Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050630a.jpg" width="353">
May personal income rose just 0.2% following a downwardly revised 0.6% gain the prior month. Consensus expectations had been for a 0.3% increase.
Wages &amp; salaries rose a slim 0.1% (7.0% y/y) following the 0.7% pop in April. Wages in service producing industries rose 0.1% (8.3% y/y) after the 0.9% April gain but factory sector wages rose 0.3% (5.4% y/y) following a downwardly revised 0.4% April increase.
Disposable personal income rose 0.2% (5.5% y/y) following three months of 0.4% and 0.5% gain. When adjusted for price inflation take home pay rose 0.1% (3.2% y/y) for the second consecutive month.
Personal consumption was unchanged in May following a 0.6% increase in April due to the 4.5% m/m drop in light vehicle sales. Consensus expectations had been for a 0.1% rise. Spending on durables fell 1.8% (+3.7% y/y) and nondurables spending dipped 0.4% (+6.9% y/y) as gasoline prices fell. Spending on services rose 0.6% (5.6% y/y).
The PCE chain price index was unchanged with lower gas prices but less food &amp; energy the 0.2% m/m increase was double the prior month&#39;s slim increase.
Lessons Learned from the Recent Business Cycle from Philadelphia Federal Reserve Bank President Santomero is available <a href="http://www.philadelphiafed.org/files/br/Q2_05_Santomero.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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.2%</td>
<td>0.6%</td>
<td>6.7%</td>
<td>5.8%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.0%</td>
<td>0.6%</td>
<td>5.7%</td>
<td>6.0%</td>
<td>5.2%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>0.6%</td>
<td>0.5%</td>
<td>1.0%</td>
<td>1.3%</td>
<td>1.4%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.0%</td>
<td>0.4%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.6%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
</body>
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May personal income rose just 0.2% following a downwardly revised 0.6% gain the prior month. Consensus expectations had been for a 0.3% increase. Wages & salaries rose a slim 0.1% (7.0% y/y) following the 0.7% pop in April. Wages in [...]

U.S. Personal Income Growth Eased in May

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050630a.jpg" width="353">
May personal income rose just 0.2% following a downwardly revised 0.6% gain the prior month. Consensus expectations had been for a 0.3% increase.
Wages &amp; salaries rose a slim 0.1% (7.0% y/y) following the 0.7% pop in April. Wages in service producing industries rose 0.1% (8.3% y/y) after the 0.9% April gain but factory sector wages rose 0.3% (5.4% y/y) following a downwardly revised 0.4% April increase.
Disposable personal income rose 0.2% (5.5% y/y) following three months of 0.4% and 0.5% gain. When adjusted for price inflation take home pay rose 0.1% (3.2% y/y) for the second consecutive month.
Personal consumption was unchanged in May following a 0.6% increase in April due to the 4.5% m/m drop in light vehicle sales. Consensus expectations had been for a 0.1% rise. Spending on durables fell 1.8% (+3.7% y/y) and nondurables spending dipped 0.4% (+6.9% y/y) as gasoline prices fell. Spending on services rose 0.6% (5.6% y/y).
The PCE chain price index was unchanged with lower gas prices but less food &amp; energy the 0.2% m/m increase was double the prior month&#39;s slim increase.
Lessons Learned from the Recent Business Cycle from Philadelphia Federal Reserve Bank President Santomero is available <a href="http://www.philadelphiafed.org/files/br/Q2_05_Santomero.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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.2%</td>
<td>0.6%</td>
<td>6.7%</td>
<td>5.8%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.0%</td>
<td>0.6%</td>
<td>5.7%</td>
<td>6.0%</td>
<td>5.2%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>0.6%</td>
<td>0.5%</td>
<td>1.0%</td>
<td>1.3%</td>
<td>1.4%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.0%</td>
<td>0.4%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.6%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050630b.jpg" width="353">
The Chicago Purchasing Managers Business Barometer fell again in June to 53.6, the lowest level in two years. Consensus expectations had been for a slight increase to 54.5.
During the last ten years there has been a 65% correlation between the level of Chicago PMI and the three month change in factory sector industrial production.
New orders fell for the third consecutive month and the employment index dropped to 48.9, below 50 for the first month since July of last year. During the last ten years there has been a 75% correlation between the level of the employment index and the three month change in factory sector employment.
The index of prices rose moderately. During the last ten years there has been an 86% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<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">June</th>
<th scope="col">May</th>
<th scope="col">&nbsp;June &#39;04</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">Business Barometer</td>
<td>53.6</td>
<td>54.1</td>
<td>57.5</td>
<td>62.9</td>
<td>54.6</td>
<td>52.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>56.5</td>
<td>57.9</td>
<td>58.3</td>
<td>67.0</td>
<td>58.0</td>
<td>56.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>59.7</td>
<td>54.3</td>
<td>83.9</td>
<td>80.1</td>
<td>55.8</td>
<td>56.9</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Fell Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050630d.jpg" width="353">
Initial claims for unemployment insurance dropped another 6,000 to 310,000 last week following a 19,000 decline the week prior that was revised slightly shallower. Consensus expectations had been for an increase to 325,000 claims.
During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment. There has been a (negative) 65% correlation with the level of continuing claims.
The four week moving average of initial claims fell to 323,500 (-6.4% y/y).
Continuing claims for unemployment insurance rose a slight 4,000 following a deepened 42,000 drop the week prior.
The insured unemployment rate remained at 2.0%, the low for this cycle.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">06/25/05</th>
<th scope="col">06/18/05</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>
<td class="firstcol">Initial Claims</td>
<td>310</td>
<td>316</td>
<td>-10.7%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,600</td>
<td>-11.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050630c.jpg" width="353">
The Index of Help-Wanted Advertising from the Conference Board fell to 37 last month after two months at 39 and two months before that at 41.
During the last ten years there has been a 65% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume rose modestly to a still low 39%.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#39;04</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>37</td>
<td>39</td>
<td>39</td>
</tr>
</tbody>
</table>
Fed Funds Rate Increased to 3.25% 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050630g.jpg" width="353">
The Federal Open Market Committee increased interest rates for the ninth time since last June. The target rate for federal funds was raised an expected 25 basis points to 3.25% and the discount rate was raised 25 basis points to 4.25%.
The decision was unanimous.
Today&#39;s press release from the Fed continued to contain a comment suggesting that rates could be raised again. &quot;The Committee believes that, even after this action, the stance of monetary policy remains accommodative ...&quot;
For emphasis the statement indicated that &quot;with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal.&quot;
Discretion was indicated with the comment &quot;the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050630/default.htm">here</a>.
A Search for a Structural Phillips Curve from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr203.pdf">here</a>.

French Unemployment High, Consumer Confidence Low; Germany Sees Slight Declines in Unemployment 
by <a href="/comment/Stone.html">Carol Stone</a> June 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050630e.jpg" width="353">
Unemployment is creeping higher in France, with the unemployment rate for May holding at April&#39;s 10.2% of the labor force, according to INSEE&#39;s monthly labor force survey, released today. The rate there, defined according to the ILO specifications used throughout the Euro-Zone, has been on a upward trend since the slowdown in economic activity began in late 2000 (there has been no &quot;official&quot; recession in France as there was in the US).
INSEE also published its household confidence survey for June, which showed a continuing erosion in the overall indicator. The current reading, -30, is the lowest since survey questions were revised in November 2003. More people reported that their living standards had deteriorated during the last year, that this is a poor time to make make major purchases and that they expect to have difficulty saving over the next year. On the less worrisome side, interestingly, their concerns over unemployment prospects actually diminished. And that variable has only weak correlation with the unemployment rate itself. The overall index and the assessment of the household&#39;s current financial condition are much more closely related to the current unemployment rate, as seen in the graph. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050630f.jpg" width="353">
Germany&#39;s unemployment situation continues to make news, although the figures reported today for May and June actually look better. The ILO-defined rate fell 0.3 percentage point in May to 9.3%. This is not &quot;low&quot;, but does give the impression that the climb in the rate that had begun in December may have run its course. &quot;Registered&quot; unemployment, the count of people registered with government unemployment offices, edged down in June to a rate of 11.7% from 11.8% in May; this rate peaked in March at 12.0%. Local observers, quoted in a Reuters news story, point out that the new &quot;Hartz IV&quot; regulations are starting to take effect, reducing unemployment benefits and requiring unemployed workers to accept new jobs more quickly. Thus, it is too early to conclude that these slight improvements in both unemployment rates mark a genuine firming of German economic activity. In fact, ever higher energy costs continue to cast a cloud on the economic outlook everywhere.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">June 2005</th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</th>
<th scope="col">Year Ago</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">France: Unemployment Rate (ILO, %)</td>
<td>--</td>
<td>10.2</td>
<td>10.2</td>
<td>10.0</td>
<td>10.0</td>
<td>9.8</td>
<td>9.1</td>
</tr>
<tr>
<td class="firstcol">Household Confidence (%)</td>
<td>-30</td>
<td>-29</td>
<td>-24</td>
<td>-23</td>
<td>-22</td>
<td>-27*</td>
<td>-16</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Germany: Employment (Change, Thous)</td>
<td>--</td>
<td>-4</td>
<td>9</td>
<td>134</td>
<td>140</td>
<td>-356</td>
<td>-217</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate &nbsp;(ILO, %)</td>
<td>--</td>
<td>9.3</td>
<td>9.6</td>
<td>9.3</td>
<td>9.2</td>
<td>9.6</td>
<td>8.7</td>
</tr>
<tr>
<td class="firstcol">Registered Unemployment Rate (%)</td>
<td>11.7</td>
<td>11.8</td>
<td>11.8</td>
<td>10.6</td>
<td>10.6</td>
<td>10.5</td>
<td>9.8</td>
</tr>
</tbody>
</table>
</body>
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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/050629d.jpg" width="353">
Industrial activity in Japan and Korea shows sharply varying patterns, both in recent months and over the past several years. In Japan, mining and manufacturing output in May stood at 100.1, that is, barely above the amount five years ago for this index based at 100 in 2000. Looking at these endpoints, though, masks the recession in 2001 and a recovery in 2003 and 2004. However, the evolution over the past few months has started to show renewed hesitation. An industry segment in which Japan and Korea compete actively is motor vehicles. For Japan, the corresponding production sector, transport equipment (excluding ships and rolling stock), has been relatively volatile of late, but at 116.3 in May, the sector shows growth since 2000 averaging just over 3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050629e.jpg" width="353">
Total output in Korea has been considerably more vigorous, with the May 2005 index standing a 128.8, an average annualized gain of 5.1% since the base year in 2000. Despite this attractive average, the gains have been uneven over time and across industries. Chemicals and products have been strong fairly consistently, and radio, TV and communications equipment showed sizable increases in 2003 and 2004, but some recent hesitation. The motor vehicle sector, illustrated in the second graph along with that in Japan, has grown 9% - 10% yearly, but after a spike in December and January, has weakened markedly. These latest declines carried total vehicle production down to the lowest in seven months and to a level just equal to the average monthly output in the last two years. They are probably just an adjustment to that end-2004 surge, but may skittishness some skittishness as world energy prices stay high. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Indexes, 2000=100, Monthly, Seasonally adjusted</th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Year Ago (Yr/Yr&nbsp;&nbsp; % Chg)</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">Japan: Mining &amp; Manufacturing</td>
<td>100.1</td>
<td>102.5</td>
<td>100.6</td>
<td>100.5</td>
<td>100.2</td>
<td>95.0</td>
<td>92.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>-2.3</td>
<td>1.9</td>
<td>-0.2</td>
<td>0.9</td>
<td>5.5</td>
<td>3.2</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport Equipment*</td>
<td>116.3</td>
<td>126.4</td>
<td>117.7</td>
<td>113.4</td>
<td>113.5</td>
<td>108.5</td>
<td>105.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>-8.0</td>
<td>7.4</td>
<td>0.3</td>
<td>5.0</td>
<td>4.6</td>
<td>3.1</td>
<td>5.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Korea: Mining &amp; Manufacturing</td>
<td>128.8</td>
<td>128.0</td>
<td>129.9</td>
<td>126.6</td>
<td>125.7</td>
<td>113.7</td>
<td>108.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>0.6</td>
<td>-1.5</td>
<td>4.3</td>
<td>4.0</td>
<td>10.8</td>
<td>4.9</td>
<td>8.1</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles</td>
<td>139.8</td>
<td>146.7</td>
<td>157.4</td>
<td>127.8</td>
<td>139.1</td>
<td>127.5</td>
<td>116.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>-4.7</td>
<td>-6.8</td>
<td>1.9</td>
<td>9.3</td>
<td>9.1</td>
<td>9.2</td>
<td>9.9</td>
</tr>
</tbody>
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Industrial activity in Japan and Korea shows sharply varying patterns, both in recent months and over the past several years. In Japan, mining and manufacturing output in May stood at 100.1, that is, barely above the amount five years [...]

Japanese Industrial Output Sluggish; Korea's Grows Unevenly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050629c.jpg" width="353">
The Mortgage Bankers Association reported that total mortgage applications fell another 1.1% last week following the 11.3% decline during the week prior. As a result of increases earlier in the month, applications in June grew 9.9% versus the May average which rose 6.5% versus April.
Purchase applications slipped 0.4% adding to the 9.4% w/w drop during the prior week. In June purchase applications rose 1.3% from May which rose 3.1% from April. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance fell 1.8% w/w but in June were 21.2% versus May.
The effective interest rate on a conventional 30-year mortgage fell sharply to 5.71%, down from the 5.92% averaged during May. It was the lowest rate since March 2004. The effective rate on a 15-year mortgage also fell sharply to 5.33%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/24/05</th>
<th scope="col">06/17/05</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 Market Index</td>
<td>778.4</td>
<td>786.8</td>
<td>35.4%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>477.4</td>
<td>479.4</td>
<td>9.6%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,529.2</td>
<td>2,575.0</td>
<td>82.4%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
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</body>
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The Mortgage Bankers Association reported that total mortgage applications fell another 1.1% last week following the 11.3% decline during the week prior. As a result of increases earlier in the month, applications in June grew 9.9% [...]

Mortgage Applications Fell A Bit Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050629b.jpg" width="353">
US real GDP growth in 1Q &#39;05 was revised up further to 3.8% (AR), in line with Consensus expectations.
Corporate profit growth (w/IVA &amp; CCA) also was revised up to 6.0% (15.4% y/y) versus the preliminary estimate of a 4.5% increase. Profitability amongst US nonfinancial corporations rose 3.4% (22.6% y/y) instead of declining 0.8% as initially estimated.
The upward revision to profits stemmed from an increase in profit margins which were initially estimated to have declined.
Growth in domestic demand growth also was revised up to 3.5% Growth in business investment was raised slightly to 4.1% (10.9% y/y) and growth in residential building was raised sharply to 11.5% (8.1% y/y). Real PCE growth was left unchanged at 3.6% (3.6% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050629a.jpg" width="353">
The drag on US output growth from a larger foreign trade deficit was little changed as exports grew 8.9% and imports rose 9.6% while the contribution to GDP growth from faster inventory accumulation also was little revised at 0.7%.
The chain price index was revised down to 2.9% growth as the price index for domestic demand was lowered to 2.7% (2.7% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">1Q &#39;05 (Final)</th>
<th scope="col">1Q &#39;05 (Prelim.)</th>
<th scope="col">4Q &#39;04</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">GDP</td>
<td>3.8%</td>
<td>3.5%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.7%</td>
<td>0.8%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>3.0%</td>
<td>2.7%</td>
<td>3.4%</td>
<td>3.5%</td>
<td>4.0%</td>
<td>3.1%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.6%</td>
<td>-0.7%</td>
<td>-1.4%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>3.5%</td>
<td>3.2%</td>
<td>4.5%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.9%</td>
<td>3.2%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
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US real GDP growth in 1Q '05 was revised up further to 3.8% (AR), in line with Consensus expectations. Corporate profit growth (w/IVA & CCA) also was revised up to 6.0% (15.4% y/y) versus the preliminary estimate of a 4.5% increase. [...]

US GDP & Corporate Profit Growth Revised Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050629b.jpg" width="353">
US real GDP growth in 1Q &#39;05 was revised up further to 3.8% (AR), in line with Consensus expectations.
Corporate profit growth (w/IVA &amp; CCA) also was revised up to 6.0% (15.4% y/y) versus the preliminary estimate of a 4.5% increase. Profitability amongst US nonfinancial corporations rose 3.4% (22.6% y/y) instead of declining 0.8% as initially estimated.
The upward revision to profits stemmed from an increase in profit margins which were initially estimated to have declined.
Growth in domestic demand growth also was revised up to 3.5% Growth in business investment was raised slightly to 4.1% (10.9% y/y) and growth in residential building was raised sharply to 11.5% (8.1% y/y). Real PCE growth was left unchanged at 3.6% (3.6% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050629a.jpg" width="353">
The drag on US output growth from a larger foreign trade deficit was little changed as exports grew 8.9% and imports rose 9.6% while the contribution to GDP growth from faster inventory accumulation also was little revised at 0.7%.
The chain price index was revised down to 2.9% growth as the price index for domestic demand was lowered to 2.7% (2.7% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">1Q &#39;05 (Final)</th>
<th scope="col">1Q &#39;05 (Prelim.)</th>
<th scope="col">4Q &#39;04</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">GDP</td>
<td>3.8%</td>
<td>3.5%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.7%</td>
<td>0.8%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>3.0%</td>
<td>2.7%</td>
<td>3.4%</td>
<td>3.5%</td>
<td>4.0%</td>
<td>3.1%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.6%</td>
<td>-0.7%</td>
<td>-1.4%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>3.5%</td>
<td>3.2%</td>
<td>4.5%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.9%</td>
<td>3.2%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
Mortgage Applications Fell A Bit Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050629c.jpg" width="353">
The Mortgage Bankers Association reported that total mortgage applications fell another 1.1% last week following the 11.3% decline during the week prior. As a result of increases earlier in the month, applications in June grew 9.9% versus the May average which rose 6.5% versus April.
Purchase applications slipped 0.4% adding to the 9.4% w/w drop during the prior week. In June purchase applications rose 1.3% from May which rose 3.1% from April. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance fell 1.8% w/w but in June were 21.2% versus May.
The effective interest rate on a conventional 30-year mortgage fell sharply to 5.71%, down from the 5.92% averaged during May. It was the lowest rate since March 2004. The effective rate on a 15-year mortgage also fell sharply to 5.33%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/24/05</th>
<th scope="col">06/17/05</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 Market Index</td>
<td>778.4</td>
<td>786.8</td>
<td>35.4%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>477.4</td>
<td>479.4</td>
<td>9.6%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,529.2</td>
<td>2,575.0</td>
<td>82.4%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Japanese Industrial Output Sluggish; Korea's Grows Unevenly 
by <a href="/comment/Stone.html">Carol Stone</a> June 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050629d.jpg" width="353">
Industrial activity in Japan and Korea shows sharply varying patterns, both in recent months and over the past several years. In Japan, mining and manufacturing output in May stood at 100.1, that is, barely above the amount five years ago for this index based at 100 in 2000. Looking at these endpoints, though, masks the recession in 2001 and a recovery in 2003 and 2004. However, the evolution over the past few months has started to show renewed hesitation. An industry segment in which Japan and Korea compete actively is motor vehicles. For Japan, the corresponding production sector, transport equipment (excluding ships and rolling stock), has been relatively volatile of late, but at 116.3 in May, the sector shows growth since 2000 averaging just over 3%.
Total output in Korea has been considerably more vigorous, with the May 2005 index standing a 128.8, an average annualized gain of 5.1% since the base year in 2000. Despite this attractive average, the gains have been uneven over time and across industries. Chemicals and products have been strong fairly consistently, and radio, TV and communications equipment showed sizable increases in 2003 and 2004, but some recent hesitation. The motor vehicle sector, illustrated in the second graph along with that in Japan, has grown 9% - 10% yearly, but after a spike in December and January, has weakened markedly. These latest declines carried total vehicle production down to the lowest in seven months and to a level just equal to the average monthly output in the last two years. They are probably just an adjustment to that end-2004 surge, but may skittishness some skittishness as world energy prices stay high.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050629e.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Indexes, 2000=100, Monthly, Seasonally adjusted</th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Year Ago (Yr/Yr&nbsp;&nbsp; % Chg)</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">Japan: Mining &amp; Manufacturing</td>
<td>100.1</td>
<td>102.5</td>
<td>100.6</td>
<td>100.5</td>
<td>100.2</td>
<td>95.0</td>
<td>92.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>-2.3</td>
<td>1.9</td>
<td>-0.2</td>
<td>0.9</td>
<td>5.5</td>
<td>3.2</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport Equipment*</td>
<td>116.3</td>
<td>126.4</td>
<td>117.7</td>
<td>113.4</td>
<td>113.5</td>
<td>108.5</td>
<td>105.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>-8.0</td>
<td>7.4</td>
<td>0.3</td>
<td>5.0</td>
<td>4.6</td>
<td>3.1</td>
<td>5.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Korea: Mining &amp; Manufacturing</td>
<td>128.8</td>
<td>128.0</td>
<td>129.9</td>
<td>126.6</td>
<td>125.7</td>
<td>113.7</td>
<td>108.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>0.6</td>
<td>-1.5</td>
<td>4.3</td>
<td>4.0</td>
<td>10.8</td>
<td>4.9</td>
<td>8.1</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles</td>
<td>139.8</td>
<td>146.7</td>
<td>157.4</td>
<td>127.8</td>
<td>139.1</td>
<td>127.5</td>
<td>116.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>-4.7</td>
<td>-6.8</td>
<td>1.9</td>
<td>9.3</td>
<td>9.1</td>
<td>9.2</td>
<td>9.9</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050628c.jpg" width="353">
Business confidence in both France and Italy had remained unchanged or declined in the months since October, 2004 through May 2005. In June, however, business confidence in France rose, but confidence in Italy continued to weaken.The attached chart show the French and Italian measures of business confidence.
The composite business climate indicator for France rose 2.1% to 99 (100 being the long term average) in June. The rise has been attributed to the euro&#39;s recent decline against the dollar and to the 4.5 billion euro plan announced June 8 by Prime Minister Dominique de Villepin to increase employment.
The decline in the Euro failed to raise confidence in Italy but it may have been a factor in reducing the extent of the decline. The ISAE (Instituto de Studi e Analisis Economica) index of business confidence declined only 0.12% in June, in contrast to the 0.59% decline in May and 0.24% in April. The pessimism of Italian businessmen has no doubt been influenced by the fact that Italy has experienced two successive quarters of decline in real gross domestic product; -0.44% in the fourth quarter of 2004 and -0.51% in the first quarter of 2005. In France, on the other hand, GDP has increased of 0.67% and 0.21% in the corresponding periods.
As we have noted in previous commentaries on confidence, the recent rise in the price of oil has yet to be reflected in the confidence indicators.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">M/M%&nbsp;</th>
<th scope="col">Y/Y%&nbsp;</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/FRANCE/FRANCE.HTM">France</a></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>
<td class="firstcol">Composite Business Climate Indicator (Long Term Average = 100)</td>
<td>99</td>
<td>97</td>
<td>105</td>
<td>2.06</td>
<td>-5.71</td>
<td>105</td>
<td>95</td>
<td>97</td>
</tr>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/ITALY.HTM">Italy</a></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>
<td class="firstcol">ISAE Indicator of Business Confidence (2000 = 100)</td>
<td>84.2</td>
<td>84.3</td>
<td>90.4</td>
<td>-0.12</td>
<td>-6.86</td>
<td>89.5</td>
<td>88.0</td>
<td>90.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Business confidence in both France and Italy had remained unchanged or declined in the months since October, 2004 through May 2005. In June, however, business confidence in France rose, but confidence in Italy continued to weaken.The [...]

More Indicators of European Business Confidence: French Up, Italian Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050628b.jpg" width="353">
Chain store sales fell 0.6% last week following three consecutive weeks of gain according to the International Council of Shopping Centers (ICSC)-UBS survey. In June sales are 0.4% below the prior month&#39;s average.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC fell 0.2% w/w (+2.8% y/y) following two weeks of increase.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/25/05</th>
<th scope="col">06/18/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>453.0</td>
<td>455.9</td>
<td>4.2%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
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Chain store sales fell 0.6% last week following three consecutive weeks of gain according to the International Council of Shopping Centers (ICSC)-UBS survey. In June sales are 0.4% below the prior month's average. During the last ten [...]

Chain Store Sales Fell

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

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Winnie Tapasanun

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The U.S. ISM Services PMI decreased to 54.0 in March following a 2.3-point rise to 56.1 in February (the highest reading since July 2022), according to today’s report by the Institute for Supply Management, indicating expansion in the services sector for the 21st consecutive month but at a slower pace. The March index, while above 50.8 in March 2025 and a low of 49.4 in June 2024, remained below a high of 55.5 in October 2024 and a record-high 67.5 in November 2021. The 12-month average was 52.3, pointing to continued growth in the U.S. services sector. The Action Economics Forecast Survey had expected 54.9 for March.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index fell to 53.8 in March after a 2.0-point increase to 55.7 in February, signaling expansion for the 10th straight month, albeit at a slower rate. The latest reading was above 50.6 in March 2025 and a low of 49.3 in June 2024, while remaining below a record-high 66.7 in November 2021. These series date back to July 1997.

In the latest services survey, the business activity index declined to 53.9 in March after rising to 59.9 in February, indicating continued expansion in business activity for 21 consecutive months, though at the slowest pace since September. The index was above a low of 50.0 in June 2024 but below a record-high 70.9 in November 2021. In March, 22.8% of respondents (NSA) reported higher activity while 14.6% reported an activity decline. The new orders index rose to 60.6 in March after increasing to 58.6 in February, reflecting expansion in new orders for the 10th straight month and the highest level since February 2023. The index was above its recent low of 47.2 in May 2025 but below a high of 61.0 in February 2023 and a record-high 69.2 in October 2021. In March, 32.0% of respondents (NSA) reported higher new orders while a lessened 12.6% reported declines. Meanwhile, the supplier deliveries index (NSA) increased to 56.2 in March from 53.9 in February, indicating slower supplier delivery performance for the 16th straight month after one month in faster territory in November 2024.

On the labor front, the employment index fell to 45.2 in March after rising to 51.8 in February, showing employment activity in the services sector contracted for the first time since November and at the lowest level since December 2023. The latest reading was above a low of 43.5 in December 2023 but below a high of 54.1 in June 2023 and a high of 58.9 in April 2021. A reduced 10.7% of respondents (NSA) indicated higher employment in March while an increased 18.4% reported declines.

On the inflation front, the prices index jumped to 70.7 in March from 63.0 in February, indicating prices paid by services organizations for materials and services had risen (i.e., above 50) since June 2017 and at the fastest pace since October 2022. The index was above a low of 53.9 in March 2024 and a low of 55.1 in June 2023 but significantly below a peak of 83.7 in March 2022. An increased 45.7% of respondents (NSA) reported higher prices in March while only 1.2% reported price declines.

Additionally, the new export orders index dropped to 50.7 in March from 57.2 in February, showing new export orders expanded for the third time in four months but at a slower rate. The imports index rose to 55.2 in March from 51.8 in February, registering the third expansion in four months and the highest level since January 2024. The inventories index declined to 54.8 in March from 56.4 in February, indicating inventories expanded for the fourth time in five months but at a slower pace. The inventory sentiment index slipped to 54.3 in March from 55.3 in February, showing continued expansion since May 2023. The backlog of orders index fell to 53.6 in March from 55.9 in February, marking the second successive month of expansion following 11 straight months of contraction. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- ISM Services PMI at 54.0 in Mar., down 2.1 pts. from Feb.; below forecasts but above the 12-month avg. of 52.3.
- Business Activity (53.9, 21st straight month of expansion); New Orders (60.6, 10th consecutive month of expansion and fastest since Feb. ’23); Employment (45.2, first contraction since Nov.); Supplier Deliveries (56.2 vs. 53.9).
- Prices Index (70.7) indicates prices rising since June ’17, the fastest pace since Oct. ’22.

U.S. ISM Services PMI Slips in March, Still Indicating Expansion for the 21st Straight Month

Tian Yong Woon

In this week’s Letter, we examine the first-round price impacts of the surge in oil prices stemming from the ongoing Middle East conflict in Asia. Despite recent rhetoric and reports suggesting a potentially swift resolution, the conflict continues to unfold, with a ceasefire hanging in the balance, and with some measures of shipping volumes through the Strait of Hormuz still reduced to a trickle. At the same time, crude oil prices have been whipsawing amid shifting market perceptions about the persistence of the current supply shock (chart 1). The initial effects of higher oil prices are already showing up in hard data, particularly in energy- and fuel-related inflation across Indonesia, South Korea, and Vietnam (chart 2). In response, several governments have rolled out sizeable subsidy programmes to cushion rising energy costs, though these measures come with significant fiscal strain.

We also assess recent consumer inflation expectations in South Korea and Taiwan, which show early signs of edging higher (chart 3), although there is as yet no clear evidence of a meaningful unanchoring. To add further nuance, our latest Blue Chip survey suggests that most panellists expect only a limited and temporary pass-through from higher energy prices to core inflation, though a non-trivial minority anticipate a more persistent effect (chart 4). On the policy front, respondents broadly expect central banks to delay easing while avoiding outright tightening, with outcomes likely to diverge across regions (chart 5). In the near term, upcoming policy decisions in India, New Zealand, and South Korea—alongside other key data releases—will provide a useful test of these expectations (chart 6).

**The Middle East conflict**
The Middle East conflict continues to rage, with IMF-tracked shipping volumes through the Strait of Hormuz still reduced to a trickle. Meanwhile, crude oil prices remain volatile, gyrating alongside shifting perceptions over how soon normal oil flows might resume. In reality, there is still little sign of a substantive resolution, and no agreement to fully reopen the strait appears imminent, suggesting that oil flows are likely to remain constrained at low levels in the near term. That said, some investors are closely monitoring developments following reports of discussions around a potential 45-day ceasefire, which could pave the way toward a more lasting resolution. Until then, and absent any meaningful supply relief, crude oil prices—and by extension, energy-related inflation—are likely to face continued upward pressure, particularly for oil-dependent, importing economies.

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**Initial price impacts**
The initial inflation concerns among policymakers and investors stemming from the surge in oil prices are now beginning to show up in the data, as illustrated in chart 2. The latest March readings—capturing the period after the onset of the Middle East conflict—already point to a sharp acceleration in energy-related prices on a year-ago basis. Indonesia’s energy CPI basket has risen by around 9%, while diesel prices in South Korea have jumped 17%. Vietnam’s retail gasoline prices have seen an even more pronounced increase, at roughly 25.6%. Given the scale of these price surges, and their direct impact on everyday essentials—particularly fuel for daily commutes and broader economic activity—governments across Asia have begun rolling out sizeable subsidy programmes. These measures, often implemented at significant fiscal cost, aim to cushion the burden on households and firms. For instance, South Korea’s finance ministry proposed a supplementary budget of around $17.3 billion in late March to support low-income households, youth, and businesses amid higher oil prices, with approval expected by April 10. Meanwhile, Indonesia has allocated approximately $22.4 billion toward energy subsidies and support for selected energy and utilities firms to help keep prices affordable.

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**Consumer inflation expectations**
What policymakers are likely to focus on—beyond the immediate price impacts—is how the recent surge in oil prices feeds into inflation expectations. If left unanchored, these expectations could pose a far greater challenge than the supply-driven price shock itself, including reduced monetary policy effectiveness in reining in inflation and the risk of a self-fulfilling inflation cycle—though it is worth noting that such dynamics are not yet close to materialising. So far, there are some early, albeit inconclusive, signs that near-term consumer inflation expectations are beginning to drift higher in certain economies. As shown in chart 3, one-year-ahead inflation expectations edged up to 2.7% in March, while in Taiwan, consumer sentiment regarding domestic price trends over the next six months has turned notably more pessimistic relative to overall confidence.

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**The latest Blue Chip survey**
Turning to investor perspectives on how higher energy prices may feed into inflation, our special questions in the latest Blue Chip Financial Forecasts (BCFF) survey offer some useful nuance. As shown in chart 4, around two-thirds of panellists expect only a limited and temporary pass-through from higher oil prices to core inflation. That said, a non-trivial minority (31%) anticipate a more moderate and persistent pass-through. This is notable given the focus on core inflation, and underscores how energy prices can generate second-round effects even in typically non-energy components, reflecting the pervasive role of energy in everyday economic activity—from manufacturing to the upkeep of a wide range of goods and services.

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Delving deeper, we also asked panellists about their views on the prospective path of central bank policy should energy-driven inflation prove persistent. As shown in chart 5, responses broadly coalesce around two themes: central banks are likely to delay easing rather than tighten, and policy responses will vary meaningfully across regions. The former is already playing out to some extent in recent central bank decisions across Asia, with several explicitly citing the ongoing Middle East conflict as a reason to remain vigilant on inflation and refrain from easing policy prematurely. As for the latter, there are already signs of divergence in how different central banks are approaching the situation.

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**The week ahead**
Looking to the week ahead, there will be ample opportunities to assess whether investor expectations for central bank policy moves play out across Asia, with several rate decisions due—most notably in India, New Zealand, and South Korea. Also on the docket are China’s March CPI print and a range of Japan-related releases. Policymakers are likely to remain focused on balancing inflation control with supporting growth and maintaining currency stability. For now, and absent offsetting domestic factors, expectations for further near-term easing have been tempered by rising inflation risks. In China, recent CPI readings point to a modest pickup, while producer price deflation has begun to ease after a prolonged period of weak or negative inflation.

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Asia

Economic Letter from Asia: First-Round Effects

Michael J. Moran

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The report on payroll employment for March was impressive when viewed in isolation. Job growth was strong at 178,000, and the advance was broadly based. The construction and manufacturing sectors both posted solid gains, and the service-producing sector registered its firmest performance in more than a year. However, the gain might be viewed as a continuation of an unusual bout of random volatility. The March advance followed a notable drop in February (-133,000, revised down from -92,000), which followed an upside surprise in January (160,000, revised up from 126,000).

To be sure, statistical noise has been a factor in the past three months, but the results also represent an encouraging shift in job growth from that in the second half of last year, when employment rose only marginally in the third quarter and fell in the fourth. The net change in the past three months seems to signal that job growth is not drying up. The net advance so far this year is far from brisk, but it is clearly in the plus column and noticeably better than results in late 2025.

The unemployment rate also might be viewed as favorable, as it dipped 0.1 percentage point to 4.3%, although it was a “soft” decline. That is, employment as measured by the household survey declined 64,000, but the size of the labor force fell by a larger amount (off 396,000). Still, the jobless rate has climbed only modestly higher since the labor market started to ease in 2023, and it has inched lower in the past few months.

Unemployment has been contained despite modest hiring because layoffs also have been light. Initial claims for unemployment benefits have moved sideways in the past few years, indicating no change in the pace of layoffs. This pattern is confirmed by terminations data in the report on job openings and labor turnover (JOLTs) from the Bureau of Labor Statistics.

A supply-side shift in the labor market also has helped to contain the unemployment rate. Growth in the size of the labor force has slowed, and with fewer individuals seeking employment, those searching are more easily absorbed. Measures of the size of the labor force can be difficult to assess because there are breaks in the series every year. The Bureau of Labor Statistics adjusts the population controls used in its estimating procedure every January without revising past data to align with the new estimates. Thus, every January involves a discontinuity in the series, which will distort year-over-year changes.

However, Haver Analytics maintains a smoothed series originally developed by BLS to eliminate the breaks in the labor force data. As shown in the chart below, the smoothed series on the size of the labor force had been growing at a pace centered on 1.2% through 2022, but it has slowed irregularly since then (an observation for October is not available because of limited data collection during the government shutdown). The overall labor force is still growing, but the slower pace means fewer individuals looking for work, which most likely results in fewer being counted as unemployed.

The BLS collects data every month on both native-born and foreign-born individuals in the labor force. The breaks in these series are an issue, and Haver does not maintain smoothed series. However, the use of moving averages achieves enough smoothing to provide a sense of underlying changes. The native-born labor force has moved erratically in the past couple of years, but it has continued to advance. The foreign-born labor force, in contrast, seems to have peaked in mid-2025 and has generally declined since then.

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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- The jump of 178,000 in payroll employment in March easily exceeded the expected gain of 51,000.
- Following a net gain in January and February, the employment setting seems to have brightened slightly.
- A dip in the unemployment rate continued the recent pattern of marginal changes.

Payroll Employment: Another Surprise in March, The Third Consecutive

Robert Brusca

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French manufacturing industrial production was flat in February after a January rebound; output rose by 0.2% following a 0.8% decline in December.

The components of industrial production in February showed 2.6% increase in consumer durables, a 0.4% increase in consumer nondurables, flat output from capital goods, and a 0.7% month to month decline in intermediate output.

Sequentially, French output had been growing at a slow, steady pace of 0.8% at an annual rate over both 12 months and six months, but then slipped to a 6.1% contraction at an annual rate over three months. Consumer durable goods output on this span shows consistent increases, but there are no trends to clear acceleration or deceleration. Consumer nondurables trace an accelerating path of moderate means from -1.8% over 12 months, to -0.4% over six months, and then rising at a 5.5% annual rate over three months. Capital goods output is moving in the opposite direction, growing by 3.4% over 12 months, slowing to a 0.7% annual pace over six months, and then contracting at a 9.5% annual rate over three months. Intermediate goods output is falling at 0.8% pace over 12 months, but then it switches to an expansion rate of 0.8% over six months and 0.6% and over three months. There's nothing remarkable about these patterns, except there's some acceleration, some deceleration, and a lot of mulling about at low growth rates.

As a separate item, French auto production is slipping and decelerating, falling by 7.1% at an annual rate over 12 months, falling at a 7.9% pace over six months, and then plunging at a 19.3% annual rate over three months. On these same horizons, motor vehicle registrations fall by 14.7% over 12 months; the weakness pares back to an 11.2% annual rate decline over six months, and then it steps up to a 22.1% decline at an annual rate over three months. French demand for autos is not in good shape.

In the quarter to date—now two months into the first quarter—manufacturing industrial production is falling at a 0.8% annual rate. That pace is boosted by 9.4% annual rate gain in consumer durables output but restrained by just a 0.2% annual rate increase in consumer nondurable goods. Capital goods output is falling at a 1.9% annual rate, while intermediate goods output is falling at a 1% annual rate. Also in the quarter to date, automobile production is plunging at a 24.3% annual rate, while on the demand side, motor vehicle registrations are falling at a 15% annual rate.

French manufacturing data are somewhat confusing. The chart shows that the industrial production trend has been showing consistent increases over 12 months, but it has recently been pulling back relatively sharply. On the other hand, the manufacturing PMI for France has been consistently negative going back to mid-2022 and only in early 2026 has the manufacturing PMI been posting some values above the 50% mark, indicating that output was starting to actually expand. In March, the PMI reading for manufacturing has slipped back by the thinnest margin below the 50% mark.

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Of course, events in the Middle East make everything more speculative, with the war effectively closing the Strait of Hormuz and no certainty about how or when that is going to be sorted out. In the meantime, the potential threat of ongoing oil price pressures has put both the ECB and the Bank of England in a position to be more wary with policy, and they warned markets about the potential for rate hikes as soon as their next meetings are engaged. That also raises questions about the outlook for growth. But we continue to track and chronicle trends in the data. It's also quite clear that we could have events that will play out that could completely undermine these trends before they get a chance to run to conclusion. It's an important time to be wary and watch all developments—a lot is in play.

France

French IP Waffles

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined by 9,000 to 202,000 in the week ending March 28, from 211,000 in the week ending March 21, revised from 210,000. The four-week average declined 3,000 to 207,750 in the week ending March 28, from 210,750 the March 21 week, revised from 210,500. The Forecast Survey looked for 212,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 25,000 to 1.841 million in the week ending March 21, from 1.816 million in the week ending March 14. The four-week moving average declined to 1.839 million in the latest week from 1.846 million in the March 14 week. This is the lowest level for this average since September 28, 2024 when it was 1.834 million. The insured unemployment rate remained at 1.2% in the week of March 21. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending March 14, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.73%), Massachusetts (2.66%), Washington (2.39%), Minnesota (2.31%), California (2.17%), and New York (2.01%). The lowest rates were in Florida (0.31%), Louisiana (0.32%), Arkansas (0.36%), Alabama (0.38%), and North Carolina (0.40%). Rates in other notable states include Illinois (1.99%), Connecticut (1.82%), Pennsylvania (1.72%), and Texas (1.07%). These state data are not seasonally adjusted.

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

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- New claims declined by 9,000 to 202,000.
- Continuing claims rose by 25,000 to 1.841 million.
- The insured unemployment rate remained at 1.2%.

Economy in Brief

Jump to:

U.S. Personal Income Growth Eased in May

U.S. Personal Income Growth Eased in May

Japanese Industrial Output Sluggish; Korea's Grows Unevenly

Mortgage Applications Fell A Bit Further

US GDP & Corporate Profit Growth Revised Up

US GDP & Corporate Profit Growth Revised Up

More Indicators of European Business Confidence: French Up, Italian Down

Chain Store Sales Fell