Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614f.jpg" width="353">
The 0.6% decline in the May Producer Price Index for finished goods was triple Consensus expectations for a 0.2% fall and the 0.1% increase in prices excluding food &amp; energy also was half the Consensus expectation.
Finished energy prices dropped 3.5% (+10.1% y/y) due to a 2.7% (+12.5% y/y) decline in gasoline and a 3.9% drop in fuel oil (44.4% y/y). Finished food prices also fell by 0.3% (+0.8% y/y).
Prices for finished consumer goods less food &amp; energy rose a modest 0.1% (2.6% y/y). Consumer durable goods prices slipped 0.1% (+1.3% y/y) while core consumer nondurable goods prices rose 0.3% (3.6% y/y).
Capital goods prices ticked 0.1% (2.6% y/y) higher.
Intermediate goods prices fell hard due to a 2.6% (+14.0% y/y) drop in energy prices though food prices rose a moderate 0.4% (-8.4% y/y). The decline in core intermediate goods prices was the first since 2003.
Crude prices slumped with oil prices which pulled crude energy prices down 1.9% (+20.1% y/y) after a 7.2% jump in April. The 3.6% crater in core crude prices reversed more than all of the gains during the prior two months as metals prices fell sharply. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<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/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.6%</td>
<td>0.6%</td>
<td>3.5%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.6%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.7%</td>
<td>0.8%</td>
<td>6.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>0.2%</td>
<td>5.4%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-2.0%</td>
<td>2.7%</td>
<td>6.1%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-3.6%</td>
<td>0.8%</td>
<td>9.5%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
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The 0.6% decline in the May Producer Price Index for finished goods was triple Consensus expectations for a 0.2% fall and the 0.1% increase in prices excluding food & energy also was half the Consensus expectation. Finished energy [...]

PPI Unexpectedly Down Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614d.jpg" width="353">
US retail sales slipped 0.5% last month following a little revised 1.5% spurt in April. Consensus expectations had been for a 0.2% decline.
The 0.2% decline in sales excluding motor vehicles followed an upwardly revised 1.4% jump in April. Consensus expectations had been for a 0.2% increase. Some of the weakness was due to a 1.6% decline in gasoline service station sales (+13.4% y/y). Nonauto retail sales less gasoline in May were about unchanged (6.6% y/y). 
Spending on discretionary items was quite mixed. General merchandise store sales fell 0.1% (+4.9% y/y) after a sharp 1.3% jump in April. Apparel store sales dropped 0.8% (+5.8% y/y) but sales at furniture and electronics sales increased 0.2% (+6.7% y/y).
Building material store sales added 0.5% (9.2% y/y) to the very sharp increases of the prior two months.
Sales of nonstore retailers (internet and catalogue) dropped 1.1% (11.9% y/y) but April&#39;s gain was revised sharply higher to 1.2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.5%</td>
<td>1.5%</td>
<td>6.4%</td>
<td>7.3%</td>
<td>4.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-0.2%</td>
<td>1.4%</td>
<td>7.4%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
</body>
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US retail sales slipped 0.5% last month following a little revised 1.5% spurt in April. Consensus expectations had been for a 0.2% decline. The 0.2% decline in sales excluding motor vehicles followed an upwardly revised 1.4% jump in [...]

U.S. Retail Sales Backpedal

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614c.jpg" width="353">
The Leading Index of the Major 7 OECD economies fell for the third straight month, off 0.5%, the declines growing larger each month. The drop lowered the six month growth rate in the index to a negative 1.6%, the weakest in two years.
During the last ten years there has been a 69% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.
The leaders for the European Union (15 countries) declined for the fourth month in the last five and the six month growth rate went negative for the first time in two years. The German leaders fell hard for the third straight month, by 0.4%, and are down 1.3% from the peak last August due to continued weakness in new orders, a negative yield curve and a worsening business climate. The six month growth rate fell to -2.0%, the worst in three and a half years. The French leaders dropped a large 0.8%, after upward revisions to earlier months, pulling the six month growth further into negative territory as consumer confidence plummeted and new car registrations fell. The Italian leading index fell for the sixth consecutive month and the six month growth rate dropped to -1.6% due to souring consumer confidence and weaker order books.
The UK economic leaders fell a sharp 0.5% and are off 1.9% from the peak in February 2004. Six month growth fell to -1.9% due to a collapse in consumer confidence and higher interest rates.The Canadian leaders also fell with six month growth down to -3.5%, the worst in two years. The yield curve is sharply inverted but housing starts recently bounced upward.
The leading index for the US economy fell for the third straight month and six month growth was sharply negative at -1.7% due to a tighter yield curve and weaker consumer sentiment. The leaders for Japan fell for the fifth straight month and six month growth of negative 1.2% was the worst since early 2002.
The latest OECD Leading Indicator report can be found <a href="http://www.oecd.org/dataoecd/41/40/34988237.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/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">April</th>
<th scope="col">March</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">Composite Leading Index&nbsp;</td>
<td>101.17</td>
<td>101.67</td>
<td>-0.8%</td>
<td>102.05</td>
<td>97.55</td>
<td>96.34</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>-1.6%</td>
<td>-0.8%</td>
<td>&nbsp;</td>
<td>3.6%</td>
<td>2.5%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
</body>
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The Leading Index of the Major 7 OECD economies fell for the third straight month, off 0.5%, the declines growing larger each month. The drop lowered the six month growth rate in the index to a negative 1.6%, the weakest in two years. [...]

OECD Leaders Fell Broadly Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614c.jpg" width="353">
The Leading Index of the Major 7 OECD economies fell for the third straight month, off 0.5%, the declines growing larger each month. The drop lowered the six month growth rate in the index to a negative 1.6%, the weakest in two years.
During the last ten years there has been a 69% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.
The leaders for the European Union (15 countries) declined for the fourth month in the last five and the six month growth rate went negative for the first time in two years. The German leaders fell hard for the third straight month, by 0.4%, and are down 1.3% from the peak last August due to continued weakness in new orders, a negative yield curve and a worsening business climate. The six month growth rate fell to -2.0%, the worst in three and a half years. The French leaders dropped a large 0.8%, after upward revisions to earlier months, pulling the six month growth further into negative territory as consumer confidence plummeted and new car registrations fell. The Italian leading index fell for the sixth consecutive month and the six month growth rate dropped to -1.6% due to souring consumer confidence and weaker order books.
The UK economic leaders fell a sharp 0.5% and are off 1.9% from the peak in February 2004. Six month growth fell to -1.9% due to a collapse in consumer confidence and higher interest rates.The Canadian leaders also fell with six month growth down to -3.5%, the worst in two years. The yield curve is sharply inverted but housing starts recently bounced upward.
The leading index for the US economy fell for the third straight month and six month growth was sharply negative at -1.7% due to a tighter yield curve and weaker consumer sentiment. The leaders for Japan fell for the fifth straight month and six month growth of negative 1.2% was the worst since early 2002.
The latest OECD Leading Indicator report can be found <a href="http://www.oecd.org/dataoecd/41/40/34988237.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/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">April</th>
<th scope="col">March</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">Composite Leading Index&nbsp;</td>
<td>101.17</td>
<td>101.67</td>
<td>-0.8%</td>
<td>102.05</td>
<td>97.55</td>
<td>96.34</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>-1.6%</td>
<td>-0.8%</td>
<td>&nbsp;</td>
<td>3.6%</td>
<td>2.5%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
U.S. Retail Sales Backpedal 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 14, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614d.jpg" width="353">
US retail sales slipped 0.5% last month following a little revised 1.5% spurt in April. Consensus expectations had been for a 0.2% decline.
The 0.2% decline in sales excluding motor vehicles followed an upwardly revised 1.4% jump in April. Consensus expectations had been for a 0.2% increase. Some of the weakness was due to a 1.6% decline in gasoline service station sales (+13.4% y/y). Nonauto retail sales less gasoline in May were about unchanged (6.6% y/y). 
Spending on discretionary items was quite mixed. General merchandise store sales fell 0.1% (+4.9% y/y) after a sharp 1.3% jump in April. Apparel store sales dropped 0.8% (+5.8% y/y) but sales at furniture and electronics sales increased 0.2% (+6.7% y/y).
Building material store sales added 0.5% (9.2% y/y) to the very sharp increases of the prior two months.
Sales of nonstore retailers (internet and catalogue) dropped 1.1% (11.9% y/y) but April&#39;s gain was revised sharply higher to 1.2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.5%</td>
<td>1.5%</td>
<td>6.4%</td>
<td>7.3%</td>
<td>4.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-0.2%</td>
<td>1.4%</td>
<td>7.4%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
PPI Unexpectedly Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 14, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614f.jpg" width="353">
The 0.6% decline in the May Producer Price Index for finished goods was triple Consensus expectations for a 0.2% fall and the 0.1% increase in prices excluding food &amp; energy also was half the Consensus expectation.
Finished energy prices dropped 3.5% (+10.1% y/y) due to a 2.7% (+12.5% y/y) decline in gasoline and a 3.9% drop in fuel oil (44.4% y/y). Finished food prices also fell by 0.3% (+0.8% y/y).
Prices for finished consumer goods less food &amp; energy rose a modest 0.1% (2.6% y/y). Consumer durable goods prices slipped 0.1% (+1.3% y/y) while core consumer nondurable goods prices rose 0.3% (3.6% y/y).
Capital goods prices ticked 0.1% (2.6% y/y) higher.
Intermediate goods prices fell hard due to a 2.6% (+14.0% y/y) drop in energy prices though food prices rose a moderate 0.4% (-8.4% y/y). The decline in core intermediate goods prices was the first since 2003.
Crude prices slumped with oil prices which pulled crude energy prices down 1.9% (+20.1% y/y) after a 7.2% jump in April. The 3.6% crater in core crude prices reversed more than all of the gains during the prior two months as metals prices fell sharply. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<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/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.6%</td>
<td>0.6%</td>
<td>3.5%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.6%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.7%</td>
<td>0.8%</td>
<td>6.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>0.2%</td>
<td>5.4%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-2.0%</td>
<td>2.7%</td>
<td>6.1%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-3.6%</td>
<td>0.8%</td>
<td>9.5%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
Chain Store Sales Up Again Last Week, Leaders Better 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 14, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614e.jpg" width="353">
Chain store sales increased 0.6% last week and added to the 0.4% gain during the opening week of June according to the International Council of Shopping Centers (ICSC)-UBS survey. The increases left sales so far in June 0.5% below the May average which rose 0.3% versus April.
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 jumped 0.9% w/w (+2.2% y/y), the strongest gain in a year.
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">06/11/05</th>
<th scope="col">06/04/05</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>452.9</td>
<td>451.2</td>
<td>3.3%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
More Jobs Suggested by Manpower Index 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 14, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614g.jpg" width="353">
The Manpower Employment Outlook Survey for 3Q &#39;05 indicated further growth in U.S. jobs. The index of hiring intentions held at 21 where it has been for three quarters, indicating that a net 21% of 16,000 employers expect to increase hiring activity.
Since 1980 there has been a 74% correlation between the Manpower index and the y/y change in non-farm payrolls.
Not seasonally adjusted, 31% of employers planned to raise employment in 3Q &#39;05, the highest since late 2000, while only 6% planned to decrease employment.
The latest press release from Manpower Inc. covering global employment prospects can be viewed <a href="http://www.manpower.com/mpcom/viewMeos?name=US_3q05PressRelease.doc">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@SC/@SC.HTM">Manpower Employment Survey</a></th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">3Q &#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">All Industries - Net Higher (SA)</td>
<td>21</td>
<td>21</td>
<td>20</td>
<td>19</td>
<td>11</td>
<td>11</td>
</tr>
</tbody>
</table>
Small Business Optimism Up A Bit 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 14, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614h.jpg" width="353">
The Small Business Optimism Index reported by the National Federation of Independent Business (NFIB) improved 1.0% in May and recovered less than a third of the prior month&#39;s decline. The percentage of firms expecting the economy to improve remained unchanged at a low 5%.
During the last ten years there has been a 64% correlation between the level of the NFIB index and the two quarter change in real GDP.
The job outlook brightened a bit as the percentage of firms planning to raise employment rose to 15% but remained down from the 20% of December 2003. The percentage of firms with one or more job openings remained stable at 23% which was up from the low of 18% during 2003. During the last ten years there has been a 67% correlation between hiring plans and the three month growth in nonfarm payrolls.
The percentage of firms planning to raise capital spending ticked up to 33% but remained well off the 38% this past December.
The percentage of firms raising average selling prices remained down at 23%.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<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/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>100.8</td>
<td>99.8</td>
<td>-3.5%</td>
<td>104.6</td>
<td>101.3</td>
<td>101.2</td>
</tr>
</tbody>
</table>
Divergent Inflation Trends in the U.K. and the Euro Zone 
by <a href="/comment/Curley.html">Louise Curley</a> June 14, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614b.jpg" width="353">
May Inflation rates in four European countries--France, Finland, Spain and the U.K. were released today. The consumer price index in the U.K. rose 1.9% continuing at the seven year high rate reached in March. In each of the Euro Zone countries the rate of inflation declined. In France from 1.9% in April to 1.6% in May, in Spain from 3.5% to 3.0% and in Finland from 1.2$ to 0.6%.
The contrast between inflation rates in the U.K. and in the Euro Zone as a whole is shown in the first chart. We have used the Flash Estimate series for the Euro Zone since it contains data for May while the overall index does not. The Flash Estimate series is a fairly good proxy for the actual series. The correlation between the two series is .86. (The actual May data for the overall index will be available on Thursday of this week.) In spite of its higher growth rate, the U. K. has had a lower inflation rate than the Euro Zone, but now the U. K. rate appears to be increasing while that in the Euro Zone is declining. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050614a.jpg" width="353">
The rate of inflation within the Euro Zone has varied widely. Two of the countries reporting data today--Finland and Spain--represent two extremes and different trends in the rate of inflation as shown in the second chart. The trend in the relatively high rate of inflation in Spain appears to be stabilizing or decelerating, while the trend in the low rate of inflation in Finland shows some signs of increasing.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Year over Year Change in CPI</th>
<th scope="col">May 05</th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 04</th>
<th scope="col">Feb 05</th>
<th scope="col">Jan 05</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Zone Flash Estimate</td>
<td>2.00</td>
<td>2.10</td>
<td>2.10</td>
<td>2.00</td>
<td>2.10</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
</tr>
<tr>
<td class="firstcol">Euro Zone&nbsp; Overall Index</td>
<td>n.a.</td>
<td>2.08</td>
<td>2.09</td>
<td>2.10</td>
<td>1.93</td>
<td>2.14</td>
<td>2.07</td>
<td>2.25</td>
</tr>
<tr class="odd">
<td class="firstcol">United Kingdom</td>
<td>1.89</td>
<td>1.89</td>
<td>1.90</td>
<td>1.63</td>
<td>1.63</td>
<td>1.34</td>
<td>1.36</td>
<td>1.27</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>1.63</td>
<td>1.91</td>
<td>1.91</td>
<td>1.73</td>
<td>1.46</td>
<td>2.13</td>
<td>2.14</td>
<td>1.88</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>2.99</td>
<td>3.46</td>
<td>3.47</td>
<td>3.26</td>
<td>3.17</td>
<td>3.05</td>
<td>3.03</td>
<td>3.53</td>
</tr>
<tr>
<td class="firstcol">Finland</td>
<td>0.62</td>
<td>1.15</td>
<td>0.88</td>
<td>0.00</td>
<td>-0.14</td>
<td>0.14</td>
<td>1.30</td>
<td>2.01</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050613b.jpg" width="353">
Total Industrial production in Ireland rose 2.9% in April from March while production in manufacturing rose 4.6%.
In addition to the usual industry and market sector breakdowns of total production, Ireland also classifies production between modern industries and traditional industries. The latter are included in the category, &quot;All sectors excluding modern sector&quot;. The modern sector includes production of recorded media, chemicals including man-made fibers, computers and instrument engineering, and electric machinery and equipment.
The &quot;Modern&quot; sector has accounted for most of the growth in production over the past several years which has made Ireland one of the better performers among countries of the Euro Zone performers. As can be seen in the attached chart showing the ten year record of production of the modern and traditional sectors, the traditional sector has been virtually flat while the modern sector has risen rapidly.
Now, however, despite the sharp increase in the production of the modern sector in April, the chart also shows that the trend of production in this sector has been flat to negative since early 2003.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/IRELAND/IRELAND.HTM">Ireland</a></th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">Apr 04</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>121.36</td>
<td>117.93</td>
<td>129.60</td>
<td>-6.36</td>
<td>125.08</td>
<td>124.45</td>
<td>118.40</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>121.08</td>
<td>115.79</td>
<td>129.50</td>
<td>-6.43</td>
<td>124.47</td>
<td>124.23</td>
<td>118.57</td>
</tr>
<tr class="odd">
<td class="firstcol">Modern</td>
<td>130.57</td>
<td>125.44</td>
<td>141.70</td>
<td>-7.85</td>
<td>136.00</td>
<td>136.82</td>
<td>128.76</td>
</tr>
<tr>
<td class="firstcol">Total excluding modern</td>
<td>105.43</td>
<td>103.77</td>
<td>108.90</td>
<td>-3.19</td>
<td>107.82</td>
<td>104.77</td>
<td>101.72</td>
</tr>
</tbody>
</table>
</body>
</html>

Total Industrial production in Ireland rose 2.9% in April from March while production in manufacturing rose 4.6%. In addition to the usual industry and market sector breakdowns of total production, Ireland also classifies production [...]

Irish Industrial Production: A Slowdown in the "Modern Sector"

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050613a.jpg" width="353">
The U.S. federal government&#39;s budget deficit during the first eight months of FY 2005 continued to shrink versus FY 2004. Red ink of $272.2B was nearly one quarter lower than the $346.3B during the prior fiscal year and was the smallest deficit for the first eight months in two years.
Growth in net receipts continued strong. For the first eight months of FY05, growth of 15.5% y/y was powered by the economy&#39;s improvement which caused individual taxes (44% of total receipts) to surge 20.5% and corporate income taxes (10% of total receipts) to nearly double. The improved job market raised employment taxes (36% of total receipts) by 5.9%, up from 1.6% growth last year.
Federal outlay growth was stable at 7.1% versus the first eight months of 2005. Growth in Medicare spending (12% of total outlays) was strong at 9.1% and defense spending (19% of total outlays) grew 6.9%. Spending on social security (21% of total outlays) grew a steady 5.2% and spending on health programs (10% of the total) increased 4.4%. Spending on education &amp; training (4% of the total) increased 18.7% and interest expense (8% of the total) grew 11.1% with higher interest rates versus declines last year.
Blowing the Cover on Stealth Tax from the American Enterprise Institute can be found <a href="http://www.aei.org/publications/pubID.22556,filter.all/pub_detail.asp"> 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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">FY &#39;05 - YTD</th>
<th scope="col">FY2004</th>
<th scope="col">FY2003</th>
<th scope="col">FY2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$-35.3B</td>
<td>$57.7B</td>
<td>$-272.2B</td>
<td>$-412.1B</td>
<td>$-377.6B</td>
<td>$-157.8B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$152.7B</td>
<td>$277.6B</td>
<td>15.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
<td>-6.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$188.0B</td>
<td>$219.9B</td>
<td>7.1%</td>
<td>6.1%</td>
<td>7.4%</td>
<td>7.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. federal government's budget deficit during the first eight months of FY 2005 continued to shrink versus FY 2004. Red ink of $272.2B was nearly one quarter lower than the $346.3B during the prior fiscal year and was the [...]

U.S. Budget Deficit Continued To Shrink

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050613a.jpg" width="353">
The U.S. federal government&#39;s budget deficit during the first eight months of FY 2005 continued to shrink versus FY 2004. Red ink of $272.2B was nearly one quarter lower than the $346.3B during the prior fiscal year and was the smallest deficit for the first eight months in two years.
Growth in net receipts continued strong. For the first eight months of FY05, growth of 15.5% y/y was powered by the economy&#39;s improvement which caused individual taxes (44% of total receipts) to surge 20.5% and corporate income taxes (10% of total receipts) to nearly double. The improved job market raised employment taxes (36% of total receipts) by 5.9%, up from 1.6% growth last year.
Federal outlay growth was stable at 7.1% versus the first eight months of 2005. Growth in Medicare spending (12% of total outlays) was strong at 9.1% and defense spending (19% of total outlays) grew 6.9%. Spending on social security (21% of total outlays) grew a steady 5.2% and spending on health programs (10% of the total) increased 4.4%. Spending on education &amp; training (4% of the total) increased 18.7% and interest expense (8% of the total) grew 11.1% with higher interest rates versus declines last year.
Blowing the Cover on Stealth Tax from the American Enterprise Institute can be found <a href="http://www.aei.org/publications/pubID.22556,filter.all/pub_detail.asp"> 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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">FY &#39;05 - YTD</th>
<th scope="col">FY2004</th>
<th scope="col">FY2003</th>
<th scope="col">FY2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$-35.3B</td>
<td>$57.7B</td>
<td>$-272.2B</td>
<td>$-412.1B</td>
<td>$-377.6B</td>
<td>$-157.8B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$152.7B</td>
<td>$277.6B</td>
<td>15.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
<td>-6.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$188.0B</td>
<td>$219.9B</td>
<td>7.1%</td>
<td>6.1%</td>
<td>7.4%</td>
<td>7.9%</td>
</tr>
</tbody>
</table>
Irish Industrial Production: A Slowdown in the "Modern Sector" 
by <a href="/comment/Curley.html">Louise Curley</a> June 13, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050613b.jpg" width="353">
Total Industrial production in Ireland rose 2.9% in April from March while production in manufacturing rose 4.6%.
In addition to the usual industry and market sector breakdowns of total production, Ireland also classifies production between modern industries and traditional industries. The latter are included in the category, &quot;All sectors excluding modern sector&quot;. The modern sector includes production of recorded media, chemicals including man-made fibers, computers and instrument engineering, and electric machinery and equipment.
The &quot;Modern&quot; sector has accounted for most of the growth in production over the past several years which has made Ireland one of the better performers among countries of the Euro Zone performers. As can be seen in the attached chart showing the ten year record of production of the modern and traditional sectors, the traditional sector has been virtually flat while the modern sector has risen rapidly.
Now, however, despite the sharp increase in the production of the modern sector in April, the chart also shows that the trend of production in this sector has been flat to negative since early 2003.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/IRELAND/IRELAND.HTM">Ireland</a></th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">Apr 04</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>121.36</td>
<td>117.93</td>
<td>129.60</td>
<td>-6.36</td>
<td>125.08</td>
<td>124.45</td>
<td>118.40</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>121.08</td>
<td>115.79</td>
<td>129.50</td>
<td>-6.43</td>
<td>124.47</td>
<td>124.23</td>
<td>118.57</td>
</tr>
<tr class="odd">
<td class="firstcol">Modern</td>
<td>130.57</td>
<td>125.44</td>
<td>141.70</td>
<td>-7.85</td>
<td>136.00</td>
<td>136.82</td>
<td>128.76</td>
</tr>
<tr>
<td class="firstcol">Total excluding modern</td>
<td>105.43</td>
<td>103.77</td>
<td>108.90</td>
<td>-3.19</td>
<td>107.82</td>
<td>104.77</td>
<td>101.72</td>
</tr>
</tbody>
</table>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050610d.jpg" width="353">
Japan&#39;s Ministry of Finance (MoF) has reorganized its data on the purchase and sales of foreign securities by Japanese investors and the similar data on foreign investment in Japanese securities. The new data began this past January and are designed to mesh better with the balance of payments. They are contained in Haver&#39;s &quot;JAPAN&quot; database and summary statistics are available weekly in JAPANW.
In the table below, we show total purchases and sales of foreign securities by Japanese investors. In May, Japanese residents bought &yen;14.4 trillion worth and sold &yen;11.4 trillion, making net purchases of &yen;3.0 trillion. This figure appears in the table with a minus (-) sign. This convention is in line with balance of payments practices that treat these transactions according to the direction of the flow of capital. With net purchases, then, there is a net outflow of money and the sign is minus (-). In February and March, sales exceeded purchases, so there was a net inflow of money into Japan and the sign of the net figure is plus (+).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050610e.jpg" width="353">
The bulk of the new securities investment abroad is in bonds and notes; this is typical, according to the old data, which was discontinued with the December 2004 figures. Further, as seen in the first graph, banks take a substantial share of this investment activity. With only five months of the new data, we can&#39;t judge trends yet, of course, but it does seem here than when the new Japanese fiscal year started in April, investment abroad picked up significantly. At the same time, foreign investors stepped up their net purchases of Japanese securities in April and May as well. Here, net purchases have the expected plus (+) sign, since they represent a net inflow of funds into Japan. Japanese investment abroad is larger, but a point we highlight here is that there are active flows of capital and financial assets in both directions, illustrating the diversity of interests in world capital markets.

<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/JAPAN/JAPAN.HTM">Japan (Trillion &yen;)</a></th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 2005</th>
<th scope="col">Jan 2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Purchases</td>
<td>14.372</td>
<td>14.915</td>
<td>10.348</td>
<td>10.631</td>
<td>10.728</td>
</tr>
<tr>
<td class="firstcol">Sales</td>
<td>11.351</td>
<td>10.681</td>
<td>11.171</td>
<td>11.410</td>
<td>10.064</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Purchases/ Sales</td>
<td>-3.017</td>
<td>-4.234</td>
<td>+0.824</td>
<td>+0.779</td>
<td>-0.664</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Bonds &amp; Notes</td>
<td>-2.626</td>
<td>-4.003</td>
<td>+0.768</td>
<td>+0.648</td>
<td>-0.589</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Equities</td>
<td>-0.254</td>
<td>-0.199</td>
<td>-0.059</td>
<td>+0.031</td>
<td>-0.151</td>
</tr>
<tr>
<td class="firstcol">Money Market Instruments</td>
<td>-0.138</td>
<td>-0.032</td>
<td>+0.114</td>
<td>+0.010</td>
<td>+0.075</td>
</tr>
</tbody>
</table>
</body>
</html>

Japan's Ministry of Finance (MoF) has reorganized its data on the purchase and sales of foreign securities by Japanese investors and the similar data on foreign investment in Japanese securities. The new data began this past January [...]

Japanese Investors Buy Sizable Amount of Foreign Debt; Foreign Investors Buy Sizable Amount of Japanese Debt

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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Sandy Batten

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The U.S. trade deficit in goods and services (BOP basis) widened markedly to $77.6 billion in May from a downwardly revised $54.6 billion in April (previously -$55.9 billion), according to the U.S. Census Bureau. The Action Economics Forecast Survey looked for a deficit of $78.6 billion. The goods deficit widened to $106.5 billion in May, the largest monthly shortfall since March 2025 when imports flooded in ahead of expected tariff increases, from a downwardly revised $82.9 billion in April (previously -$83.7 billion) while the services surplus widened to $28.9 billion in May from an upwardly revised $28.3 billion in April (previously +$27.8 billion).

The real (inflation-adjusted) trade deficit in goods widened to $100.0 billion (2017$) in May from an unrevised $84.3 billion in April. The April/May average is considerably higher than the Q1 average although some of this reflects a decline in exports of nonmonetary gold and other precious metals that are not included in the calculation of GDP. Still, the May report implies that net exports will once again subtract from overall GDP growth in Q2. They subtracted 0.37%-point in Q1.

Exports of goods and services fell 3.2% m/m (+12.6% y/y) in May following an upwardly revised 3.0% monthly increase in April (previously +2.6% m/m). This was the first monthly decline in exports since last December. Goods exports (Census basis) slumped 5.3% m/m (+15.1% y/y) led by outsized declines in exports of nonmonetary gold and other precious metals. In dollar terms, goods exports declined $11.6 billion in May. A $7.5 billion decline in exports of nonmonetary gold and other precious metals accounted for 65% of that decline. However, exports of capital goods ex autos (-4.9% m/m) and nonfood consumer goods ex autos exports (-9.1% m/m) were also very weak. Service exports edged up 0.7% m/m (6.6% y/y) in May following a 0.1% monthly rise in April. Travel service exports rebounded 2.4% m/m in May after having declined in both March and April. Transport exports rose 1.1% m/m in May, their third consecutive monthly gain. Over the past three months, transport exports have increased 6.7%.

Imports of goods and services increased 3.3% m/m (13.3% y/y) in May for their fourth consecutive monthly gain. Over the four months to May, imports rose 11.7%. Goods imports (Census basis) jumped 4.0% m/m (15.3% y/y) in May after a 1.9% monthly gain in April. Imports rose in every major end-use category in May, led by a 10.3% m/m jump in “other” imports, a 6.3% m/m rise in auto imports, a 6.2% m/m increase in nonfood consumer goods imports ex autos, and a 5.8% m/m rise in industrial supplies imports. Service imports increased 0.3% m/m (5.1% y/y) in May, slowing from a 1.6% monthly gain in April. Performance varied meaningfully across end-use categories. Imports of insurance services rose 1.4% m/m, their sixth consecutive monthly rise. Imports of personal and recreational services increased 1.1% m/m in May. Imports of financial services rose 0.6% m/m. By contrast, imported maintenance and repairs services slumped 3.9% m/m, their second monthly decline in the past three months. Imported intellectual property fell 0.3% m/m, their fourth monthly decline in the past five months. Imports of transport services declined 0.4% m/m, their fourth monthly decrease in the past five months.

By country, the goods trade deficit with China widened to $14.5 billion in May from $12.0 billion in April. The trade deficit with the European Union widened to $9.3 billion in May from $7.2 billion in April. The trade deficit with Japan declined to $2.0 billion in May from $2.8 billion in April.

The international trade data can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- The deficit in goods and services widened to $77.6 billion in May from $54.6 billion in April.
- Exports slumped 3.2% m/m, led by an outsized fall in exports of nonmonetary gold and other precious metals.
- Imports increased by 3.3% m/m with increases in each major end-use category.
- The goods deficit widened to $106.5 billion, while the services surplus widened to $28.9 billion.

U.S. Trade Deficit Widened Markedly in May

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

Robert Brusca

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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.

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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.

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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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Economy in Brief

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