.3</td>
<td>2.2</td>
<td>1.9</td>
<td>0.4</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Domestic Fixed Capital Formation</td>
<td>4.3</td>
<td>6.1</td>
<td>5.9</td>
<td>3.9</td>
<td>1.0</td>
<td>0.5</td>
<td>-5.0</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>13.0</td>
<td>12.6</td>
<td>14.6</td>
<td>6.7</td>
<td>13.9</td>
<td>9.0</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>-5.1</td>
<td>13.5</td>
<td>9.0</td>
<td>6.1</td>
<td>8.5</td>
<td>4.0</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol">Domestic Demand</td>
<td>3.2</td>
<td>1.3</td>
<td>4.6</td>
<td>2.6</td>
<td>1.5</td>
<td>1.2</td>
<td>-0.6</td>
</tr>
</tbody>
</table>
</body>
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Japan's GDP grew at a 5.5% annual rate in Q4, making three strong quarters during 2005 and bringing the Q4/Q4 growth to 4.2%. Calculations of GDP have changed in recent years, so long history is not available on this same basis, but [...]

Japan GDP Grows 5.5% in Q4; Shows Biggest Yearly Gains in 9 Years

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

260702A4.jpg

260702B4.jpg

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%.

260702C4.jpg

260702D4.jpg

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.

260702X4.jpg

260702F4.jpg

- 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

Robert Brusca

260702E.jpg

Unemployment rates in the European Monetary Union (EMU) were steady in May at 6.2%, the same level as in April, after April had fallen to 6.2% from 6.3%. The 6.2% reading is the lowest for the community since it was formed. Meanwhile, for the larger community, the EU, the unemployment rate has stabilized at 5.9%, the same as in April, again, a tick lower than it was in March. This 5.9% reading is a tick above the historic low for the European Union (EU). In both cases, the performance of these two economic conglomerations is quite excellent.

**Monthly**
The table looks at 12 of the most senior members of the monetary union, including an observation for the United Kingdom based on its claimant-count unemployment rate, presented at the bottom of the table. In May, the monetary union saw 4 of 12 members in the table with lower unemployment rates than they had in April. In April, five members had lower unemployment rates than in March. In March, seven members had lower unemployment rates than they posted in February. The progression to lower unemployment rates has slowed based on monthly data.

**Sequentially**
Looking at changes in the unemployment rates over broader sequential periods—three months, six months, and 12 months—6 out of 12 reporters have lower unemployment rates over three months; 7 have lower unemployment rates over six months; only 4 report unemployment rates that are lower over 12 months. The broader periods for comparison show changes in the unemployment rates that report more declines over the shorter and more recent periods compared to the longer/older periods. This is not the same trend leaning that we get from the last three months of data. It'll be good to watch these developments in the coming months to see if the tendency to lower unemployment rates is slowing or whether dropping unemployment is continuing in force.

**Rankings**
The ranking of unemployment rates since 1990 finds only three of these 12 monetary union members with unemployment rates above their medians. Those are Luxembourg, with a 98.2 percentile standing, Finland with an 81.9 percentile standing, and Austria with a 76.6 percentile standing. Italy, on the other hand, is reporting the lowest unemployment rate that it has seen during this period. The Greek unemployment rate has been this low or lower only about 3% of the time, while in Spain the unemployment rate has been this low or lower 11% of the time. For Portugal, the unemployment ranking figure has been weaker 13% of the time. The monetary union continues to report excellent labor market results even though economic growth has been relatively disappointing.

260702.jpg

**Summing up and central bankers**
In the wake of the monetary conference in the Sintra this past week, central banks featuring contributions from the European Central Bank, the Bank of England, the Federal Reserve, and the Bank of Canada, saw central bank heads talking about getting back to basics and stopping the use of some of the newer tools that had been pressed into service after the great financial crisis and during COVID. Bankers are getting back to basics to focus on short-term interest rates and say they will stop fiddling with the size of the balance sheet and to largely set aside the use of forward guidance. It will take time to determine what these changes are going to mean in terms of how policy performs and how markets will react. While there was a lot of discussion, and in some places concerns about the loss of forward guidance, what is clear is that, with forward guidance gone, there will be more volatility; however, the markets will be freer to price economic events themselves and will not be so stuck to the outlook of the central bank.  That could turn out to be a gigantic win for both markets and central bankers.

Europe

Unemployment Remains Quite Low in Europe

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.

260702Z1.jpg

**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.

260702Z2.jpg

**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.

260702Z3.jpg

**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.

260702Z4.jpg

**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.

260702Z5.jpg

**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.

Economy in Brief

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