Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816e.jpg" width="353">
Industrial production increased 0.1% last month following a downwardly revised 0.8% gain in June. Consensus expectations had been for a 0.5% rise. Factory sector output also slowed to half the prior month&#39;s gain and rose 0.2% (3.1% y/y) in July.
Lower motor vehicle production, off 2.3% (+4.4% y/y), was responsible for much of last month&#39;s weakness in output growth. Less motor vehicles, factory output rose 0.3% (2.8% y/y) after a 0.2% June increase.
With a 2.6% (19.0% y/y) spike, output of computers &amp; peripheral equipment posted the largest one month increase since January. Excluding the high tech sector as well as autos, factory output rose 0.2% (1.8% y/y).
Output of industrial &amp; other equipment jumped 1.3% (1.8% y/y) and furniture output rose 0.4% (-1.9% y/y). On the weak side was nondurable goods which fell 0.2% (+1.2% y/y).
Total capacity utilization dipped to 79.7% and capacity grew 1.1% y/y. Factory sector utilization was stable at 78.3%, up from 77.0% last July and capacity rose 1.3% y/y.
 The Relationship Between Capacity Utilization and Inflation from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/br/Q2_05_Dotsey_Stark.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">July</th>
<th scope="col">June</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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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>0.1%</td>
<td>0.8%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>-0.0%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>3.0%</td>
<td>2.7%</td>
<td>0.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.2%</td>
<td>0.2%</td>
<td>6.7%</td>
<td>9.5%</td>
<td>1.2%</td>
<td>-7.9%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>79.7%</td>
<td>79.8%</td>
<td>78.3% (7/04)</td>
<td>78.1%</td>
<td>75.5%</td>
<td>75.3%</td>
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Industrial production increased 0.1% last month following a downwardly revised 0.8% gain in June. Consensus expectations had been for a 0.5% rise. Factory sector output also slowed to half the prior month's gain and rose 0.2% (3.1% [...]

Industrial Production Increase Light

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816b.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell sharply in August to 67 from an unrevised 70 In July.
During the last twenty years, annual changes in the composite index had an 85% correlation with the change in single family housing starts.
The August index for current sales of single family homes fell for the second consecutive month (-5.3%% y/y) but the index of expected sales in six months was stable (-1.3% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816d.jpg" width="353">
Traffic of prospective home buyers fell from July&#39;s record high.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>70</td>
<td>70</td>
<td>68</td>
<td>64</td>
<td>61</td>
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The National Association of Home Builders' (NAHB) Composite Housing Market Index fell sharply in August to 67 from an unrevised 70 In July. During the last twenty years, annual changes in the composite index had an 85% correlation [...]

NAHB Housing Market Index Down Sharply in August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816c.jpg" width="353">
Housing starts remained firm last month at 2.042M units versus an upwardly revised 2.045M units in June.Consensus expectations had been for a slight decline to 2.025M starts.
Single-family starts nudged up 0.5% after a 1.2% decline in June. Single family starts in the Midwest rose 5.0% (0.6% y/y) and in the West rose 4.1% (-7.4% y/y). Single family starts in the Northeast starts fell 7.6% (+12.6% y/y) and in the South starts fell 1.5% (+9.0% y/y).
Multi family starts gave back half of the prior month&#39;s rise and fell 3.2%.
Building permits increased for the second consecutive month and rose 1.6%.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">July</th>
<th scope="col">June</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</td>
<td>2,042</td>
<td>2,045</td>
<td>2.8%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,7 10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,711</td>
<td>1,703</td>
<td>3.0%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>331</td>
<td>342</td>
<td>1.8%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,167</td>
<td>2,132</td>
<td>2.5%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
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Housing starts remained firm last month at 2.042M units versus an upwardly revised 2.045M units in June.Consensus expectations had been for a slight decline to 2.025M starts. Single-family starts nudged up 0.5% after a 1.2% decline in [...]

Housing Starts Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816a.jpg" width="353">
Consumer prices (CPI-U) rose 0.5% last month following no change in June and a 0.1% decline in May. Consensus expectations had been for a 0.4% July increase.
Energy prices jumped 3.8% led by a 6.1% (19.5% y/y) increase in gasoline prices to an average $2.29 per gallon. In August gasoline prices have risen further to $2.55 per gallon. Fuel oil prices also posted a strong 6.2% (34.3% y/y increase while natural gas prices gained 1.1% (7.1% y/y) and have strengthened further this month..
Less food &amp; energy prices rose 0.1% for the third consecutive month. Consensus expectations had been for a 0.2% increase.
Core goods prices, down 0.3%, fell for the third month in the last four led by a 1.0% (+0.3% y/y) decline in new vehicle prices. Appliance prices fell 0.5% (+2.0% y/y) and apparel prices tumbled 0.9% (-1.9% y/y), down hard for the third month in the last four.
Core services prices rose 0.3% as medical care services prices doubled the gain in June with a 0.4% (4.8% y/y) increase. Public transportation prices jumped 1.0% (5.5% y/y) and school tuition costs gained 0.6% (6.6% y/y). Shelter prices rose 0.3% (2.5% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases rose 0.4% but less food &amp; energy chain prices were unchanged.

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<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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</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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</thead>
<tbody>
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<td class="firstcol">Total&nbsp;</td>
<td>0.5%</td>
<td>0.0%</td>
<td>3.1%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>3.8%</td>
<td>-0.5%</td>
<td>14.2%</td>
<td>10.9%</td>
<td>12.2%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</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>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>1.9%</td>
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</tbody>
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</body>
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Consumer prices (CPI-U) rose 0.5% last month following no change in June and a 0.1% decline in May. Consensus expectations had been for a 0.4% July increase. Energy prices jumped 3.8% led by a 6.1% (19.5% y/y) increase in gasoline [...]

CPI Lifted By Strong Energy Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816a.jpg" width="353">
Consumer prices (CPI-U) rose 0.5% last month following no change in June and a 0.1% decline in May. Consensus expectations had been for a 0.4% July increase.
Energy prices jumped 3.8% led by a 6.1% (19.5% y/y) increase in gasoline prices to an average $2.29 per gallon. In August gasoline prices have risen further to $2.55 per gallon. Fuel oil prices also posted a strong 6.2% (34.3% y/y increase while natural gas prices gained 1.1% (7.1% y/y) and have strengthened further this month..
Less food &amp; energy prices rose 0.1% for the third consecutive month. Consensus expectations had been for a 0.2% increase.
Core goods prices, down 0.3%, fell for the third month in the last four led by a 1.0% (+0.3% y/y) decline in new vehicle prices. Appliance prices fell 0.5% (+2.0% y/y) and apparel prices tumbled 0.9% (-1.9% y/y), down hard for the third month in the last four.
Core services prices rose 0.3% as medical care services prices doubled the gain in June with a 0.4% (4.8% y/y) increase. Public transportation prices jumped 1.0% (5.5% y/y) and school tuition costs gained 0.6% (6.6% y/y). Shelter prices rose 0.3% (2.5% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases rose 0.4% but less food &amp; energy chain prices were unchanged.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</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>
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<td class="firstcol">Total&nbsp;</td>
<td>0.5%</td>
<td>0.0%</td>
<td>3.1%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>3.8%</td>
<td>-0.5%</td>
<td>14.2%</td>
<td>10.9%</td>
<td>12.2%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</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>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>
Housing Starts Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816c.jpg" width="353">
Housing starts remained firm last month at 2.042M units versus an upwardly revised 2.045M units in June.Consensus expectations had been for a slight decline to 2.025M starts.
Single-family starts nudged up 0.5% after a 1.2% decline in June. Single family starts in the Midwest rose 5.0% (0.6% y/y) and in the West rose 4.1% (-7.4% y/y). Single family starts in the Northeast starts fell 7.6% (+12.6% y/y) and in the South starts fell 1.5% (+9.0% y/y).
Multi family starts gave back half of the prior month&#39;s rise and fell 3.2%.
Building permits increased for the second consecutive month and rose 1.6%.

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<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/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">July</th>
<th scope="col">June</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>2,042</td>
<td>2,045</td>
<td>2.8%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,7 10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,711</td>
<td>1,703</td>
<td>3.0%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>331</td>
<td>342</td>
<td>1.8%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,167</td>
<td>2,132</td>
<td>2.5%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
</tbody>
</table>
NAHB Housing Market Index Down Sharply in August 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816b.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell sharply in August to 67 from an unrevised 70 In July.
During the last twenty years, annual changes in the composite index had an 85% correlation with the change in single family housing starts.
The August index for current sales of single family homes fell for the second consecutive month (-5.3%% y/y) but the index of expected sales in six months was stable (-1.3% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816d.jpg" width="353">
Traffic of prospective home buyers fell from July&#39;s record high.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>70</td>
<td>70</td>
<td>68</td>
<td>64</td>
<td>61</td>
</tr>
</tbody>
</table>
Industrial Production Increase Light 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816e.jpg" width="353">
Industrial production increased 0.1% last month following a downwardly revised 0.8% gain in June. Consensus expectations had been for a 0.5% rise. Factory sector output also slowed to half the prior month&#39;s gain and rose 0.2% (3.1% y/y) in July.
Lower motor vehicle production, off 2.3% (+4.4% y/y), was responsible for much of last month&#39;s weakness in output growth. Less motor vehicles, factory output rose 0.3% (2.8% y/y) after a 0.2% June increase.
With a 2.6% (19.0% y/y) spike, output of computers &amp; peripheral equipment posted the largest one month increase since January. Excluding the high tech sector as well as autos, factory output rose 0.2% (1.8% y/y).
Output of industrial &amp; other equipment jumped 1.3% (1.8% y/y) and furniture output rose 0.4% (-1.9% y/y). On the weak side was nondurable goods which fell 0.2% (+1.2% y/y).
Total capacity utilization dipped to 79.7% and capacity grew 1.1% y/y. Factory sector utilization was stable at 78.3%, up from 77.0% last July and capacity rose 1.3% y/y.
 The Relationship Between Capacity Utilization and Inflation from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/br/Q2_05_Dotsey_Stark.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">July</th>
<th scope="col">June</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">Industrial Production</td>
<td>0.1%</td>
<td>0.8%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>-0.0%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>3.0%</td>
<td>2.7%</td>
<td>0.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.2%</td>
<td>0.2%</td>
<td>6.7%</td>
<td>9.5%</td>
<td>1.2%</td>
<td>-7.9%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>79.7%</td>
<td>79.8%</td>
<td>78.3% (7/04)</td>
<td>78.1%</td>
<td>75.5%</td>
<td>75.3%</td>
</tr>
</tbody>
</table>
Chain Store Sales Dipped Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816f.jpg" width="353">
Chain store sales dipped for the second week according to the International Council of Shopping Centers (ICSC)-UBS survey. A 0.2% w/w decline followed a 0.8% fall during the opening week of August. Sales so far this month are 0.2% ahead of the July average which rose 0.8% from June.
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 recouped about half of the prior week&#39;s decline with a 0.4% (-0.3% y/y) rise.
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.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">08/13/05</th>
<th scope="col">08/06/05</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">Total Weekly Chain Store Sales</td>
<td>458.0</td>
<td>458.9</td>
<td>4.4%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
Spain's Balance of Payments in May 
by <a href="/comment/Curley.html">Louise Curley</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816g.jpg" width="353">
Spain reported balance of payment data for May today. Spain&#39;s presentation of balance of payments data differs from that of most other countries. Included in the financial account is the category, &quot;Bank of Spain.&quot; This item includes the change in international reserves, which in most presentations is a separate item, in addition to international transactions of the Bank of Spain. As a result the balance on Spain&#39;s current account is completely offset by the sum of the capital account, the financial account and the residual item, &quot;errors and omissions.&quot; The first chart shows the current account and the financial account balances.
Over the past year and a half, the current account deficit has become increasingly more negative, while the financial account has become more positive. As most developed countries have abandoned capital controls over the international flow of funds, it has become more difficult to decide whether it is the current account or the financial account that calls the tune in the eventual balancing of the accounts. Before the relaxation of capital controls, it was generally agreed that the driving force in a country&#39;s balance of payments was its balance on current account. Now, however, it is agreed that capital flows are an additional factor, or in some cases, the major factor in determining the eventual balance of the accounts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816h.jpg" width="353">
The elements of the current account, exports and imports goods, services and the balance of wages and income from foreign activities tend to show rather smooth trends. The elements of the financial account, however, exhibit very volatile trends. For example, there was a net outflow of &quot;other investment,&quot; in May of 7,834 million euros after an inflow of 5,657 million euros in April, resulting in an negative change of 13,491 million euros between April and May. Direct and portfolio investment, derivatives and financial flows of the Bank of Spain, however, all contributed to an almost equal positive change. The volatility and the diverse movements of the various capital flows are illustrated in the second chart that shows net portfolio and net &quot;other&quot; investments in Spain&#39;s balance of payments.

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</table>
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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SPAIN/SPAIN.HTM">Spain:&nbsp; Balance of Payments</a> (Mil. Euros)</th>
<th scope="col">May 05</th>
<th scope="col">Apr 05</th>
<th scope="col">May 04</th>
<th scope="col">M/M Dif </th>
<th scope="col">Y/Y Dif</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">Current Account</td>
<td>-5258</td>
<td>-6014</td>
<td>-3314</td>
<td>756</td>
<td>-1944</td>
<td>-44450</td>
<td>-27908</td>
<td>-23812</td>
</tr>
<tr>
<td class="firstcol">Capital Account</td>
<td>990</td>
<td>308</td>
<td>1867</td>
<td>682</td>
<td>-877</td>
<td>8547</td>
<td>8165</td>
<td>7663</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account</td>
<td>4347</td>
<td>6183</td>
<td>1104</td>
<td>-1836</td>
<td>3243</td>
<td>36836</td>
<td>18875</td>
<td>15988</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Direct Investment</td>
<td>247</td>
<td>-902</td>
<td>46</td>
<td>1149</td>
<td>201</td>
<td>-26345</td>
<td>-1418</td>
<td>6904</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Portfolio Investment</td>
<td>7086</td>
<td>3231</td>
<td>-6650</td>
<td>3855</td>
<td>13736</td>
<td>85804</td>
<td>-26592</td>
<td>4727</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Other Investment</td>
<td>-7834</td>
<td>5657</td>
<td>13610</td>
<td>-13491</td>
<td>-21446</td>
<td>-9776</td>
<td>48750</td>
<td>5712</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Derivatives</td>
<td>-123</td>
<td>-1036</td>
<td>308</td>
<td>913</td>
<td>-431</td>
<td>1162</td>
<td>-3434</td>
<td>-4915</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Bank of Spain</td>
<td>4970</td>
<td>-767</td>
<td>-6209</td>
<td>5737</td>
<td>11179</td>
<td>-14010</td>
<td>1576</td>
<td>3561</td>
</tr>
<tr class="odd">
<td class="firstcol">Errors and Omissions</td>
<td>-79</td>
<td>-478</td>
<td>343</td>
<td>399</td>
<td>-422</td>
<td>36836</td>
<td>18875</td>
<td>15988</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/050815b.jpg" width="353">
China&#39;s exports of merchandise declined in July by $3,802 million from June, but since imports declined by $4,435 million, the trade surplus increased $633 million to $10,445 million from $9,812 million in June. The growth of the China&#39;s trade surplus over the past few years is evident in the first chart. Most of the surplus is with the United States. Countries other than the United States have, as a whole, run a trade deficit with China as can be seen in the table below.
Only total trade figures are available for July. The latest data on trade by country are for June. In the table below, we show China&#39;s total exports, exports to the United States and all other countries, total imports and imports from the United States and all other countries, and the total balance of trade and the balances for the United States and all other countries. While the surplus with the United States is still increasing in the first half of this year, there appears to be a sharp deceleration in the deficit with countries other than the U. S. In 2004 the deficit with these countries was $47,452 million, but in the first half of this year the deficit was only $3,645 million. There has been a decline in exports to these countries but a much greater decline in imports from them has reduced their deficit with China. The second and third charts show exports to and imports from Europe and Japan. The trends in the first half of this year shown in these charts are typical of most of the countries for which data are available. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050815d.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050815c.jpg" width="353">

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P1/@P1.HTM">China&#39;s Merchandise Trade (Million US$)</a>&nbsp;</th>
<th scope="col">2005 1st H</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003</th>
<th scope="col">2002 </th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total</td>
<td>365,996</td>
<td>593,633</td>
<td>438,398</td>
<td>325,596</td>
<td>266,108</td>
<td>249,202</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US</td>
<td>78,152</td>
<td>124,973</td>
<td>92,512</td>
<td>69,959</td>
<td>54,319</td>
<td>52,142</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rest of the world</td>
<td>287,844</td>
<td>468,660</td>
<td>345,886</td>
<td>255,637</td>
<td>211,789</td>
<td>197,060</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports&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">&nbsp; Total</td>
<td>315,594</td>
<td>560,765</td>
<td>412,840</td>
<td>295,170</td>
<td>243,554</td>
<td>225,092</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US</td>
<td>24,105</td>
<td>44,653</td>
<td>33,883</td>
<td>27,228</td>
<td>26,204</td>
<td>22,365</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rest of the world</td>
<td>291,489</td>
<td>516,112</td>
<td>278,957</td>
<td>267,942</td>
<td>217,350</td>
<td>202,727</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total</td>
<td>50,402</td>
<td>32,868</td>
<td>25,558</td>
<td>30,426</td>
<td>22,554</td>
<td>24,110</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US</td>
<td>54,047</td>
<td>80,320</td>
<td>58,629</td>
<td>42,731</td>
<td>28,115</td>
<td>29,777</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rest of the world</td>
<td>-3.645</td>
<td>-47,452</td>
<td>-33,071</td>
<td>-12,305</td>
<td>-5,561</td>
<td>-5,667</td>
</tr>
</tbody>
</table>
</body>
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China's exports of merchandise declined in July by $3,802 million from June, but since imports declined by $4,435 million, the trade surplus increased $633 million to $10,445 million from $9,812 million in June. The growth of the [...]

China's Trade Surplus Growing: Not Only is the Surplus with the United States Rising, but the Deficit with All [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050815a.jpg" width="353">
The Empire State Index of General Business Conditions in New York&#39;s manufacturing industries in August remained roughly at the same level as in July. At 23.04 versus 23.92, the two figures were the best back-to-back levels of the year.
The new orders component added to its earlier improvement and jumped to 33.75, the highest of the year, and the shipments index also rose. The employment index retraced all of the weakness of the prior four months while the prices paid index gained back virtually all of the July decline.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The index of expectations for business conditions in six months rose sharply for the second consecutive month to the highest level since October of last year. Expectations for future capital spending remained about stable at the improved July level.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.
The Congressional Budget Office today updated its outlook for US budget deficits and the economy. The Federal budget deficit estimate for Fiscal Year 2005 was reduced to $331B from $365B projected in March but the FY2006 and FY2007 estimates were raised to $314B and $324B, respectively, from $298B and $268B.
Legislative (mostly Medicare) changes were estimated to cause the ten year deficit outlook, 2006-2015, to worsen by $1.2 trillion versus the earlier outlook.
The Budget Deficit and Economic Outlook: An Update from the Congressional Budget Office is available <a href="http://www.cbo.gov/ftpdocs/66xx/doc6609/08-15-OutlookUpdate.pdf"> here</a>.
Understanding the Twin Deficits: New Approaches, New Results from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-16.pdf"> here</a>.

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<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>23.04</td>
<td>23.91</td>
<td>14.67</td>
<td>28.76</td>
<td>16.17</td>
<td>7.19</td>
</tr>
</tbody>
</table>
</body>
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The Empire State Index of General Business Conditions in New York's manufacturing industries in August remained roughly at the same level as in July. At 23.04 versus 23.92, the two figures were the best back-to-back levels of the [...]

Empire State Index Improved, Budget Deficit Estimate Reduced

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050815a.jpg" width="353">
The Empire State Index of General Business Conditions in New York&#39;s manufacturing industries in August remained roughly at the same level as in July. At 23.04 versus 23.92, the two figures were the best back-to-back levels of the year.
The new orders component added to its earlier improvement and jumped to 33.75, the highest of the year, and the shipments index also rose. The employment index retraced all of the weakness of the prior four months while the prices paid index gained back virtually all of the July decline.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The index of expectations for business conditions in six months rose sharply for the second consecutive month to the highest level since October of last year. Expectations for future capital spending remained about stable at the improved July level.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.
The Congressional Budget Office today updated its outlook for US budget deficits and the economy. The Federal budget deficit estimate for Fiscal Year 2005 was reduced to $331B from $365B projected in March but the FY2006 and FY2007 estimates were raised to $314B and $324B, respectively, from $298B and $268B.
Legislative (mostly Medicare) changes were estimated to cause the ten year deficit outlook, 2006-2015, to worsen by $1.2 trillion versus the earlier outlook.
The Budget Deficit and Economic Outlook: An Update from the Congressional Budget Office is available <a href="http://www.cbo.gov/ftpdocs/66xx/doc6609/08-15-OutlookUpdate.pdf"> here</a>.
Understanding the Twin Deficits: New Approaches, New Results from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-16.pdf"> here</a>.

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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>23.04</td>
<td>23.91</td>
<td>14.67</td>
<td>28.76</td>
<td>16.17</td>
<td>7.19</td>
</tr>
</tbody>
</table>
China's Trade Surplus Growing:  Not Only is the Surplus with the United States Rising, but the Deficit with All Other Countries Is Declining Sharply 
by <a href="/comment/Curley.html">Louise Curley</a> August 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050815b.jpg" width="353">
China&#39;s exports of merchandise declined in July by $3,802 million from June, but since imports declined by $4,435 million, the trade surplus increased $633 million to $10,445 million from $9,812 million in June. The growth of the China&#39;s trade surplus over the past few years is evident in the first chart. Most of the surplus is with the United States. Countries other than the United States have, as a whole, run a trade deficit with China as can be seen in the table below.
Only total trade figures are available for July. The latest data on trade by country are for June. In the table below, we show China&#39;s total exports, exports to the United States and all other countries, total imports and imports from the United States and all other countries, and the total balance of trade and the balances for the United States and all other countries. While the surplus with the United States is still increasing in the first half of this year, there appears to be a sharp deceleration in the deficit with countries other than the U. S. In 2004 the deficit with these countries was $47,452 million, but in the first half of this year the deficit was only $3,645 million. There has been a decline in exports to these countries but a much greater decline in imports from them has reduced their deficit with China. The second and third charts show exports to and imports from Europe and Japan. The trends in the first half of this year shown in these charts are typical of most of the countries for which data are available. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050815d.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050815c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P1/@P1.HTM">China&#39;s Merchandise Trade (Million US$)</a>&nbsp;</th>
<th scope="col">2005 1st H</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003</th>
<th scope="col">2002 </th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total</td>
<td>365,996</td>
<td>593,633</td>
<td>438,398</td>
<td>325,596</td>
<td>266,108</td>
<td>249,202</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US</td>
<td>78,152</td>
<td>124,973</td>
<td>92,512</td>
<td>69,959</td>
<td>54,319</td>
<td>52,142</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rest of the world</td>
<td>287,844</td>
<td>468,660</td>
<td>345,886</td>
<td>255,637</td>
<td>211,789</td>
<td>197,060</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports&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">&nbsp; Total</td>
<td>315,594</td>
<td>560,765</td>
<td>412,840</td>
<td>295,170</td>
<td>243,554</td>
<td>225,092</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US</td>
<td>24,105</td>
<td>44,653</td>
<td>33,883</td>
<td>27,228</td>
<td>26,204</td>
<td>22,365</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rest of the world</td>
<td>291,489</td>
<td>516,112</td>
<td>278,957</td>
<td>267,942</td>
<td>217,350</td>
<td>202,727</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total</td>
<td>50,402</td>
<td>32,868</td>
<td>25,558</td>
<td>30,426</td>
<td>22,554</td>
<td>24,110</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US</td>
<td>54,047</td>
<td>80,320</td>
<td>58,629</td>
<td>42,731</td>
<td>28,115</td>
<td>29,777</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rest of the world</td>
<td>-3.645</td>
<td>-47,452</td>
<td>-33,071</td>
<td>-12,305</td>
<td>-5,561</td>
<td>-5,667</td>
</tr>
</tbody>
</table>
</body>
</html>

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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Winnie Tapasanun

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The U.S. ISM Services PMI edged down to 54.0 in June, the third m/m decline in four months, following a 0.9-point increase to 54.5 in May, according to data from the Institute for Supply Management, indicating expansion in the services sector for the 24th straight month, albeit at a slightly slower pace. The June index, while above 50.8 in June 2025 and a low of 49.4 in June 2024, remained below its recent high of 56.1 in February and a record-high 67.5 in November 2021. The 12-month average was 53.1, pointing to continued growth in the U.S. services sector. The Action Economics Forecast Survey had also expected 54.0 for June.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index slipped to 53.9 in June after a 0.9-point increase to 54.4 in May, signaling expansion for the 13th consecutive month but at a slightly slower rate. The latest reading was above 50.6 in June 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 fell to 55.4 in June following a 1.8-point rise to 57.7 in May, indicating continued expansion in business activity for 24 months in a row, though at the slowest pace since March. The index was above a low of 50.0 in June 2024 but below a peak of 70.9 in November 2021. In June, 24.3% of respondents (NSA) reported higher activity while 14.5% reported an activity decline. The new orders index decreased to 55.1 in June after a 3.8-point gain to 57.3 in May, reflecting expansion in new orders for the 13th successive month but at a slower pace. The index was above a 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 June, 25.9% of respondents (NSA) reported higher new orders while 17.1% reported declines. Meanwhile, the supplier deliveries index (NSA) fell to 54.4 in June from 55.2 in May, indicating slower supplier delivery performance for the 19th straight month after one month in faster territory in November 2024.

On the labor front, the employment index recovered to 51.2 in June from 47.9 in May, showing employment activity in the services sector expanded for the first time since February. 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 peak of 58.9 in April 2021. An increased 16.0% of respondents (NSA) indicated higher employment in June while 10.9% reported declines.

On the inflation front, the prices index fell to 67.7 in June from 71.3 in May, indicating prices paid by services organizations for materials and services had risen (i.e., above 50) since June 2017 but at the slowest rising pace in four months. The index was above a low of 53.9 in March 2024 but significantly below a peak of 83.7 in March 2022. In June, 40.7% of respondents (NSA) reported higher prices while only 3.8% reported price declines.

Additionally, the new export orders index edged up to 50.4 in June from a neutral 50.0 in May, showing new export orders expanded for the fourth time in five months. The imports index fell to 49.4 in June from 51.1 in May, marking the first contraction since January. The inventories index dropped to 51.2 in June from 62.5 in May (the highest level since May 2010), indicating inventories expanded for the fifth successive month. The inventory sentiment index fell to 52.6 in June from 55.2 in May, showing continued expansion since May 2023. The backlog of orders index rebounded to 54.9 in June from 51.3 in May, registering the fifth consecutive 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 down to 54.0 in June, remaining above the 12-month avg. of 53.1.
- Business Activity (55.4) expands for the 24th consecutive mth.; New Orders (55.1) for the 13th straight mth.; Employment (51.2, first expansion since Feb.); Supplier Deliveries (54.4 vs. 55.2).
- Prices Index (67.7) at a four-month low, still indicating prices rising since June ’17.

U.S. ISM Services PMI Eases in June, Still Indicating Expansion for the 24th Straight Month

Tian Yong Woon

In this week's Letter, we trace how an energy shock and a resilient AI upcycle shaped Asia through the first half of 2026 and weigh the risks that may define the second. The year opened hopeful on AI, though some feared stretched valuations, before the US-Iran conflict and a closed Strait of Hormuz shook the mood (chart 1). A later MoU eased energy prices and inflation fears, yet valuations largely held on AI optimism, despite bouts of reassessment. The oil surge hit import-reliant emerging Asia hardest, leaving India, Thailand and the Philippines doubly exposed through their Middle East sourcing (chart 2). Pass-through inflation, subsidies that some governments later pared back, and currency pressure followed, though resuming Strait traffic should ease these strains. Rising inflation then boxed in policymakers, straining already-stretched fiscal positions and limiting more pro-growth monetary policy stances in some economies (chart 3). Our latest Blue Chip survey found a slim majority reassessed the risk balance after oil fell, though the shifts stayed mild versus the June survey (chart 4). Most still rank upside inflation risk above downside employment risk, even as a slightly larger share now see the balance as more even. AI remains the region's key offset, with Taiwan and South Korea riding a sharp rise in memory and chip exports (chart 5). Malaysia and Thailand instead draw data centre FDI, so Asia gains from the buildout phase rather than the West's hoped-for productivity gains. We close on an uncertain second half, where a possible Super El Niño could revive food-driven inflation even as energy pressures fade (chart 6). Beyond that, an AI reassessment, fresh geopolitical flashpoints, trade tensions and the US midterms could each reshape the outlook.

**The year thus far**
We began the year on a relatively hopeful note, buoyed by AI optimism and market valuations that reflected it, although some investors worried that valuations had become overstretched. The geopolitical mood shifted quickly in early January, however, when US military forces captured former Venezuelan leader Maduro, though the event did little to move markets (chart 1). A far greater shock came when the US-Iran conflict erupted in late February, closing the Strait of Hormuz and dealing a negative blow to global energy supplies. More recently, the US and Iran have reached a Memorandum of Understanding (MoU) aimed at ceasing hostilities and resuming trade flows through the Strait. This has allowed energy prices to ease, softening policymakers' concerns about energy-driven inflation. Even so, equity valuations have largely remained underpinned by AI optimism, albeit with interim bouts of reassessment and price retracement. This drew on repeated reports of strong growth along the AI supply chain, and on signs that supply could not keep pace with demand. This continued even as AI models with leapfrogging capabilities reached the public. At several points, the US government stepped in to rein in public access to some models, given security concerns about such immense capabilities falling into the wrong hands.

260706T1.jpg

**Oil impact on Asia**
Within emerging Asia, among the hardest hit by the oil surge are India, Thailand and the Philippines. These are relatively heavy net importers of crude oil, and they source most of that crude from the Middle East. That combination left them doubly exposed when the Strait of Hormuz closed (chart 2). The surge in oil prices also carries multiple, wider impacts. First, the higher cost of imported crude passes through to consumer inflation, leaving households with a heavier energy bill. Several governments have stepped in with energy subsidies to ease the consumer burden. That support has not proved indefinitely sustainable, as some governments eventually pared it back given the immense costs. In effect, subsidies shift some of the burden from consumers to the state, straining public finances. There is also a currency effect, since higher crude prices require more domestic currency to buy the same volume, weighing on the exchange rate. That said, other drivers of currency depreciation may also have been at play over the period. Trade flows through the Strait have recently picked up, with traffic gradually resuming. If the current truce and its conditions hold, these effects may ease before long. On the growth front, higher oil prices would not appear in volume-based measures. Their second-order effects on output would still come through, such as demand dampened by higher energy costs.

260706T2.jpg

**Inflation and monetary policy**
Higher crude oil prices drove inflation sharply higher across Asia and much of the world. That greatly complicated policymakers' task on both the fiscal and monetary fronts. On the fiscal side, several Asian governments were already facing pressures before the oil shock. These ranged from grand, fiscally costly policy pushes in Indonesia to calls for greater fiscal sustainability in Japan. Higher oil prices added a need for more support, further complicating their position. On the monetary side, previously pro-growth moves, such as rate cuts in India, looked riskier, as they threatened to stoke already-surging inflation (chart 3). That made further easing, or even holding current pro-growth settings, hard to sustain. The danger is sharper still if inflation expectations become unanchored, raising the risk of runaway inflation. The recent US-Iran de-escalation, and the crude price slump that followed, certainly help to ease the situation. One would expect so material a shift in the geopolitical backdrop to prompt a reassessment among policymakers and investors alike. Yet that was not entirely the case, based on our latest Blue Chip Financial Forecast survey, whose results we discuss in the next section.

260706T3.jpg

**The latest Blue Chip survey results**
The recent US-Iran MoU has largely held, despite occasional flare-ups. Against that backdrop, and the sharp fall in oil prices that followed, we asked panellists to assess the balance of risks between employment and inflation. A slim majority (59%) said their assessment had shifted, while a non-trivial minority said it had not. Looking specifically at how US risk expectations moved, we find the shifts have been quite mild. That is relative to the June survey, which was conducted before the MoU. Even so, most panellists (65%) still see upside risks to inflation as the key risk, rather than downside risks to employment. Meanwhile, a slightly larger share than in June (23%) now see the risks as more balanced.

260706T4.jpg

**The AI upcycle and Asia**
We turn next to a key offset to the growth dampeners facing much of Asia. It stems from parts of the region being well positioned to capture the current AI upcycle. Advanced economies such as Taiwan and South Korea have benefited from strong demand for AI and related memory chips. This has driven a sharp rise in exports of such goods (chart 5). Those exports have propelled growth in these economies this year, at a pace faster than in previous years. Other economies, such as Malaysia and Thailand, are going through a data centre boom. They benefit through an additional channel beyond AI-related goods exports: robust FDI inflows. Foreign firms are driving these inflows as they expand their data centre footprint in the region. Other economies, including those in the West, hope to reap large productivity gains from the current jump in AI capabilities. By contrast, much of Asia's benefit comes from the ongoing buildout of the parts and infrastructure that the upcycle requires.

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**Watching H2 2026**
Bringing it all together, the first half of the year has been shaped by two main drivers: the US-Iran conflict and the ongoing AI upcycle. What the overarching themes for Asia will be in the second half remains anyone's guess. For one, the threat of an imminent "Super El Niño" event (chart 6) could trigger a crop supply shock. That may reintroduce inflationary pressure, albeit through the food channel. On another front, market optimism around AI-related companies' revenues and spending still persists. Yet disruptions or new discoveries could emerge down the line, including some that sharply reduce the compute needed for a given output. Such developments may in time prompt investors to reassess their views. In addition, pockets of geopolitical pressure are still brimming in parts of the world, including the Middle East. These threaten to upend supply flows of oil, and of other crucial goods too. The trade front, though faded from focus in recent months, could become another flashpoint. It bears on growth and on bilateral relationships, especially those with the US. Finally, other events, such as the US midterm elections later this year, may also skew the global backdrop.

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Asia

Economic Letter from Asia: Woah, We’re Halfway There

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.

260702Z3.jpg

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

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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.

260702Z5.jpg

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

260702Z6.jpg

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).

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/6WAWvuhdCIiVMfa7lArFBI?utm_source=generator&si=a00a7c7e625c4035" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Forecasters Hold Firm

Sandy Batten

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

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

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

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

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

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

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

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

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.

Economy in Brief

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