Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103c.jpg" width="353">
The value of construction put in place rose a modest 0.2% in November following a 0.8% October increase and fell far short of Consensus expectations for a 0.7% rise.
Residential building dropped modestly for the first decline since June. The decline reflected a 4.1% plunge in the value of improvements (-5.7% y/y) and a 0.6% fall in new multi-family residential (+20.5% y/y). New single family building posted a strong 1.5% gain (14.8% y/y) which was on a par with increases during the prior ten months.
Nonresidential building recovered all of the previous month&#39;s 0.6% drop helped by a 2.4% gain in office construction (7.4% y/y) and a 2.7% rise in commercial (10.15 y/y).
Public construction spending rose 0.3% following a revised 1.7% increase during October. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose 1.6% (8.1% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</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</td>
<td>0.2%</td>
<td>0.8%</td>
<td>7.8%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.2%</td>
<td>0.5%</td>
<td>7.8%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.0%</td>
<td>0.9%</td>
<td>9.7%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.6%</td>
<td>-0.6%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.3%</td>
<td>1.7%</td>
<td>7.8%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
</body>
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The value of construction put in place rose a modest 0.2% in November following a 0.8% October increase and fell far short of Consensus expectations for a 0.7% rise. Residential building dropped modestly for the first decline since [...]

U.S. Construction Gain Eased, Single Family Still Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103b.jpg" width="353">
The Institute of Supply Management (ISM) reported that the December Composite Index of activity in the manufacturing sector fell for the fourth month in the last five. The sharp 3.9 point decline to 54.2 was the largest since 2002, dropped the index to the lowest level since August and exceeded Consensus expectations for a more moderate decline to 57.4.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
Each of the index&#39;s five components fell last month. The 4.3 point drop in new orders was to the lowest level since July and the 3.6 point drop in production was the fourth in the last five months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103a.jpg" width="353">
The 3.9 point decline in the employment index reversed about all of the gains during the prior three months. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.
Prices continued to rise, though an eleven point decline in the index level added to the ten point drop in November. Widespread increases in commodities prices were offset by limited declines in diesel fuel and resins. Commodities in short supply were caustic soda, plastics, resins, and steel.
The Diffusion of Personal Computers across the U.S. from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-37.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>54.2</td>
<td>58.1</td>
<td>57.3</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>55.5</td>
<td>59.8</td>
<td>62.6</td>
<td>57.5</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>63.0</td>
<td>74.0</td>
<td>72.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>


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The Institute of Supply Management (ISM) reported that the December Composite Index of activity in the manufacturing sector fell for the fourth month in the last five. The sharp 3.9 point decline to 54.2 was the largest since 2002, [...]

ISM Index Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103b.jpg" width="353">
The Institute of Supply Management (ISM) reported that the December Composite Index of activity in the manufacturing sector fell for the fourth month in the last five. The sharp 3.9 point decline to 54.2 was the largest since 2002, dropped the index to the lowest level since August and exceeded Consensus expectations for a more moderate decline to 57.4.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
Each of the index&#39;s five components fell last month. The 4.3 point drop in new orders was to the lowest level since July and the 3.6 point drop in production was the fourth in the last five months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103a.jpg" width="353">
The 3.9 point decline in the employment index reversed about all of the gains during the prior three months. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.
Prices continued to rise, though an eleven point decline in the index level added to the ten point drop in November. Widespread increases in commodities prices were offset by limited declines in diesel fuel and resins. Commodities in short supply were caustic soda, plastics, resins, and steel.
The Diffusion of Personal Computers across the U.S. from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-37.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>54.2</td>
<td>58.1</td>
<td>57.3</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>55.5</td>
<td>59.8</td>
<td>62.6</td>
<td>57.5</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>63.0</td>
<td>74.0</td>
<td>72.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
U.S. Construction Gain Eased, Single Family Still Strong  
by <a href="/comment/Moeller.html">Tom Moeller</a>  January 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103c.jpg" width="353">
The value of construction put in place rose a modest 0.2% in November following a 0.8% October increase and fell far short of Consensus expectations for a 0.7% rise.
Residential building dropped modestly for the first decline since June. The decline reflected a 4.1% plunge in the value of improvements (-5.7% y/y) and a 0.6% fall in new multi-family residential (+20.5% y/y). New single family building posted a strong 1.5% gain (14.8% y/y) which was on a par with increases during the prior ten months.
Nonresidential building recovered all of the previous month&#39;s 0.6% drop helped by a 2.4% gain in office construction (7.4% y/y) and a 2.7% rise in commercial (10.15 y/y).
Public construction spending rose 0.3% following a revised 1.7% increase during October. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose 1.6% (8.1% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</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</td>
<td>0.2%</td>
<td>0.8%</td>
<td>7.8%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.2%</td>
<td>0.5%</td>
<td>7.8%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.0%</td>
<td>0.9%</td>
<td>9.7%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.6%</td>
<td>-0.6%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.3%</td>
<td>1.7%</td>
<td>7.8%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
Good News on German Unemployment  
by <a href="/comment/Curley.html">Louise Curley</a> January 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104c.jpg" width="353">
Signs of improvement in the German economy have been coming to the fore. The latest bit of good news relates to unemployment conditions. The Federal Labor Agency reported that the number of registered workers without work adjusted for seasonal swings, in December fell by 110,000 to 4.64 million. the biggest drop since reunification. The unemployment rate fell to 11.2% from 11.4%. Registered unemployment in West Germany was 82, 000 lower in December than November, but was still 260,000 above December, 2004. Registered unemployment in East Germany, declined in December by 28,000 from November but was also 115,000 below December, 2004. The first chart shows the year to year changes in the number of registered unemployment in West and East Germany. The unemployment data in Germany were distorted early in 2005 when 200,000 people were added to the unemployment roles under the new definitions introduced by Hartz IV of the labor reforms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104a.jpg" width="353">
In addition to the data on registered unemployment, the Federal Statistical Office publishes data based on concepts of the the International Labor Office (ILO). These data do not show the early 2005 distortion in the unemployment figures. The second chart compares the unemployment rate as measured by the two agencies. There is no rise in the rate of ILO unemployment in early 2005 comparable to that of the registered unemployment rate. According to the ILO concept, the unemployment rate appears to have shown a somewhat steeper down trend so far this year than the registered data. The latest data are for November. While employment rose by 15,0000 in November on a seasonally adjusted basis to 38,611 million, unemployment also rose by 7,000, taking the unemployment rate to 9.0% from 8.8% in October.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104b.jpg" width="353">
The ILO data form the basis of Eurostat&#39;s harmonized rates of unemployment for all the Euro Zone countries, but, as can seen in the third chart that compares Germany&#39;s ILO unemployment rate and the Eurostat harmonized rate, further adjustments are made to the harmonized indexes. The latest Eurostat Harmonized Index for Germany is October. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Number of Registered Unemployed, S. A. (000)</th>
<th scope="col">Dec 05&nbsp;</th>
<th scope="col">Nov 05</th>
<th scope="col">Dec 04</th>
<th scope="col">M/M Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">Y/Y Dif</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">Unified Germany&nbsp;&nbsp;</td>
<td>4638</td>
<td>4748</td>
<td>4493</td>
<td>-110</td>
<td>145</td>
<td>4803</td>
<td>4389</td>
<td>4383</td>
<td>4075</td>
</tr>
<tr>
<td class="firstcol">West Germany</td>
<td>3122</td>
<td>3204</td>
<td>2862</td>
<td>-82</td>
<td>266</td>
<td>3201</td>
<td>2789</td>
<td>2759</td>
<td>2509</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;East Germany</td>
<td>1516</td>
<td>1544</td>
<td>1631</td>
<td>-28</td>
<td>-115</td>
<td>1612</td>
<td>1600</td>
<td>1624</td>
<td>1585</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>11.2</td>
<td>11.4</td>
<td>10.8</td>
<td>-0.2</td>
<td>0.4</td>
<td>11.6</td>
<td>10.5</td>
<td>10.5</td>
<td>9.8</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>
<td></td>
</tr>
<tr>
<td class="firstcol">ILO Concept S. A. (000)</td>
<td>Nov 05</td>
<td>Oct 05</td>
<td>Nov 04&nbsp;</td>
<td>M/M Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>Y/Y Dif &nbsp;&nbsp;</td>
<td>&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>2004 &nbsp;&nbsp;</td>
<td>2003</td>
<td>2002&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>38611</td>
<td>38596</td>
<td>38826</td>
<td>15</td>
<td>-215</td>
<td></td>
<td>38779</td>
<td>38632</td>
<td>383992</td>
</tr>
<tr>
<td class="firstcol">Unemployment</td>
<td>3800</td>
<td>3730</td>
<td>3910</td>
<td>70</td>
<td>110</td>
<td></td>
<td>3930</td>
<td>3710</td>
<td>3240</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>&nbsp;9.0</td>
<td>8.8</td>
<td>9.2&nbsp;</td>
<td>0.2&nbsp;</td>
<td>-0.2&nbsp;</td>
<td>&nbsp;</td>
<td>9.2&nbsp;</td>
<td>8.8</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Eurostat Harmonized Rate for Germany</td>
<td>&nbsp;n.a</td>
<td>9.1&nbsp;</td>
<td>9.5&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;9.5</td>
<td>9.1</td>
<td>8.2</td>
</tr>
</tbody>
</table>


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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051230b.jpg" width="353">
On this last business day of 2005, the French statistics compilers, the National Institute for Statistics and Economic Studies (INSEE) reported unemployment data for November. The rate fell to 9.6% from 9.7% in October, the fifth decrease in the last six months. This ought to be good news and is especially impressive as it indicates that unemployment at least did not suffer immediately from the widespread riots that took place in the nation in late October and early November. 
At the same time, among the major world events of this past year, perhaps these riots were the most directly connected to economic conditions. As we have described here before -- in fact, on September 30, less than a month before the riots began -- unemployment is especially severe for French youth and their relative job market status has worsened. The first two rows of the table below show this easily. The overall unemployment rate is now at the lowest since March 2003, but the rate for would-be workers under age 25 is 22.8%, 2.6 percentage points higher its March 2003 value of 20.2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051230c.jpg" width="353"> 
Part of the problem is that jobs are not increasing in France. A quick look at our table and the second graph shows that employment has been basically stagnant since the middle of 2001; over these last several years, the ratio of youth unemployment to the overall rate has climbed steeply, suggesting that older workers are holding jobs better than young people. 
We wondered about the economic impact of the riots themselves, but much French data for these months is not yet available. Business and consumer surveys, however, hint at a differential influence. INSEE&#39;s household confidence survey &quot;confidence indicator&quot; dropped 3 points to -33 in November, its worst since November 1996, nine years ago. People seem most concerned about their finances, and actually less worried about unemployment, so this deterioration could result from energy prices more than social unrest. Even so, the response is pronounced. December data are due for release Thursday, January 5. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051230d.jpg" width="353">
Business confidence has held up recently, though. The &quot;Business Climate Indicator&quot; is not at a high level, but it rose noticeably throughout the second half of 2005. French stock prices have also increased, including a rise this month to the highest monthly close since early 2001. Thus, business leaders and investors feel differently than consumers have about the present state of the French economy, and as shown in the chart of confidence indicators, such divergences are rare. The nation seems to face an uncertain course as 2006 begins.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">France: Selected Data</th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 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">Unemployment Rate (%)</td>
<td>&nbsp;</td>
<td>9.6</td>
<td>9.7</td>
<td>9.8</td>
<td>10.0</td>
<td>9.8</td>
<td>9.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Under 25 Yrs</td>
<td>&nbsp;</td>
<td>22.8</td>
<td>22.9</td>
<td>23.0</td>
<td>22.4</td>
<td>20.7</td>
<td>19.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (000s)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>15,444</td>
<td>15,404</td>
<td>15,403</td>
<td>15,466</td>
</tr>
<tr>
<td class="firstcol">Household Confidence Survey</td>
<td>&nbsp;</td>
<td>-33</td>
<td>-30</td>
<td>-29</td>
<td>-22</td>
<td>-27</td>
<td>-16</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Condition Past 12 Months</td>
<td>&nbsp;</td>
<td>-26</td>
<td>-25</td>
<td>-22</td>
<td>-16</td>
<td>-15</td>
<td>-11</td>
</tr>
<tr>
<td class="firstcol">Business Climate</td>
<td>102</td>
<td>103</td>
<td>102</td>
<td>100</td>
<td>105</td>
<td>95</td>
<td>97</td>
</tr>
<tr class="odd">
<td class="firstcol">Stock Price CAC 40, EOP</td>
<td>4716.62</td>
<td>4567.41</td>
<td>4436.45</td>
<td>4600.02</td>
<td>3821.16</td>
<td>3557.90</td>
<td>3063.91</td>
</tr>
</tbody>
</table>
</body>
</html>

On this last business day of 2005, the French statistics compilers, the National Institute for Statistics and Economic Studies (INSEE) reported unemployment data for November. The rate fell to 9.6% from 9.7% in October, the fifth [...]

French Unemployment Decreases in November, Even in the Midst of Social Unrest

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051230a.jpg" width="353">
The Chicago Purchasing Managers Business Barometer held at 61.5 in December versus an unrevised 61.7 in November. Consensus expectations had been for an easing to 60. For the year, the reading of 60.6 was slightly below the 2004 level and consistent with the moderate slowdown in factory sector production to 3.5% growth through November and 4.8% during all of 2004.
During the last ten years there has been a 63% correlation between the level of the Chicago Business Barometer and y/y growth in factory production.
The new orders index surged at yearend and recovered about half the prior month&#39;s steep decline. The production index dipped slightly, offset by a modest gain in employment. During the last ten years there has been a 62% correlation between the level of the employment index and year to year growth in factory sector employment nationally.
Pricing power eased in December but just moderately from the near-record high in November. During the last ten years there has been a 79% correlation between the prices index and the y/y change in the core PPI for intermediate goods.

<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/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</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">Business Barometer</td>
<td>61.5</td>
<td>61.7</td>
<td>61.9</td>
<td>60.6</td>
<td>62.9</td>
<td>54.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>66.7</td>
<td>61.6</td>
<td>64.9</td>
<td>64.7</td>
<td>67.0</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>83.8</td>
<td>94.1</td>
<td>84.4</td>
<td>71.1</td>
<td>80.1</td>
<td>55.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The Chicago Purchasing Managers Business Barometer held at 61.5 in December versus an unrevised 61.7 in November. Consensus expectations had been for an easing to 60. For the year, the reading of 60.6 was slightly below the 2004 level [...]

Chicago PMI Steady

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051230a.jpg" width="353">
The Chicago Purchasing Managers Business Barometer held at 61.5 in December versus an unrevised 61.7 in November. Consensus expectations had been for an easing to 60. For the year, the reading of 60.6 was slightly below the 2004 level and consistent with the moderate slowdown in factory sector production to 3.5% growth through November and 4.8% during all of 2004.
During the last ten years there has been a 63% correlation between the level of the Chicago Business Barometer and y/y growth in factory production.
The new orders index surged at yearend and recovered about half the prior month&#39;s steep decline. The production index dipped slightly, offset by a modest gain in employment. During the last ten years there has been a 62% correlation between the level of the employment index and year to year growth in factory sector employment nationally.
Pricing power eased in December but just moderately from the near-record high in November. During the last ten years there has been a 79% correlation between the prices index and the y/y change in the core PPI for intermediate goods.

<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/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</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">Business Barometer</td>
<td>61.5</td>
<td>61.7</td>
<td>61.9</td>
<td>60.6</td>
<td>62.9</td>
<td>54.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>66.7</td>
<td>61.6</td>
<td>64.9</td>
<td>64.7</td>
<td>67.0</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>83.8</td>
<td>94.1</td>
<td>84.4</td>
<td>71.1</td>
<td>80.1</td>
<td>55.8</td>
</tr>
</tbody>
</table>
French Unemployment Decreases in November, Even in the Midst of Social Unrest 
by <a href="/comment/Stone.html">Carol Stone</a> December 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051230b.jpg" width="353">
On this last business day of 2005, the French statistics compilers, the National Institute for Statistics and Economic Studies (INSEE) reported unemployment data for November. The rate fell to 9.6% from 9.7% in October, the fifth decrease in the last six months. This ought to be good news and is especially impressive as it indicates that unemployment at least did not suffer immediately from the widespread riots that took place in the nation in late October and early November. 
At the same time, among the major world events of this past year, perhaps these riots were the most directly connected to economic conditions. As we have described here before -- in fact, on September 30, less than a month before the riots began -- unemployment is especially severe for French youth and their relative job market status has worsened. The first two rows of the table below show this easily. The overall unemployment rate is now at the lowest since March 2003, but the rate for would-be workers under age 25 is 22.8%, 2.6 percentage points higher its March 2003 value of 20.2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051230c.jpg" width="353"> 
Part of the problem is that jobs are not increasing in France. A quick look at our table and the second graph shows that employment has been basically stagnant since the middle of 2001; over these last several years, the ratio of youth unemployment to the overall rate has climbed steeply, suggesting that older workers are holding jobs better than young people. 
We wondered about the economic impact of the riots themselves, but much French data for these months is not yet available. Business and consumer surveys, however, hint at a differential influence. INSEE&#39;s household confidence survey &quot;confidence indicator&quot; dropped 3 points to -33 in November, its worst since November 1996, nine years ago. People seem most concerned about their finances, and actually less worried about unemployment, so this deterioration could result from energy prices more than social unrest. Even so, the response is pronounced. December data are due for release Thursday, January 5. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051230d.jpg" width="353">
Business confidence has held up recently, though. The &quot;Business Climate Indicator&quot; is not at a high level, but it rose noticeably throughout the second half of 2005. French stock prices have also increased, including a rise this month to the highest monthly close since early 2001. Thus, business leaders and investors feel differently than consumers have about the present state of the French economy, and as shown in the chart of confidence indicators, such divergences are rare. The nation seems to face an uncertain course as 2006 begins.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">France: Selected Data</th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 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">Unemployment Rate (%)</td>
<td>&nbsp;</td>
<td>9.6</td>
<td>9.7</td>
<td>9.8</td>
<td>10.0</td>
<td>9.8</td>
<td>9.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Under 25 Yrs</td>
<td>&nbsp;</td>
<td>22.8</td>
<td>22.9</td>
<td>23.0</td>
<td>22.4</td>
<td>20.7</td>
<td>19.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (000s)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>15,444</td>
<td>15,404</td>
<td>15,403</td>
<td>15,466</td>
</tr>
<tr>
<td class="firstcol">Household Confidence Survey</td>
<td>&nbsp;</td>
<td>-33</td>
<td>-30</td>
<td>-29</td>
<td>-22</td>
<td>-27</td>
<td>-16</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Condition Past 12 Months</td>
<td>&nbsp;</td>
<td>-26</td>
<td>-25</td>
<td>-22</td>
<td>-16</td>
<td>-15</td>
<td>-11</td>
</tr>
<tr>
<td class="firstcol">Business Climate</td>
<td>102</td>
<td>103</td>
<td>102</td>
<td>100</td>
<td>105</td>
<td>95</td>
<td>97</td>
</tr>
<tr class="odd">
<td class="firstcol">Stock Price CAC 40, EOP</td>
<td>4716.62</td>
<td>4567.41</td>
<td>4436.45</td>
<td>4600.02</td>
<td>3821.16</td>
<td>3557.90</td>
<td>3063.91</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051229d.jpg" width="353">
The active sectors of the Chilean economy seem to have moderated a bit in the last couple of months, but are still keeping up favorable comparisons with a year ago. Total employment decreased 34,000 in November and 30,000 in October, but stands 1.7% ahead of November 2004, the same as the growth for 2004 as a whole. These data are reported as 3-month moving averages and seasonally adjusted by Haver Analytics. Within the National Statistics Bureau industry breakdown is a public service-type category &quot;communal, social and personal services&quot;. If we subtract this group from the total, the remainder might be seen as a proxy for the overall private sector; it shows somewhat more slowing, with decreases for the last three months and only a 0.7% gain over the last year. The unemployment rate ticked higher in November, rising to 7.8% from 7.6% in October. However, this latter was the lowest figure since late 1998, as the world financial crisis was pushing it steeply higher, and it is down from a peak of 10.4% in late 1999.
One often thinks of mining when considering the Chilean economy, but mining and quarrying represents only 1.3% of its employment. Even so, this modest workforce generates about 7.3% of Chile&#39;s GDP. Otherwise, the mix of employment has, as in many other western countries, shifted over the last few years toward service industries, with growth in finance and transportation and communication, as well as the aforementioned &quot;communal, social and personal services&quot;. Agriculture, while diminishing in recent years, still holds a sizable share of total jobs, about one in eight.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051229e.jpg" width="353">
At the outset, we noted that these data refer to the &quot;active&quot; sectors of the Chilean economy; that distinction is notable, because there is a substantial &quot;inactive&quot; sector. Labor force participation is only about 53% of the population over age 15 and the employment/population ratio was just under 49% last month. These figures contrast with the US, where the labor force is 66% and employment 62.7% of the relevant population age range. Perhaps this is an unfair comparison and we should assess economic participation with Chile&#39;s neighbors: in Argentina, the urban population had a 45% participation rate in Q3 and a 40% employment rate and in Brazil, 56.8% and 51.3% for the relevant population segments. While the Brazilian numbers look favorable compared with Chile&#39;s, they refer to a sampling of metropolitan area populations which represent only about 22% of Brazil&#39;s total population of about 176,000,000. So from a broader perspective, Chile&#39;s population can be seen as the most economically active of these three major Latin American nations.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Chile: 3-mo Moving Avg*</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Nov 2004</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">Employment</td>
<td>5.815</td>
<td>5.849</td>
<td>5.879</td>
<td>5.178</td>
<td>5.632</td>
<td>5.537</td>
<td>5.381</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Change (000)</td>
<td>-34</td>
<td>-30</td>
<td>+11</td>
<td>1.7%</td>
<td>1.7%</td>
<td>2.9%</td>
<td>1.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Private&quot; Sector**</td>
<td>4.151</td>
<td>4.173</td>
<td>4.205</td>
<td>4.121</td>
<td>4.069</td>
<td>4.024</td>
<td>3.903</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Change (000)</td>
<td>-23</td>
<td>-32</td>
<td>-3</td>
<td>0.7%</td>
<td>1.1%</td>
<td>3.1%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>7.8</td>
<td>7.6</td>
<td>7.7</td>
<td>8.8</td>
<td>8.8</td>
<td>8.5</td>
<td>8.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The active sectors of the Chilean economy seem to have moderated a bit in the last couple of months, but are still keeping up favorable comparisons with a year ago. Total employment decreased 34,000 in November and 30,000 in October, [...]

Chilean Employment Down in November, but Yearly Growth Trend Maintained

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051229b.jpg" width="353">
Total existing home sales fell for the second consecutive month, according to the National Association of Realtors The 1.7% decline to 6.970M (AR) in November followed an unrevised 2.7% October drop that left sales 5.2% below the record level set in June. Consensus expectations for sales last month had been for less of a decline to 7.00M. 
Sales of single-family homes fell another 1.9% on top of the 2.5% October fall to 6.110M. The latest level was down 4.4% from the June peak. Though sales of condos &amp; co-ops were flat m/m, they are off 10.4% from the peak in June.
The data cover sales closed in the latest and previous months, and contrast to the new home sales data which count sales at the signing of a contract. 
Single family home sales fell hardest m/m in the West where a 4.0% drop left sales 8.9% below the June peak. In the Northeast sales fell 1.2% after the 8.0% drop in October and in the South sales dipped just 0.4%.In the Midwest single family sales fell 2.8% (0.0% y/y), off 7.4% from the August peak.
The median price of an existing single-family home fell 1.5% m/m to $213,500 (+13.5% y/y). Prices are not seasonally adjusted.
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.
The Baby Boom: Predictability in House Prices and Interest Rates from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/ifdp/2005/847/default.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"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</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 Home Sales</td>
<td>6,970</td>
<td>7,090</td>
<td>-0.1%</td>
<td>6,723</td>
<td>6,170</td>
<td>5,653</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>6,110</td>
<td>6,230</td>
<td>-0.5%</td>
<td>5,913</td>
<td>5,441</td>
<td>4,995</td>
</tr>
<tr class="odd">
<td class="firstcol">Single Family Median Home Price ($,000) </td>
<td>$213.5 </td>
<td>$21 6.7 </td>
<td>13.5% </td>
<td>$182.8 </td>
<td>$169.1 </td>
<td>$157.6 </td>
</tr>
</tbody>
</table>


</html>

Total existing home sales fell for the second consecutive month, according to the National Association of Realtors The 1.7% decline to 6.970M (AR) in November followed an unrevised 2.7% October drop that left sales 5.2% below the [...]

U.S. Existing Home Sales Down 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

260702A4.jpg

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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

Robert Brusca

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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.

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**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.

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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.

Economy in Brief

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