Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620a.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell a sharp 0.5% in May following an upwardly revised no change in April. Six-month growth in the leaders dropped to -2.2%. Growth in the leaders deeper than -2.5% preceded past US recessions.
During the last ten years there has been a 50% correlation between the six-month change in the leading indicators and the change in real GDP.
Amongst the 10 components of the leading index, the breadth of one month gain retraced the prior month&#39;s improvement and fell to just 15%. In May, a flatter interest rate yield curve, lower building permits, and higher claims for unemployment insurance made the largest negative contributions. During the last year the leading indicators have fallen 1.9%, roughly half of which was due to the flatter yield curve and the rest was due to the drop in vendor performance.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose by 0.2% (2.1% y/y) for the third month in the last four.
The lagging indicators rose 0.3% in May though the prior month&#39;s gain was revised down to 0.1%.
The ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess dipped slightly and has been roughly unchanged since last October except for an upward blip in December.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">6-Month 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">Leading</td>
<td>-0.5%</td>
<td>0.0%</td>
<td>-1.0%</td>
<td>2.9%</td>
<td>1.3%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
A Few Encouraging Signs in Italy's Lackluster  Economy 
by <a href="/comment/Curley.html">Louise Curley</a> June 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620b.jpg" width="353">
After last week&#39;s release of a strong rise of almost 2% in industrial production in April, Italy released more positive data today. Industrial turnover or sales rose 2.3% in April from March and were 1.5% above April, 2004. Industrial orders rose 1.5% and 2.5% respectively in the comparable periods. The sales and order data are broken down into domestic and foreign. While the rise in domestic industrial sales was stronger than that for foreign sales, orders for foreign sales increased more than those for domestic sales.
While the sales and order data for April are encouraging, the first chart showing sales and orders over the past five years, puts these recent improvements in perspective. They appear to be little more than part of an erratic but only slightly upward trend that began in early 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620c.jpg" width="353">
In addition to the sales and orders data, there were also positive data in the employment situation. Employment rose 0.5% in the first quarter of 2005l and was 1.0% above the first quarter of 2004. At the same time unemployment declined 1.0% in the first quarter of 2004 and was 3.3% below the year ago figure. Italy&#39;s harmonized rate of unemployment was 7.9% in the first quarter of 2905. As the attached chart shows, Italy&#39;s unemployment rate has continued to decline while that for the Euro Zone as a whole has been rising--mainly as a result of the increasing unemployment in France and Germany.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/ITALY.HTM">Italy</a> 2000=100</th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">Apr 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</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">Industrial Turnover (Sales)</td>
<td>106.3</td>
<td>103.9</td>
<td>104.7</td>
<td>2.31</td>
<td>1.53</td>
<td>104.2</td>
<td>101.8</td>
<td>102.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>105.7</td>
<td>102.7</td>
<td>105.1</td>
<td>2.92</td>
<td>0.57</td>
<td>104.2</td>
<td>101.9</td>
<td>102.2&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.1</td>
<td>107.1</td>
<td>103.4</td>
<td>0.93</td>
<td>4.55</td>
<td>104.2</td>
<td>101.3</td>
<td>103.4</td>
</tr>
<tr>
<td class="firstcol">Industrial Orders</td>
<td>100.2</td>
<td>98.7</td>
<td>97.8</td>
<td>1.52</td>
<td>2.45</td>
<td>99.0</td>
<td>95.3</td>
<td>99.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>96.7</td>
<td>96.2</td>
<td>95.9</td>
<td>0.52</td>
<td>0.83</td>
<td>96.9</td>
<td>93.8</td>
<td>97.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.2</td>
<td>104.4</td>
<td>102.0</td>
<td>3.64</td>
<td>6.08</td>
<td>103.7</td>
<td>98.6</td>
<td>102.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q1&nbsp; 05</td>
<td>Q4&nbsp; 04</td>
<td>Q1 04</td>
<td>Q/Q%</td>
<td>Y/Y%</td>
<td>&nbsp;2004&nbsp;&nbsp;</td>
<td>&nbsp;2003</td>
<td>&nbsp;2002</td>
</tr>
<tr>
<td class="firstcol">Employment (thousands)</td>
<td>22,564</td>
<td>22,450</td>
<td>22,334</td>
<td>0.51</td>
<td>1.03</td>
<td>22,400</td>
<td>22,230</td>
<td>21,901</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (thousands)</td>
<td>1,927</td>
<td>1,946</td>
<td>2,074</td>
<td>-0.98</td>
<td>-3.31</td>
<td>1,956</td>
<td>2,040</td>
<td>2,078</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>7.9</td>
<td>8.0</td>
<td>8.2</td>
<td>-0.1pts</td>
<td>-0.3pts</td>
<td>8.0</td>
<td>8.4</td>
<td>8.7</td>
</tr>
</tbody>
</table>
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The Composite Index of Leading Economic Indicators reported by the Conference Board fell a sharp 0.5% in May following an upwardly revised no change in April. Six-month growth in the leaders dropped to -2.2%. Growth in the leaders [...]

Leading Indicators Down Again

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/050617d.jpg" width="353">
Orders received by Japan&#39;s machinery industry rebounded sharply in April, according to data reported yesterday and today by the Japanese Cabinet Office. Total orders, seasonally adjusted, were up 14.8% in the month, after three successive declines. These order flows are very erratic, as seen in the chart, and we have plotted a 6-month moving average to show the trend. This measure increased 2.2% from March. April orders were 8.3% ahead of April 2004.
A broad division of these orders into domestic and foreign sources indicates that Japanese industry is still led by external demand. Foreign orders were up 31.3% in April and 18.3% over a year ago. These have a loose negative correlation with the value of the yen, as might be expected (see second graph). And while the yen has strengthened against the dollar (and therefore against the Chinese yuan), it has remained weak relative to the euro, at least until very recently. Taking account other currencies as well, a weighted &quot;effective&quot; exchange rate published by the Bank of Japan has been basically flat for the last three years, and therefore largely a neutral force on total foreign demand for Japanese products.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617e.jpg" width="353">
Domestic orders are creeping upward. Machinery orders from private non-manufacturing industries are also basically flat. However, manufacturing industry orders for machines are rising. This sector was up 14.4% in April alone, reaching &yen;511 billion, the largest single month since May 1997. These orders are volatile, too, and such a jump and level are likely unsustainable in the near term. Even so, this sign of firmer domestic demand in Japan is encouraging.

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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/JAPAN.HTM">Japan</a>(Billion &yen;)</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Year Ago (Yr/Yr)</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total Orders*</td>
<td>2,421.6</td>
<td>2,109.5</td>
<td>2,243.7</td>
<td>2,202.7</td>
<td>2,113.1</td>
<td>1,836.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>14.8</td>
<td>-2.4</td>
<td>8.3</td>
<td>4.2</td>
<td>15.0</td>
<td>-10.9</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>1,380.4</td>
<td>1,320.5</td>
<td>1,347.0</td>
<td>1,323.5</td>
<td>1,295.6</td>
<td>1,217.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>4.5</td>
<td>-4.7</td>
<td>2.6</td>
<td>2.2</td>
<td>6.4</td>
<td>-14.8</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>915.0</td>
<td>696.9</td>
<td>781.4</td>
<td>770.4</td>
<td>708.4</td>
<td>521.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>31.3</td>
<td>2.9</td>
<td>18.1</td>
<td>8.8</td>
<td>35.9</td>
<td>-0.7</td>
</tr>
</tbody>
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Orders received by Japan's machinery industry rebounded sharply in April, according to data reported yesterday and today by the Japanese Cabinet Office. Total orders, seasonally adjusted, were up 14.8% in the month, after three [...]

April Machinery Orders Jump in Japan; Foreign Sector and Domestic Manufacturing Lead

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617c.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in June improved a sharp 9.1% versus May to 94.8. Sentiment rose to the highest level since January. Consensus expectations had been for a level of 88.7.
During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE, although the correlation has fallen in recent years.
Consumer expectations surged a sharp 12.6% following five months of decline.
The reading of current economic conditions also rose 5.2% to the highest level since January.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">June</th>
<th scope="col">May</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">Consumer Sentiment</td>
<td>94.8</td>
<td>86.9</td>
<td>-0.8%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.4</td>
<td>104.9</td>
<td>3.5%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>84.8</td>
<td>75.3</td>
<td>-4.2%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
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</tbody>
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The University of Michigan's preliminary reading of consumer sentiment in June improved a sharp 9.1% versus May to 94.8. Sentiment rose to the highest level since January. Consensus expectations had been for a level of 88.7. During [...]

U.S. Consumer Sentiment Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617b.jpg" width="353">
The 1Q05 US current account deficit deepened to another record of $195.1B, or 6.4% of GDP. Consensus expectations had been for a deficit of $189.0B. Trade account deterioration was estimated to have subtracted 0.7 percentage points from 1Q growth in real GDP, an estimate which may be increased. Earlier estimates of the current account deficit were deepened slightly for 2004. 
The deficit in merchandise trade deteriorated to $186.3B from a revised $182.2B in 4Q. Exports grew 2.4% (10.3% y/y) and imports rose 2.3% (15.9% y/y).
The surplus on services improved for the second consecutive quarter to $14.6B, the highest level since 4Q03 but remained down from the annual peak in 1997 of $89.8B. Exports of services grew 4.3% in 1Q (12.7% y/y and imports rose 2.9% (12.1% y/y).
From the capital account, US foreign direct investment abroad dropped sharply to $32.2B following a 4Q surge while foreign direct investment in the US slipped to $28.8B.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">1Q &#39;05</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">Current Account Deficit</td>
<td>$195.1B</td>
<td>$188.4B</td>
<td>$146.1B</td>
<td>$668.1B</td>
<td>$519.7B</td>
<td>$475.2B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$168.0B</td>
<td>$166.0B</td>
<td>$123.8B</td>
<td>$587.1B</td>
<td>$448.5B</td>
<td>$411.2B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>2.1%</td>
<td>5.0%</td>
<td>13.8%</td>
<td>14.9%</td>
<td>6.8%</td>
<td>-3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>1.9%</td>
<td>6.3%</td>
<td>19.4%</td>
<td>18.1%</td>
<td>7.3%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$27.1B</td>
<td>$22.4B</td>
<td>$22.3B</td>
<td>$80.9B</td>
<td>$71.2B</td>
<td>$64.0B</td>
</tr>
</tbody>
</table>
</body>
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The 1Q05 US current account deficit deepened to another record of $195.1B, or 6.4% of GDP. Consensus expectations had been for a deficit of $189.0B. Trade account deterioration was estimated to have subtracted 0.7 percentage points [...]

U.S. Current Account Deficit Another Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617a.jpg" width="353">
The Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed went negative in June for the first month in just over two years. The 9.5 point m/m decline to -2.2 added to declines earlier this year which have lowered the index 27.6 points since December. Consensus expectations had been for a positive reading of 10.0 in June.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The new orders index dropped 12.5 points to the lowest level in two years and shipments also fell hard to 6.6 versus a high near 40 about one year ago. The index covering the number of employees rose slightly to 7.1 but that is down versus last year&#39;s high of 22.9. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months improved versus a downwardly revised May level.
The prices paid index fell sharply for the second month and at 23.5 is down 43 points from the January high. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0605.html">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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#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 Activity Index</td>
<td>-2.2</td>
<td>7.3</td>
<td>30.0</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>23.5</td>
<td>30.9</td>
<td>50.8</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
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The Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed went negative in June for the first month in just over two years. The 9.5 point m/m decline to -2.2 added to declines earlier this year [...]

Philadelphia Fed Index Negative

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617a.jpg" width="353">
The Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed went negative in June for the first month in just over two years. The 9.5 point m/m decline to -2.2 added to declines earlier this year which have lowered the index 27.6 points since December. Consensus expectations had been for a positive reading of 10.0 in June.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The new orders index dropped 12.5 points to the lowest level in two years and shipments also fell hard to 6.6 versus a high near 40 about one year ago. The index covering the number of employees rose slightly to 7.1 but that is down versus last year&#39;s high of 22.9. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months improved versus a downwardly revised May level.
The prices paid index fell sharply for the second month and at 23.5 is down 43 points from the January high. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0605.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#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 Activity Index</td>
<td>-2.2</td>
<td>7.3</td>
<td>30.0</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>23.5</td>
<td>30.9</td>
<td>50.8</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
U.S. Current Account Deficit Another Record 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 17, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617b.jpg" width="353">
The 1Q05 US current account deficit deepened to another record of $195.1B, or 6.4% of GDP. Consensus expectations had been for a deficit of $189.0B. Trade account deterioration was estimated to have subtracted 0.7 percentage points from 1Q growth in real GDP, an estimate which may be increased. Earlier estimates of the current account deficit were deepened slightly for 2004. 
The deficit in merchandise trade deteriorated to $186.3B from a revised $182.2B in 4Q. Exports grew 2.4% (10.3% y/y) and imports rose 2.3% (15.9% y/y).
The surplus on services improved for the second consecutive quarter to $14.6B, the highest level since 4Q03 but remained down from the annual peak in 1997 of $89.8B. Exports of services grew 4.3% in 1Q (12.7% y/y and imports rose 2.9% (12.1% y/y).
From the capital account, US foreign direct investment abroad dropped sharply to $32.2B following a 4Q surge while foreign direct investment in the US slipped to $28.8B.

<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/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">1Q &#39;05</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">Current Account Deficit</td>
<td>$195.1B</td>
<td>$188.4B</td>
<td>$146.1B</td>
<td>$668.1B</td>
<td>$519.7B</td>
<td>$475.2B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$168.0B</td>
<td>$166.0B</td>
<td>$123.8B</td>
<td>$587.1B</td>
<td>$448.5B</td>
<td>$411.2B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>2.1%</td>
<td>5.0%</td>
<td>13.8%</td>
<td>14.9%</td>
<td>6.8%</td>
<td>-3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>1.9%</td>
<td>6.3%</td>
<td>19.4%</td>
<td>18.1%</td>
<td>7.3%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$27.1B</td>
<td>$22.4B</td>
<td>$22.3B</td>
<td>$80.9B</td>
<td>$71.2B</td>
<td>$64.0B</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 17, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617c.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in June improved a sharp 9.1% versus May to 94.8. Sentiment rose to the highest level since January. Consensus expectations had been for a level of 88.7.
During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE, although the correlation has fallen in recent years.
Consumer expectations surged a sharp 12.6% following five months of decline.
The reading of current economic conditions also rose 5.2% to the highest level since January.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">June</th>
<th scope="col">May</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">Consumer Sentiment</td>
<td>94.8</td>
<td>86.9</td>
<td>-0.8%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.4</td>
<td>104.9</td>
<td>3.5%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>84.8</td>
<td>75.3</td>
<td>-4.2%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
April Machinery Orders Jump in Japan; Foreign Sector and Domestic Manufacturing Lead 
by <a href="/comment/Stone.html">Carol Stone</a> June 17, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617d.jpg" width="353">
Orders received by Japan&#39;s machinery industry rebounded sharply in April, according to data reported yesterday and today by the Japanese Cabinet Office. Total orders, seasonally adjusted, were up 14.8% in the month, after three successive declines. These order flows are very erratic, as seen in the chart, and we have plotted a 6-month moving average to show the trend. This measure increased 2.2% from March. April orders were 8.3% ahead of April 2004.
A broad division of these orders into domestic and foreign sources indicates that Japanese industry is still led by external demand. Foreign orders were up 31.3% in April and 18.3% over a year ago. These have a loose negative correlation with the value of the yen, as might be expected (see second graph). And while the yen has strengthened against the dollar (and therefore against the Chinese yuan), it has remained weak relative to the euro, at least until very recently. Taking account other currencies as well, a weighted &quot;effective&quot; exchange rate published by the Bank of Japan has been basically flat for the last three years, and therefore largely a neutral force on total foreign demand for Japanese products.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617e.jpg" width="353">
Domestic orders are creeping upward. Machinery orders from private non-manufacturing industries are also basically flat. However, manufacturing industry orders for machines are rising. This sector was up 14.4% in April alone, reaching &yen;511 billion, the largest single month since May 1997. These orders are volatile, too, and such a jump and level are likely unsustainable in the near term. Even so, this sign of firmer domestic demand in Japan is encouraging.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/JAPAN.HTM">Japan</a>(Billion &yen;)</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Year Ago (Yr/Yr)</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total Orders*</td>
<td>2,421.6</td>
<td>2,109.5</td>
<td>2,243.7</td>
<td>2,202.7</td>
<td>2,113.1</td>
<td>1,836.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>14.8</td>
<td>-2.4</td>
<td>8.3</td>
<td>4.2</td>
<td>15.0</td>
<td>-10.9</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>1,380.4</td>
<td>1,320.5</td>
<td>1,347.0</td>
<td>1,323.5</td>
<td>1,295.6</td>
<td>1,217.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>4.5</td>
<td>-4.7</td>
<td>2.6</td>
<td>2.2</td>
<td>6.4</td>
<td>-14.8</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>915.0</td>
<td>696.9</td>
<td>781.4</td>
<td>770.4</td>
<td>708.4</td>
<td>521.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>31.3</td>
<td>2.9</td>
<td>18.1</td>
<td>8.8</td>
<td>35.9</td>
<td>-0.7</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050616d.jpg" width="353">
Foreign trade for Italy has swung from a comfortable surplus two years ago to a persistent and increasing deficit. The April figures, reported today, show a shortfall of &#128;784 million following on March&#39;s &#128;872 million. This deterioration came despite notable increases in exports, amounting to more than a million euros in the past year, including double-digit yearly percentage gains in several recent months. Imports have obviously gone up more than exports, growing &#128;2.2 billion in the past year. More significantly, the accompanying graph shows that Italy was traditionally in an overall surplus trade position, which reached as high as &#128;3.6 billion in mid-1996.
As seen in the table below, energy is a major ingredient in the move to a trade deficit. The balance there was -&#128;3.3 billion in April, &#128;1.0 billion bigger than the year-ago amount and the largest in the history of these particular data, which go back to 1991.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050616e.jpg" width="353">
But energy is not the only factor. Similar shifts have occurred in intra-Euro-Zone trade, which illustrates the result of growth in imports that outstrips growth in exports. Also, in non-Euro countries, the trade position with China is moving gradually toward a larger deficit. This latter is a more modest phenomenon, but it contrasts distinctly with the experience elsewhere in Asia: trade with Japan is moving to smaller deficits as imports from there tend downward irregularly. Trade with Asian NICs remains generally in modest surplus, with the occasional monthly deficit. Trade with other regions, such as the United States, seems to be maintaining former patterns.
These changes toward a trade deficit for Italy are not of great magnitude. But the move to persisting deficit for a nation long in surplus is notable. It highlights some key sensitivities in today&#39;s global economy: energy imports and merchandise flows from China. At the same time, it also highlights the increasing volume of two-way trade with neighboring nations. These patterns are likely to be hallmarks of every nation&#39;s business in the days ahead.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/ITALY.HTM">Italy</a> (SA, Millions of &#128;)</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Apr 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Balance</td>
<td>-784</td>
<td>-872</td>
<td>+183</td>
<td>-126</td>
<td>+229</td>
<td>+735</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>24,282</td>
<td>24,086</td>
<td>23,048</td>
<td>23,391</td>
<td>21,721</td>
<td>22,153</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>25,066</td>
<td>24,958</td>
<td>22,865</td>
<td>23,517</td>
<td>21,491</td>
<td>21,418</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">Balance on Energy (NSA)</td>
<td>-3,258</td>
<td>-2,976</td>
<td>-2,221</td>
<td>-2,438</td>
<td>-2,209</td>
<td>-2,203</td>
</tr>
</tbody>
</table>
</body>
</html>

Foreign trade for Italy has swung from a comfortable surplus two years ago to a persistent and increasing deficit. The April figures, reported today, show a shortfall of 784 million following on March's 872 million. This [...]

Italy's Trade Accounts Shift to Deficit; Dynamics of Global Business Alter Long-Running Surplus Position

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050616b.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index rose to 71 in June, returning to the record high level reached last December.
During the last twenty years, annual changes in the composite index had an 83% correlation with the change in new home sales. There&#39;s been an 86% correlation with the change in single family housing starts.
For the second month, all of the June index components improved. The index for current sales of single family homes was up 4.1% y/y and the index gauging expected sales in six months increased 5.3% y/y.
Traffic of prospective home buyers rose nearly to the record high level.
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">June</th>
<th scope="col">May</th>
<th scope="col">June &#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>71</td>
<td>70</td>
<td>68</td>
<td>68</td>
<td>64</td>
<td>61</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Home Builders' (NAHB) Composite Housing Market Index rose to 71 in June, returning to the record high level reached last December. During the last twenty years, annual changes in the composite index had an [...]

NAHB Housing Market Index At Record High

Cost of transporting crude oil has soared to series high

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

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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

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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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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 sustained 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. 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

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