Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809f.jpg" width="353">
Germany released preliminary June data on the balance of payments and data on the trade in goods. The preliminary balance of payments data for June are: the total current account, the balance on goods, supplementary trade items, the balance on services, the balance on factor income and current transfers. These items are available only on seasonally unadjusted basis. No June data on the financial account are yet available. While June exports and imports of goods are not shown in the preliminary balance of payments, they are included in the report on trade in goods where they are shown on a seasonally adjusted and unadjusted basis.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809e.jpg" width="353">
The current account surplus on a seasonally unadjusted basis increased 2.3 billion euros to 10,4 billion euros in June 2005 from 8.1 billion in June 2004. Since late 2001, Germany has had a positive balance on current account. Typically, a large positive balance on trade in goods outweighs negative balances on services and factor incomes and supplementary trade items and transfer payments that also result in an outflow of funds. This pattern has changed slightly as the factor income balance became positive in 2004. The balance turned negative in April and May of this year but has become positive again in June. The balance on factor income is the difference between receipts of investment income and wages from foreign countries and German payments of these factors to foreign countries. The first chart shows the factor income balance together with the balance on goods. The shift to a positive balance on factor income in 2004 may be due in part to the increase in Germany&#39;s direct investment abroad.
The seasonally adjusted data show a trade in goods balance of 14.79 billion euros an increase of 2.63 billion euros from a year ago. While exports declined 0.4% from May, they were over 8% above June, 2004. Imports were down sharply in June--5.5%--but they were 6,3% above June 2004. The second chart shows exports and imports on a seasonally adjusted basis.

<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://http://www.haverselect.com/dlx/GERMANY/@D7/@D7.HTM">Germany</a> Balance of&nbsp; Payments and Trade in Goods (Billions of Euros)</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">M/M Dif </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004 Mo.&nbsp; Avg</th>
<th scope="col">2003 Mo.&nbsp; Avg</th>
<th scope="col">2002 Mo. Avg</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Not Seasonally Adjusted</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>10.4</td>
<td>5.5</td>
<td>8.1</td>
<td>4.9</td>
<td>2.3</td>
<td>7.0</td>
<td>3.9</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>16.8</td>
<td>12.1</td>
<td>14.6</td>
<td>4.7</td>
<td>2.2</td>
<td>13.0</td>
<td>10.8</td>
<td>11.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>68.8</td>
<td>63.5</td>
<td>62.6</td>
<td>5.3</td>
<td>6.2</td>
<td>60.9</td>
<td>55.3</td>
<td>54.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>51.9</td>
<td>51.5</td>
<td>48.0</td>
<td>-0.4</td>
<td>2.9</td>
<td>48.0</td>
<td>44.6</td>
<td>43.2</td>
</tr>
<tr>
<td class="firstcol">Supplementary Trade Items</td>
<td>-1.3</td>
<td>-1.0</td>
<td>-1.1</td>
<td>-0.3</td>
<td>-2.0</td>
<td>-1.0</td>
<td>-0.7</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Services</td>
<td>-2.9</td>
<td>-2.5</td>
<td>-2.3</td>
<td>-0.4</td>
<td>-0.6</td>
<td>-2.6</td>
<td>-2.8</td>
<td>-3.0</td>
</tr>
<tr>
<td class="firstcol">Balance on Factor Income</td>
<td>0.7</td>
<td>-1.0</td>
<td>-0.1</td>
<td>1.7</td>
<td>0.8</td>
<td>6.4</td>
<td>-1.2</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Transfer Payments</td>
<td>-3.0</td>
<td>-2.1</td>
<td>-3.0</td>
<td>-0.9</td>
<td>0.0</td>
<td>-2.4</td>
<td>-2.4</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Seasonally Adjusted</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>14.79</td>
<td>12.16</td>
<td>12.98</td>
<td>2.63</td>
<td>1.81</td>
<td>12.8&nbsp;</td>
<td>10.9</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>M/M % </td>
<td>Y/Y&nbsp; %</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>64.39</td>
<td>64.63</td>
<td>59.63</td>
<td>-0.37</td>
<td>7.98</td>
<td>60.47</td>
<td>55.57</td>
<td>54.54</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>49.60</td>
<td>52.47</td>
<td>46.65</td>
<td>-5.47</td>
<td>6.32</td>
<td>47.65</td>
<td>44.66</td>
<td>43.85</td>
</tr>
</tbody>
</table>
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Germany released preliminary June data on the balance of payments and data on the trade in goods. The preliminary balance of payments data for June are: the total current account, the balance on goods, supplementary trade items, the [...]

German Preliminary Balance of Payment and Trade Data for June: The seasonally and not seasonally adjusted

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809d.jpg" width="353">
The Federal Open Market Committee increased the target rate for federal funds an expected 25 basis points to 3.50%. The discount rate also was raised 25 basis points to 4.50%. This latest increase is the tenth since last June.
The decision was unanimous.
Today&#39;s press release from the Fed continued to contain a comment suggesting that rates could be raised again. &quot;The Committee believes that, even after this action, the stance of monetary policy remains accommodative ...&quot;
The statement added that &quot;Aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually.&quot;
Constantly vigilant, the Committee succinctly stated that &quot;... pressures on inflation have stayed elevated.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050809/default.htm">here</a>.
Trends in Federal Funds Rate Volatility from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci11-7.pdf"> here</a>.
Additional Slack in the Economy: The Poor Recovery in Labor Force Participation During This Business Cycle from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/economic/ppb/2005/ppb052.pdf"> here</a>.

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The Federal Open Market Committee increased the target rate for federal funds an expected 25 basis points to 3.50%. The discount rate also was raised 25 basis points to 4.50%. This latest increase is the tenth since last June. The [...]

Fed Funds Rate Increased to 3.50%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809c.jpg" width="353">
Chain store sales stuttered during the opening week of August according to the International Council of Shopping Centers (ICSC)-UBS survey. The 0.8% w/w decline retraced virtually all of the prior week&#39;s strong gain and left sales just 0.2% ahead of the July average.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slid 0.8% (0.0% y/y), the third decline in the last four weeks.
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>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">08/06/05</th>
<th scope="col">07/30/05</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>458.9</td>
<td>462.8</td>
<td>4.0%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
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Chain store sales stuttered during the opening week of August according to the International Council of Shopping Centers (ICSC)-UBS survey. The 0.8% w/w decline retraced virtually all of the prior week's strong gain and left sales [...]

Chain Store Sales Stuttered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809b.jpg" width="353">
Non-farm labor productivity increased 2.2% last quarter and about matched Consensus expectations for a 2.0% rise. Downward revisions to output growth from 2002 to 2004 (mostly due to upwardly revised estimates of inflation) lowered average growth in productivity during the period to 3.7% from 4.2%.
Unit labor costs slowed in 2Q to 1.3% from a 3.6% rate of growth in 1Q. The average rate of growth during the prior three years was revised up to 0.3% from -0.2%. Compensation costs decelerated to 3.5% from 6.9% growth in 1Q and the average during the prior three years was unchanged at a 4.0% rate of growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809a.jpg" width="353">
In the factory sector, productivity held steady at 4.1% (4.7% y/y) versus 4.2% growth in 1Q. The average rate of growth during the prior three years was unrevised at 6.0%.
Unit Labor costs in manufacturing rose 2.3% (3.7% y/y) following 2.8% growth in 1Q. The average of the prior three years was lowered to -0.1% from 0.7% mostly due to a much sharper decline during 2004 of 2.9% versus a 0.5% decline estimated earlier.
The implicit price deflator for nonfarm business rose 2.3% (2.3% y/y) and raised the ratio of prices to unit labor costs to the highest level since 3Q04, suggesting higher profit margins. During the last ten years there has been a 59% correlation between the ratio and the y/y growth in operating corporate profits.
Long-Term Yields Fall as Industrial Output Decelerates from the Federal Reserve Bank of Dallas is available <a href="http://www.dallasfed.org/eyi/usecon/archived/0507update.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/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">1Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>2.2%</td>
<td>3.2%</td>
<td>2.3%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.5%</td>
<td>6.9%</td>
<td>6.7%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.3%</td>
<td>3.6%</td>
<td>4.3%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
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Non-farm labor productivity increased 2.2% last quarter and about matched Consensus expectations for a 2.0% rise. Downward revisions to output growth from 2002 to 2004 (mostly due to upwardly revised estimates of inflation) lowered [...]

2Q U.S. Productivity As-Expected, Revisions Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809d.jpg" width="353">
The Federal Open Market Committee increased the target rate for federal funds an expected 25 basis points to 3.50%. The discount rate also was raised 25 basis points to 4.50%. This latest increase is the tenth since last June.
The decision was unanimous.
Today&#39;s press release from the Fed continued to contain a comment suggesting that rates could be raised again. &quot;The Committee believes that, even after this action, the stance of monetary policy remains accommodative ...&quot;
The statement added that &quot;Aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually.&quot;
Constantly vigilant, the Committee succinctly stated that &quot;... pressures on inflation have stayed elevated.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050809/default.htm">here</a>.
Trends in Federal Funds Rate Volatility from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci11-7.pdf"> here</a>.
Additional Slack in the Economy: The Poor Recovery in Labor Force Participation During This Business Cycle from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/economic/ppb/2005/ppb052.pdf"> here</a>.

2Q U.S. Productivity As-Expected, Revisions Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 9, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809b.jpg" width="353">
Non-farm labor productivity increased 2.2% last quarter and about matched Consensus expectations for a 2.0% rise. Downward revisions to output growth from 2002 to 2004 (mostly due to upwardly revised estimates of inflation) lowered average growth in productivity during the period to 3.7% from 4.2%.
Unit labor costs slowed in 2Q to 1.3% from a 3.6% rate of growth in 1Q. The average rate of growth during the prior three years was revised up to 0.3% from -0.2%. Compensation costs decelerated to 3.5% from 6.9% growth in 1Q and the average during the prior three years was unchanged at a 4.0% rate of growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809a.jpg" width="353">
In the factory sector, productivity held steady at 4.1% (4.7% y/y) versus 4.2% growth in 1Q. The average rate of growth during the prior three years was unrevised at 6.0%.
Unit Labor costs in manufacturing rose 2.3% (3.7% y/y) following 2.8% growth in 1Q. The average of the prior three years was lowered to -0.1% from 0.7% mostly due to a much sharper decline during 2004 of 2.9% versus a 0.5% decline estimated earlier.
The implicit price deflator for nonfarm business rose 2.3% (2.3% y/y) and raised the ratio of prices to unit labor costs to the highest level since 3Q04, suggesting higher profit margins. During the last ten years there has been a 59% correlation between the ratio and the y/y growth in operating corporate profits.
Long-Term Yields Fall as Industrial Output Decelerates from the Federal Reserve Bank of Dallas is available <a href="http://www.dallasfed.org/eyi/usecon/archived/0507update.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/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">1Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>2.2%</td>
<td>3.2%</td>
<td>2.3%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.5%</td>
<td>6.9%</td>
<td>6.7%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.3%</td>
<td>3.6%</td>
<td>4.3%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
Chain Store Sales Stuttered 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 9, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809c.jpg" width="353">
Chain store sales stuttered during the opening week of August according to the International Council of Shopping Centers (ICSC)-UBS survey. The 0.8% w/w decline retraced virtually all of the prior week&#39;s strong gain and left sales just 0.2% ahead of the July average.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slid 0.8% (0.0% y/y), the third decline in the last four weeks.
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">08/06/05</th>
<th scope="col">07/30/05</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>458.9</td>
<td>462.8</td>
<td>4.0%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
German Preliminary Balance of Payment and Trade Data for June: The seasonally and not seasonally adjusted 
by <a href="/comment/Curley.html">Louise Curley</a> August 9, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809f.jpg" width="353">
Germany released preliminary June data on the balance of payments and data on the trade in goods. The preliminary balance of payments data for June are: the total current account, the balance on goods, supplementary trade items, the balance on services, the balance on factor income and current transfers. These items are available only on seasonally unadjusted basis. No June data on the financial account are yet available. While June exports and imports of goods are not shown in the preliminary balance of payments, they are included in the report on trade in goods where they are shown on a seasonally adjusted and unadjusted basis.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809e.jpg" width="353">
The current account surplus on a seasonally unadjusted basis increased 2.3 billion euros to 10,4 billion euros in June 2005 from 8.1 billion in June 2004. Since late 2001, Germany has had a positive balance on current account. Typically, a large positive balance on trade in goods outweighs negative balances on services and factor incomes and supplementary trade items and transfer payments that also result in an outflow of funds. This pattern has changed slightly as the factor income balance became positive in 2004. The balance turned negative in April and May of this year but has become positive again in June. The balance on factor income is the difference between receipts of investment income and wages from foreign countries and German payments of these factors to foreign countries. The first chart shows the factor income balance together with the balance on goods. The shift to a positive balance on factor income in 2004 may be due in part to the increase in Germany&#39;s direct investment abroad.
The seasonally adjusted data show a trade in goods balance of 14.79 billion euros an increase of 2.63 billion euros from a year ago. While exports declined 0.4% from May, they were over 8% above June, 2004. Imports were down sharply in June--5.5%--but they were 6,3% above June 2004. The second chart shows exports and imports on a seasonally adjusted basis.

<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://http://www.haverselect.com/dlx/GERMANY/@D7/@D7.HTM">Germany</a> Balance of&nbsp; Payments and Trade in Goods (Billions of Euros)</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">M/M Dif </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004 Mo.&nbsp; Avg</th>
<th scope="col">2003 Mo.&nbsp; Avg</th>
<th scope="col">2002 Mo. Avg</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Not Seasonally Adjusted</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>10.4</td>
<td>5.5</td>
<td>8.1</td>
<td>4.9</td>
<td>2.3</td>
<td>7.0</td>
<td>3.9</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>16.8</td>
<td>12.1</td>
<td>14.6</td>
<td>4.7</td>
<td>2.2</td>
<td>13.0</td>
<td>10.8</td>
<td>11.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>68.8</td>
<td>63.5</td>
<td>62.6</td>
<td>5.3</td>
<td>6.2</td>
<td>60.9</td>
<td>55.3</td>
<td>54.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>51.9</td>
<td>51.5</td>
<td>48.0</td>
<td>-0.4</td>
<td>2.9</td>
<td>48.0</td>
<td>44.6</td>
<td>43.2</td>
</tr>
<tr>
<td class="firstcol">Supplementary Trade Items</td>
<td>-1.3</td>
<td>-1.0</td>
<td>-1.1</td>
<td>-0.3</td>
<td>-2.0</td>
<td>-1.0</td>
<td>-0.7</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Services</td>
<td>-2.9</td>
<td>-2.5</td>
<td>-2.3</td>
<td>-0.4</td>
<td>-0.6</td>
<td>-2.6</td>
<td>-2.8</td>
<td>-3.0</td>
</tr>
<tr>
<td class="firstcol">Balance on Factor Income</td>
<td>0.7</td>
<td>-1.0</td>
<td>-0.1</td>
<td>1.7</td>
<td>0.8</td>
<td>6.4</td>
<td>-1.2</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Transfer Payments</td>
<td>-3.0</td>
<td>-2.1</td>
<td>-3.0</td>
<td>-0.9</td>
<td>0.0</td>
<td>-2.4</td>
<td>-2.4</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Seasonally Adjusted</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>14.79</td>
<td>12.16</td>
<td>12.98</td>
<td>2.63</td>
<td>1.81</td>
<td>12.8&nbsp;</td>
<td>10.9</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>M/M % </td>
<td>Y/Y&nbsp; %</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>64.39</td>
<td>64.63</td>
<td>59.63</td>
<td>-0.37</td>
<td>7.98</td>
<td>60.47</td>
<td>55.57</td>
<td>54.54</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>49.60</td>
<td>52.47</td>
<td>46.65</td>
<td>-5.47</td>
<td>6.32</td>
<td>47.65</td>
<td>44.66</td>
<td>43.85</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/050808d.jpg" width="353">
June industrial production figures for Turkey, Malaysia, Slovakia and Italy were released today. The pace of industrial production in the faster growing emerging markets has slowed up this year. In Turkey, industrial production for the first half of this year is only 4.6% above the first half of 2004. In the past three years industrial production in Turkey had grown by 9% or better. In Malaysia, growth in industrial production was 11.29% in 2004, 9.3% in 2003 and 4.6% in 2002. In the first six months of this year, industrial production in Malaysia is up only 3.8% over the corresponding period of 2004. The year to year changes in industrial production in Turkey and Malaysia are shown in the first chart. The deceleration in growth is clear.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808e.jpg" width="353">
The figures for Slovakia are less dramatic than those for Turkey and Malaysia but show the same trend. Growth in the past six months over the same period of last year was 2.1% compared with growth of 6.4%, 5.0% and 4.2% in the past three years. The second chart contrasts the year to year growth in industrial production in Slovakia with that of Italy. Italy&#39;s economy has been one of the most sluggish in the Euro Zone. In fact the economy was in recession in the first half of this year, according to the two quarter decline in GDP definition of a recession. Italy is the only country reporting today that shows a year to year decline in industrial production in the first half of this year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">1H/1H %</th>
<th scope="col">&nbsp;2004&nbsp; %</th>
<th scope="col">&nbsp;2003&nbsp; %</th>
<th scope="col">&nbsp;2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Turkey (1997=100)</td>
<td>130.6</td>
<td>129.5</td>
<td>128.5</td>
<td>4.57</td>
<td>9.78</td>
<td>8.76</td>
<td>9.43</td>
</tr>
<tr>
<td class="firstcol">Malaysia (1993=100)</td>
<td>239.3</td>
<td>230.2</td>
<td>231.3</td>
<td>3.83</td>
<td>11.29</td>
<td>9.30</td>
<td>4.59</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia (2000=100)</td>
<td>127.3</td>
<td>127.8</td>
<td>125.2</td>
<td>2.05</td>
<td>4.20</td>
<td>4.08</td>
<td>6.40</td>
</tr>
<tr>
<td class="firstcol">Italy (2000=100)</td>
<td>94.7</td>
<td>95.4</td>
<td>97.0</td>
<td>-2.01</td>
<td>-0.58</td>
<td>-0.60</td>
<td>-1.62</td>
</tr>
</tbody>
</table>
</body>
</html>

June industrial production figures for Turkey, Malaysia, Slovakia and Italy were released today. The pace of industrial production in the faster growing emerging markets has slowed up this year. In Turkey, industrial production for [...]

Industrial Production: Turkey, Malaysia, Slovakia and Italy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808a.jpg" width="353">
As of July, average hourly earnings in the U.S. when adjusted for inflation had barely risen (0.1%) versus the year ago level. That stagnancy followed an outright decline in real earnings of 0.4% for all of 2004.
The lack of movement contrasts with the recent strength of consumer spending which has been growing 4% in real terms. Part of the discrepancy is explained by consumers&#39; increased usage of debt. While the latest consumer credit figures show no growth acceleration as of June (steady at 4.5%), consumer debt from the more broadly defined Flow of Funds accounts indicates consumers&#39; indebtedness accelerated to 10-11% growth versus less than 9% as of 2001.
Faster growth in wages &amp; salaries also explains some of the discrepancy. As of the latest personal income report, wages &amp; salaries had risen 7.4% from a year earlier and 5.0% when adjusted for inflation. These growth rates are faster than in the popular average hourly earnings measure for several reasons including the recent increase in job growth, fewer individuals working part time and relatively strong jobs growth in the high wage financial as well as the professional &amp; business services industries. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808b.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">3 Month (AR)</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">Average Hourly Earnings</td>
<td>3.3%</td>
<td>2.7%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Real</td>
<td>1.0%</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wage &amp; Salary Disbursements</td>
<td>4.3%</td>
<td>7.4%</td>
<td>5.4%</td>
<td>2.6%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Real</td>
<td>2.4%</td>
<td>5.0%</td>
<td>2.8%</td>
<td>0.7%</td>
<td>-0.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

As of July, average hourly earnings in the U.S. when adjusted for inflation had barely risen (0.1%) versus the year ago level. That stagnancy followed an outright decline in real earnings of 0.4% for all of 2004. The lack of movement [...]

Stagnant U.S. Wages & Strong Consumer Spending?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808a.jpg" width="353">
As of July, average hourly earnings in the U.S. when adjusted for inflation had barely risen (0.1%) versus the year ago level. That stagnancy followed an outright decline in real earnings of 0.4% for all of 2004.
The lack of movement contrasts with the recent strength of consumer spending which has been growing 4% in real terms. Part of the discrepancy is explained by consumers&#39; increased usage of debt. While the latest consumer credit figures show no growth acceleration as of June (steady at 4.5%), consumer debt from the more broadly defined Flow of Funds accounts indicates consumers&#39; indebtedness accelerated to 10-11% growth versus less than 9% as of 2001.
Faster growth in wages &amp; salaries also explains some of the discrepancy. As of the latest personal income report, wages &amp; salaries had risen 7.4% from a year earlier and 5.0% when adjusted for inflation. These growth rates are faster than in the popular average hourly earnings measure for several reasons including the recent increase in job growth, fewer individuals working part time and relatively strong jobs growth in the high wage financial as well as the professional &amp; business services industries. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808b.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">3 Month (AR)</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">Average Hourly Earnings</td>
<td>3.3%</td>
<td>2.7%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Real</td>
<td>1.0%</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wage &amp; Salary Disbursements</td>
<td>4.3%</td>
<td>7.4%</td>
<td>5.4%</td>
<td>2.6%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Real</td>
<td>2.4%</td>
<td>5.0%</td>
<td>2.8%</td>
<td>0.7%</td>
<td>-0.6%</td>
</tr>
</tbody>
</table>
Industrial Production: Turkey, Malaysia, Slovakia and Italy 
by <a href="/comment/Curley.html">Louise Curley</a> August 8, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808d.jpg" width="353">
June industrial production figures for Turkey, Malaysia, Slovakia and Italy were released today. The pace of industrial production in the faster growing emerging markets has slowed up this year. In Turkey, industrial production for the first half of this year is only 4.6% above the first half of 2004. In the past three years industrial production in Turkey had grown by 9% or better. In Malaysia, growth in industrial production was 11.29% in 2004, 9.3% in 2003 and 4.6% in 2002. In the first six months of this year, industrial production in Malaysia is up only 3.8% over the corresponding period of 2004. The year to year changes in industrial production in Turkey and Malaysia are shown in the first chart. The deceleration in growth is clear.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808e.jpg" width="353">
The figures for Slovakia are less dramatic than those for Turkey and Malaysia but show the same trend. Growth in the past six months over the same period of last year was 2.1% compared with growth of 6.4%, 5.0% and 4.2% in the past three years. The second chart contrasts the year to year growth in industrial production in Slovakia with that of Italy. Italy&#39;s economy has been one of the most sluggish in the Euro Zone. In fact the economy was in recession in the first half of this year, according to the two quarter decline in GDP definition of a recession. Italy is the only country reporting today that shows a year to year decline in industrial production in the first half of this year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">1H/1H %</th>
<th scope="col">&nbsp;2004&nbsp; %</th>
<th scope="col">&nbsp;2003&nbsp; %</th>
<th scope="col">&nbsp;2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Turkey (1997=100)</td>
<td>130.6</td>
<td>129.5</td>
<td>128.5</td>
<td>4.57</td>
<td>9.78</td>
<td>8.76</td>
<td>9.43</td>
</tr>
<tr>
<td class="firstcol">Malaysia (1993=100)</td>
<td>239.3</td>
<td>230.2</td>
<td>231.3</td>
<td>3.83</td>
<td>11.29</td>
<td>9.30</td>
<td>4.59</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia (2000=100)</td>
<td>127.3</td>
<td>127.8</td>
<td>125.2</td>
<td>2.05</td>
<td>4.20</td>
<td>4.08</td>
<td>6.40</td>
</tr>
<tr>
<td class="firstcol">Italy (2000=100)</td>
<td>94.7</td>
<td>95.4</td>
<td>97.0</td>
<td>-2.01</td>
<td>-0.58</td>
<td>-0.60</td>
<td>-1.62</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 a still-elevated 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, while the imports index fell to 49.4 from 51.1, 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.

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**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.

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**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.

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**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.

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**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.

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

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**Japan: A Weak Yen at the Worst Possible Time**
Japan occupies a particularly uncomfortable position in the current global conjuncture. The yen has depreciated to levels not seen since December 1986, with USD/JPY touching 162 this week. The move reflects the persistence of a large interest rate differential: even as the Bank of Japan has continued its gradual tightening, the Fed’s hawkish pivot under chair Kevin Warsh — with the mid-June FOMC dot plot signalling a possible hike before year-end — has reinforced the carry trade dynamics weighing on the currency. For Japan, which imports virtually all of its energy, yen weakness at a time of still-elevated global oil prices is a double burden, amplifying domestic inflation and squeezing real incomes. Verbal warnings from Japan’s Finance Ministry have had only a modest and short-lived effect on the exchange rate. The Bank of Japan’s next policy decision is on 31 July, and the pressure to act more decisively is building. The BCFF panel’s July survey revised upward its expectation for a stronger US dollar against the yen over the coming year — consistent with the fundamental picture that chart 5 below describes.

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

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Global financial markets have had a more settled feel this week, reflecting the continued unwinding of the geopolitical risk premium that had built up during the worst of the US-Iran conflict. Oil prices have fallen further, equity markets have been broadly supported, and incoming inflation data — notably the euro area’s June flash CPI estimate — have come in below expectations. The US holiday-shortened week ahead, with Independence Day on Friday, is likely to keep volumes thin and activity subdued. The bigger picture, however, remains one of tension between a more benign near-term inflation trajectory and central banks that may not yet be ready to stand down. In the charts below we look first at what the latest Blue Chip Financial Forecasts (BCFF) survey reveals about the expected change in and timing of policy rates across the major economies (charts 1 and 2), then at the divergence between headline and core inflation across the advanced economies (chart 3), and at what euro area consumers are more specifically expecting about inflation in the period ahead (chart 4). We turn next to Japan and the yen’s slide this week to 40-year lows (chart 5), and finally to the BCFF survey’s special questions on artificial intelligence and asset valuations (chart 6).

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Charts of the Week: Forecasters Hold Firm

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

Jump to:

German Preliminary Balance of Payment and Trade Data for June: The seasonally and not seasonally adjusted

Fed Funds Rate Increased to 3.50%

Chain Store Sales Stuttered

2Q U.S. Productivity As-Expected, Revisions Down

Fed Funds Rate Increased to 3.50%

Industrial Production: Turkey, Malaysia, Slovakia and Italy

Stagnant U.S. Wages & Strong Consumer Spending?

Stagnant U.S. Wages & Strong Consumer Spending?