Tom Moeller

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721b.jpg" width="353">
The June Composite Index of Leading Economic Indicators reported by the Conference Board rose 0.9%. Revisions to the prior two months raised May to no change from a 0.5% decline reported initially and April to plus 0.2% from no change. Six-month growth in the leaders improved to 0.6%.
The method of calculating the contribution to the index from the interest rate yield spread was revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details could be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
Amongst the 10 components of the leading index the breadth of one month gain improved markedly to 80%, the highest since October 2003. In June, only a decline in new orders for nondefense capital goods made a negative contribution.
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% (2.8% y/y), continuing the steady up trend in place since early 2003.
The June lagging indicators rose 0.3% and the prior month&#39;s gain was revised up to 0.4%.
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.
Monetary Policy Report to the Congress from the US Federal Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/hh/2005/july/fullreport.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">June</th>
<th scope="col">May</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>0.9%</td>
<td>0.0%</td>
<td>1.2%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.4%</td>
<td>5.8%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The June Composite Index of Leading Economic Indicators reported by the Conference Board rose 0.9%. Revisions to the prior two months raised May to no change from a 0.5% decline reported initially and April to plus 0.2% from no [...]

June Leading Indicators Up, Revisions Suggest Improved Prospects

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721e.jpg" width="353">
The July Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered the prior month&#39;s drop and returned to positive territory. The 11.8 point m/m increase to 9.6 pulled the index to its highest since April. Consensus expectations had been for a reading of 9.0 in July.
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.
Improvement in shipments, unfilled orders and delivery lead times raised the July index. The orders index also did increase but just modestly while the index covering the number of employees fell to 3.4, the lowest since late 2003. 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 halved versus June. At 15.3 the index was at its lowest level since early 2001.
The prices paid index rose slightly to 26.5 but remained at half the level of one year ago. 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/bos0705.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">July</th>
<th scope="col">June</th>
<th scope="col">July &#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>9.6</td>
<td>-2.2</td>
<td>35.5</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>26.5</td>
<td>23.5</td>
<td>50.2</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
June Leading Indicators Up, Revisions Suggest Improved Prospects 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721b.jpg" width="353">
The June Composite Index of Leading Economic Indicators reported by the Conference Board rose 0.9%. Revisions to the prior two months raised May to no change from a 0.5% decline reported initially and April to plus 0.2% from no change. Six-month growth in the leaders improved to 0.6%.
The method of calculating the contribution to the index from the interest rate yield spread was revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details could be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
Amongst the 10 components of the leading index the breadth of one month gain improved markedly to 80%, the highest since October 2003. In June, only a decline in new orders for nondefense capital goods made a negative contribution.
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% (2.8% y/y), continuing the steady up trend in place since early 2003.
The June lagging indicators rose 0.3% and the prior month&#39;s gain was revised up to 0.4%.
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.
Monetary Policy Report to the Congress from the US Federal Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/hh/2005/july/fullreport.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">June</th>
<th scope="col">May</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>0.9%</td>
<td>0.0%</td>
<td>1.2%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.4%</td>
<td>5.8%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims At Four Month Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721a.jpg" width="353">
Initial claims for unemployment insurance dropped a sharp 34,000 to 303,000 last week after a 16,000 increase the week earlier which was little revised. The latest figure is the lowest since mid-April. Consensus expectations had been for 328,000 claims.
The latest also covers the survey period for July nonfarm payrolls and fell 13,000 (4.1%) from the June period.
During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment. There has been a (negative) 65% correlation with the level of continuing claims.
The four week moving average of initial claims dropped to 318,00 (-6.3% y/y), the lowest level since early March.
Continuing claims for unemployment insurance reversed about all of the prior week&#39;s increase with a 41,000 decline.
The insured unemployment rate fell back to the four year low of 2.0%.
Age and Education Effects on the Unemployment Rate from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-15.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">07/16/05</th>
<th scope="col">07/09/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>303</td>
<td>337</td>
<td>-11.9%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,577</td>
<td>-8.8%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
China Lets Yuan "Float" as Its Exports Comprise Bigger and Bigger Shares of World Trade 
by <a href="/comment/Stone.html">Carol Stone</a> Revised Commentary July 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721c.jpg" width="353">
After pegging its currency to the US dollar (a policy not without some irony) for almost exactly 10 years, the People&#39;s Bank of China announced this morning that it would allow the yuan to float against &quot;a basket of currencies&quot;. It immediately reduced the exchange rate with the dollar from 8.28 to 8.11; inverted, this means a single yuan, formerly worth 12.1&cent;, is now worth 12.3&cent;, an increase of 2.1%. The float will be &quot;managed&quot;, so presumably abrupt, large increases will be discouraged through intervention. This change took effect at 7:00PM in Beijing, after the close of Chinese markets. Importantly, the yuan is traded only in China, during China&#39;s trading hours. It does not trade in Western markets. So the &quot;official&quot; rate governing transactions in goods and services that take place in Western markets which are priced for value July 21 remains 8.2765. This is the rate that appears, for example, on the New York Fed&#39;s schedule of &quot;Noon Buying Rates&quot; that is dated today, July 21. The new rate will appear on quote sheets for tomorrow, July 22. Each day, the People&#39;s Bank of China will announce a rate at the close of Chinese trading which will apply for the following Chinese business day, a practice similar to the form of this announcement.
News stories cited pressure from governments in some major regions of the world as a reason the Chinese chose to act. The share of Chinese goods in world markets is growing rapidly, and there have already been efforts toward protectionism. The US, for one, continues to struggle to form a policy over Chinese textiles. The rapid inroads being made by Chinese goods are readily apparent in the table below.
It is perhaps no coincidence that the Chinese action was taken on the same day as the release of June trade data by Japan. Japan&#39;s trade surplus shrank to &yen;873 million from &yen;1.141 billion in June 2004. Some 45% of the deterioration involved trade with China. Chinese imports are now 21.0% of total Japanese imports, up a percentage point in market share over the past year and up 2.7 percentage points from the average for 2002.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721d.jpg" width="353">
Other markets feel the same kind of penetration: in the US, imports from China were 14.1% of the total in May, up 1.4 percentage points from a year ago. In the Euro-Zone, the gain in share was 1.2 percentage points. Both of these regions are seeing a steep uptrend in the inflow of Chinese goods.
This has not been all bad. As we&#39;ve noted here earlier this week, one of the offsets to rising energy costs has been falling textile and clothing prices. Clothing has been ever more cheaper in many parts of the world, a boon to lower-income nations as well as those that are better off. Hopefully, this will not all disappear with this action, but the policy change should help rebalance global trade. Further, perhaps the Chinese believe that this will help them with the politics that are involved in their recently proposed direct investment transactions in the US and elsewhere.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Imports from China</th>
<th scope="col">June 2005</th>
<th scope="col">May 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Japan: Bil &yen;, NSA</td>
<td>4606.8</td>
<td>4502.1</td>
<td>4148.6</td>
<td>4101.4</td>
<td>3696.8</td>
<td>3519.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>967.9</td>
<td>907.7</td>
<td>831.2</td>
<td>849.9</td>
<td>727.6</td>
<td>644.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Share (%)</td>
<td>21.0</td>
<td>20.2</td>
<td>20.0</td>
<td>20.6</td>
<td>19.7</td>
<td>18.3</td>
</tr>
<tr>
<td class="firstcol">US: Bil $, NSA</td>
<td>--</td>
<td>135.5</td>
<td>118.3</td>
<td>122.5</td>
<td>104.8</td>
<td>96.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; China</td>
<td>--</td>
<td>19.1</td>
<td>15.1</td>
<td>16.4</td>
<td>12.7</td>
<td>10.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Share (%)</td>
<td>--</td>
<td>14.1</td>
<td>12.7</td>
<td>13.3</td>
<td>12.1</td>
<td>10.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Zone: Bil &#128;, SA</td>
<td>--</td>
<td>97.5</td>
<td>86.9</td>
<td>89.4</td>
<td>82.4</td>
<td>82.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>--</td>
<td>9.3</td>
<td>7.3</td>
<td>7.7</td>
<td>6.2</td>
<td>5.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Share (%)</td>
<td>--</td>
<td>9.6</td>
<td>8.4</td>
<td>8.3</td>
<td>7.5</td>
<td>6.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The July Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered the prior month's drop and returned to positive territory. The 11.8 point m/m increase to 9.6 pulled the index to its [...]

Philadelphia Fed Activity Index Recovered, Expectations Dreary

Carol Stone, CBE

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050720b.jpg" width="353">
China&#39;s GDP remained strong in Q2, gaining 9.5% in real terms over Q2 2004, a pick-up from the 9.4% rate in Q1. Analysts in one leading forecast survey had looked for a slowing to 9.2%.
Manufacturing was a leading sector, as indicated in the advance in &quot;secondary industry&quot; shown in the table below, which similarly picked up in the quarter, rather than slowing down. It is not quite as vigorous as in 2003, but otherwise, factory and mining activity is maintaining the strongest trend since 1996. Data through May on nominal value added by industry indicate that so-called &quot;heavy&quot; industry is expanding at better than 35%, year-on-year, and &quot;light&quot; industry around 22% in recent months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050720c.jpg" width="353">
Interestingly, by types of ownership, the fastest growing industrial firms are the &quot;share-holding enterprises&quot;, while value added by collectives and &quot;joint ventures&quot; actually decreased. State-owned and foreign-owned industrial firms are also showing sustained strength. A threshold of sorts was crossed in March 2004 when the value added by share-holding industrial enterprises surpassed that of state-owned firms; with a single exception. that has remained true every month since, and in May, the stock companies&#39; value added exceeded that of the state-owned firms by more than 22%.
Other economic sectors remain firm, but relatively less vigorous. Primary industry (mostly agriculture) is up 5.0% in Q2, more than the 4.6% in Q1, but noticeably below the 6.3% for all of 2004. Tertiary activity, that is, mostly services, grew 7.8% in Q2, basically the pace that has prevailed since 1995.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CHINA/CHINA.HTM">China</a></th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP, Bil RMN</td>
<td>3610.3</td>
<td>3131.9</td>
<td>3421.9</td>
<td>2934.8</td>
<td>2926.3</td>
</tr>
<tr>
<td class="firstcol">Real Growth, Yr/Yr</td>
<td>9.5</td>
<td>9.4</td>
<td>9.5</td>
<td>9.5</td>
<td>8.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Secondary Industry, Bil RMN</td>
<td>2131.7</td>
<td>1831.8</td>
<td>1809.7</td>
<td>1531.8</td>
<td>1324.5</td>
</tr>
<tr>
<td class="firstcol">Real Growth, Yr/Yr</td>
<td>11.2</td>
<td>11.1</td>
<td>11.1</td>
<td>12.7</td>
<td>9.8</td>
</tr>
</tbody>
</table>
</body>
</html>

China's GDP remained strong in Q2, gaining 9.5% in real terms over Q2 2004, a pick-up from the 9.4% rate in Q1. Analysts in one leading forecast survey had looked for a slowing to 9.2%. Manufacturing was a leading sector, as indicated [...]

China GDP Strong at 9.5% Growth in Q2

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050720a.jpg" width="353">
Total mortgage applications inched up 1.2% last week but remained down nearly 10% from the weekly high in early June, according to the Mortgage Bankers Association. For July so far, applications remained 1.7% ahead of the June average which rose 9.9% versus May.
Applications to refinance rose 2.5% and have been moving irregularly sideways since early last month. So far in July applications to refinance are 1.7% ahead of June when they rose 21.2% versus May.
Purchase applications slipped 0.1% w/w and marked the fourth decline in the last five weeks. So far in July purchase applications are 1.6% above June due to the large 9.1% jump during the first week of the month. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage rose to 5.94%, the highest level since mid-May. The effective rate on a 15-year mortgage also rose to 5.60%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Today&#39;s Testimony of Fed Chairman Alan Greenspan, the semiannual Monetary Policy Report to the Congress, is available <a href="http://www.federalreserve.gov/boarddocs/hh/2005/july/testimony.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">07/15/05</th>
<th scope="col">07/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>801.1</td>
<td>791.9</td>
<td>29.6%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>488.7</td>
<td>489.0</td>
<td>11.0%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,618.2</td>
<td>2,554.3</td>
<td>58.6%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Total mortgage applications inched up 1.2% last week but remained down nearly 10% from the weekly high in early June, according to the Mortgage Bankers Association. For July so far, applications remained 1.7% ahead of the June average [...]

Rise in Mortgage Applications Due To Refinancing

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050713c.jpg" width="353">
Total mortgage applications inched up 1.2% last week but remained down nearly 10% from the weekly high in early June, according to the Mortgage Bankers Association. For July so far, applications remained 1.7% ahead of the June average which rose 9.9% versus May.
Applications to refinance rose 2.5% and have been moving irregularly sideways since early last month. So far in July applications to refinance are 1.7% ahead of June when they rose 21.2% versus May.
Purchase applications slipped 0.1% w/w and marked the fourth decline in the last five weeks. So far in July purchase applications are 1.6% above June due to the large 9.1% jump during the first week of the month. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage rose to 5.94%, the highest level since mid-May. The effective rate on a 15-year mortgage also rose to 5.60%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Today&#39;s Testimony of Fed Chairman Alan Greenspan, the semiannual Monetary Policy Report to the Congress, is available <a href="http://www.federalreserve.gov/boarddocs/hh/2005/july/testimony.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">07/15/05</th>
<th scope="col">07/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>801.1</td>
<td>791.9</td>
<td>29.6%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>488.7</td>
<td>489.0</td>
<td>11.0%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,618.2</td>
<td>2,554.3</td>
<td>58.6%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
China GDP Strong at 9.5% Growth in Q2 
by <a href="/comment/Stone.html">Carol Stone</a> July 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050720b.jpg" width="353">
China&#39;s GDP remained strong in Q2, gaining 9.5% in real terms over Q2 2004, a pick-up from the 9.4% rate in Q1. Analysts in one leading forecast survey had looked for a slowing to 9.2%.
Manufacturing was a leading sector, as indicated in the advance in &quot;secondary industry&quot; shown in the table below, which similarly picked up in the quarter, rather than slowing down. It is not quite as vigorous as in 2003, but otherwise, factory and mining activity is maintaining the strongest trend since 1996. Data through May on nominal value added by industry indicate that so-called &quot;heavy&quot; industry is expanding at better than 35%, year-on-year, and &quot;light&quot; industry around 22% in recent months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050720c.jpg" width="353">
Interestingly, by types of ownership, the fastest growing industrial firms are the &quot;share-holding enterprises&quot;, while value added by collectives and &quot;joint ventures&quot; actually decreased. State-owned and foreign-owned industrial firms are also showing sustained strength. A threshold of sorts was crossed in March 2004 when the value added by share-holding industrial enterprises surpassed that of state-owned firms; with a single exception. that has remained true every month since, and in May, the stock companies&#39; value added exceeded that of the state-owned firms by more than 22%.
Other economic sectors remain firm, but relatively less vigorous. Primary industry (mostly agriculture) is up 5.0% in Q2, more than the 4.6% in Q1, but noticeably below the 6.3% for all of 2004. Tertiary activity, that is, mostly services, grew 7.8% in Q2, basically the pace that has prevailed since 1995.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CHINA/CHINA.HTM">China</a></th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP, Bil RMN</td>
<td>3610.3</td>
<td>3131.9</td>
<td>3421.9</td>
<td>2934.8</td>
<td>2926.3</td>
</tr>
<tr>
<td class="firstcol">Real Growth, Yr/Yr</td>
<td>9.5</td>
<td>9.4</td>
<td>9.5</td>
<td>9.5</td>
<td>8.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Secondary Industry, Bil RMN</td>
<td>2131.7</td>
<td>1831.8</td>
<td>1809.7</td>
<td>1531.8</td>
<td>1324.5</td>
</tr>
<tr>
<td class="firstcol">Real Growth, Yr/Yr</td>
<td>11.2</td>
<td>11.1</td>
<td>11.1</td>
<td>12.7</td>
<td>9.8</td>
</tr>
</tbody>
</table>
</body>
</html>

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050719e.jpg" width="353">
The &quot;TIC&quot; data for May were reported yesterday by the US Treasury, showing some rebound in foreign purchases of securities in US markets after two slower months. &quot;TIC&quot; is an acronym for Treasury International Capital, a collection of monthly data on securities transactions and banking system assets and liabilities with foreign customers. The data show only the first transaction with a non-US resident, and may not indicate the nationality of the ultimate counterparty in the transaction. These data are contained in Haver&#39;s USINT database.
Last month (June 15), we noted that foreign net purchases of US securities were more modest in March and April than in prior months. May saw a somewhat larger figure, $60.0 billion, compared with $47.7 billion in April and $40.5 billion in March. In the weaker spring months, purchases of federal agency securities (&quot;GSEs&quot;) had been quite low, but they recouped nicely in May, to $22.7 billion from roundly $7 billion each in March and April. Treasuries, by contrast, have been fairly steady, with total foreign net purchases around $25 - $27 billion per month. Corporate bond purchases in May remained near their recent $20 billion amounts, but foreign investors made nearly offsetting purchases and sales of US stocks. Net foreign liquidation of foreign securities in US markets continued, with net sales of both bonds and stocks. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050719d.jpg" width="353">
Our table this month highlights several geographic areas, Japan, China, the UK and the Cayman Islands. Over the past year and in 2004, these four places accounted for just about 60% of foreigners&#39; net purchases in US markets. Japan remains active, but has slowed its purchases somewhat, reflected in reduced net buying of Treasuries; even so, it remains the largest foreign owner of Treasuries, according to other TIC data. China&#39;s purchases remain more modest both than Japan&#39;s and than the US bilateral trade position with China might imply. But in several months recently, China&#39;s buying has been larger than Japan&#39;s, and that could well continue. Also, these are transactions in long-term securities (maturity greater than 1 year) and still other TIC data show that China has increased its holdings of short-term Treasury securities.
<span style="font-size:10.0pt;font-family:Verdana;mso-fareast-font-family:&quot;MS Mincho&quot;;
mso-bidi-font-family:&quot;Times New Roman&quot;;mso-ansi-language:EN-US;mso-fareast-language:
JA;mso-bidi-language:AR-SA">UK activity has been a bit slower in the last two months, but longer comparisons show consistent net buying that averages around $14 billion monthly. This may reflect London&#39;s status as a world financial center and ultimate owners in many of these transactions could well live elsewhere. The same is also very likely to be the case for the Cayman Islands. Net purchases through that &quot;offshore&quot; financial center were $12.4 billion in May and have averaged $7.9 billion over the last year. Buyers from the Caymans are fairly consistent in their purchases of corporate bonds, while their activity in the Treasury market varies widely from purchase to sale in individual months.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (Billions US$) </th>
<th scope="col">May 2005 </th>
<th scope="col">Apr 2005 </th>
<th scope="col">Mar 2005 </th>
<th scope="col">Last 12 Months Average </th>
Monthly Average 
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004 </td>
<td>2003 </td>
<td>2002 </td>
</tr>
<tr>
<td class="firstcol">Total </td>
<td>60.0 </td>
<td>47.7 </td>
<td>40.5 </td>
<td>62.7 </td>
<td>67.0 </td>
<td>54.4 </td>
<td>47.9 </td>
</tr>
<tr class="odd">
<td class="firstcol">Japan </td>
<td>6.5 </td>
<td>11.5</td>
<td>-4.0</td>
<td>9.5</td>
<td>18.9</td>
<td>11.6</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">China </td>
<td>8.1 </td>
<td>-0.1</td>
<td>3.6</td>
<td>5.6</td>
<td>4.2</td>
<td>5.7</td>
<td>5.2</td>
</tr>
<tr class="odd">
<td class="firstcol">United Kingdom </td>
<td>7.0 </td>
<td>7.8</td>
<td>14.2</td>
<td>13.9</td>
<td>12.5</td>
<td>12.5</td>
<td>16.0</td>
</tr>
<tr>
<td class="firstcol">Cayman Islands </td>
<td>12.4 </td>
<td>0.8</td>
<td>11.3</td>
<td>7.9</td>
<td>6.3</td>
<td>2.6</td>
<td>4.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The "TIC" data for May were reported yesterday by the US Treasury, showing some rebound in foreign purchases of securities in US markets after two slower months. "TIC" is an acronym for Treasury International Capital, a collection of [...]

TIC Data Show Larger Foreign Purchases of US Securities in May

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050719b.jpg" width="353">
Chain store sales rose 0.3% last week for the third consecutive weekly rise, according to the International Council of Shopping Centers (ICSC)-UBS survey. So far this month sales are 0.4% higher than during June when sales fell 0.4% versus May.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC fell a sharp 1.1% w/w (-0.2% y/y) following a downwardly revised 0.3% rise during the week prior.
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">07/16/05</th>
<th scope="col">07/09/05</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>456.9</td>
<td>455.7</td>
<td>4.0%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales rose 0.3% last week for the third consecutive weekly rise, according to the International Council of Shopping Centers (ICSC)-UBS survey. So far this month sales are 0.4% higher than during June when sales fell 0.4% [...]

Chain Store Sales Again Higher

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050719c.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell to 70 in July from the upwardly revised record level one month prior. The index this year has averaged 70, up slightly versus 2004.
During the last twenty years, annual changes in the composite index had an 85% correlation with the change in single family housing starts.
The July index for current sales of single family homes fell 2.6% y/y but remained up 1.4% versus a year ago. The index of expected sales in six months retraced all of the prior month&#39;s increase but was up 4.1% y/y.
Traffic of prospective home buyers remained at June&#39;s 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">July</th>
<th scope="col">June</th>
<th scope="col">July &#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>70</td>
<td>72</td>
<td>67</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 fell to 70 in July from the upwardly revised record level one month prior. The index this year has averaged 70, up slightly versus 2004. During the last [...]

NAHB Housing Market Index Fell from Record High

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

Our global data offering is unparalleled in terms of coverage, quality, and organization. We offer 290+ databases from 2500 government and private sources, a wealth of key survey and forecast data covering the world’s economies, and a robust offering of archive databases that drive machine learning for big data applications.

Optimized for precision analytics, our data is seamlessly integrated with Microsoft Office and all leading statistical packages through our DLX® software and platform independent HaverView™ website. We further offer direct database feeds, client server or cloud-based delivery, and RESTful API.


Privacy Policy

Disclaimer

Contact us

Service Health

A premier time series data platform for the global strategy, research, and quant communities. 

New York

London

Singapore

Tokyo

Economy in Brief

Viewpoints

Contact Us

Our Data

Our Products

What We Do

Our Authors

About Us

Data News

Featured Data Additions

Resources

Release Calendars

Training Center

Webinars

Newsletters

Download Software

For Clients

Live Updates

Winnie Tapasanun

260706N15.jpg

260706O15.jpg

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.

260706P15.jpg

260706Q15.jpg

- 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

Robert Brusca

260706E.jpg

The global PMI data for a select group of 24 countries and their composites, provided on the graph, indicate a slight overall improvement for the total PMIs in June, with the service sector getting slightly stronger as the manufacturing sector is slightly weaker.

Conditions, however, remain uneven. The overall average for the PMI composite in June moved up to 51.4 from 50.7 in May, but the May reading had fallen from 51 in April. The median rose to 50.8 in June from 50.2 in May, but it had been at 51.2 in April. There continues to be a great deal of weakness and irregularity in the progression of the global economy—not surprisingly with the recent data coming during the period when oil prices had surged in the Strait of Hormuz had been closed. We now are seeing different conditions in force, and we'll see how much improvement occurs in July if the current global situation remains improved.

In June, nine of twenty-four reporters had PMI readings below 50, indicating contraction in economic activity. In May, there had been ten such reporters, while in April there had been nine. These readings, of course, are less than half of the reporters; however, it's still a very large proportion of the reporters where the total PMI gauges are indicating economic contraction. Over three months, there are nine reporters with average readings below 50; over six months, there are only seven; and over 12 months, there are six. This progression tells us that the situation has been getting worse rather than better.

Based on monthly data, the European Monetary Union, Germany, France, Russia, Egypt, and Qatar each recorded three consecutive months of readings below 50, indicating contraction in each of those months. Sequentially, over 12 months, six months, and three months, only France, Russia, Ghana, Egypt, and Qatar show consistent readings that average below 50 (based on raw data).

The queue standings of the levels reported by countries in June show only seven with standings above the 50th percentile; this means there are only seven countries whose PMIs in June are higher than their average back to January 2022. Not surprisingly with the recent events really focused on oil prices and the situation in the Middle East and the closure of the Strait of Hormuz, some of the weakest ranking readings are coming from oil producers in the Middle East such as Qatar (6.1%), the UAE (1.5%), Saudi Arabia (6.1%), and Egypt (18.2%). Clearly, the interruption of the oil flow and war damage has had an outsized impact on these data.

However, quite apart from the current situation and the closure of the Strait, if we calculate the average PMI standing rather than the ranking just the average of the PMI total sector ranking, there are four countries that have averaged readings below 50 based on monthly data back to January 2022. Those countries are France, Zambia, Egypt, and Kenya. The average readings across all countries back to January 2022 is a reading of 52.3. The highest ranking during this previous period is from India; its ranking is at 58.1. Ironically, some of the strongest readings in the earlier period come from oil producers whose current rankings are so low such as Saudi Arabia at 56.6, the UAE at 54.6, and Qatar at 53.4.

There has been upward momentum this month, particularly in services, while manufacturing backtracked. However, the trend to improve conditions is no longer so clear. What is clear is that the outlook is going to depend upon whatever peace agreement proves durable involving Iran and traffic through the Strait of Hormuz. This conclusion is not rocket-science; it is obvious. And it's going to take close-watching because there have been so many missteps around alleged ceasefires and treaty discussions that we can't be very sure about what's going to play out in the future and what will last.

260706.jpg

Globally S&P PMIs Gain a Modicum of Traction

Tian Yong Woon

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

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

260706T1.jpg

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

260706T2.jpg

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

260706T3.jpg

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

260706T4.jpg

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

260706T5.jpg

**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.

260706T6.jpg

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.

260702Z1.jpg

**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.

260702Z2.jpg

**Headline Up, Core Contained: The Inflation Picture Across Advanced Economies**
One of the more reassuring features of the current inflation episode has been the limited pass-through from energy prices to underlying price dynamics. Across the advanced economies, headline CPI inflation has risen materially since the conflict escalated in March, driven overwhelmingly by consumer energy costs. Core inflation — stripping out food and energy — has edged higher, but only modestly, suggesting that second-round effects remain contained for now. In the United States, the pressures are arguably more alarming, with core PCE rising sharply between February and May to its highest level since October 2023. In the euro area, the focus this week has been firmly on Eurostat's June flash CPI estimate, published yesterday. Headline inflation fell back to 2.8% from a peak of 3.2% in May, as energy costs — the main driver of the surge since the conflict began — eased meaningfully. Crucially, core inflation also ticked down, and services inflation retreated as well. The June data therefore tell a broadly reassuring story: the energy shock is unwinding without leaving a lasting imprint on underlying price dynamics — precisely what the ECB will have been hoping for.

260702Z3.jpg

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

260702Z4.jpg

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

260702Z5.jpg

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

260702Z6.jpg

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

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

Charts of the Week: Forecasters Hold Firm

Sandy Batten

260702A4.jpg

260702B4.jpg

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%.

260702C4.jpg

260702D4.jpg

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.

260702X4.jpg

260702F4.jpg

- 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.

Economy in Brief

Jump to:

June Leading Indicators Up, Revisions Suggest Improved Prospects

Philadelphia Fed Activity Index Recovered, Expectations Dreary

China GDP Strong at 9.5% Growth in Q2

Rise in Mortgage Applications Due To Refinancing

Rise in Mortgage Applications Due To Refinancing

TIC Data Show Larger Foreign Purchases of US Securities in May

Chain Store Sales Again Higher

NAHB Housing Market Index Fell from Record High