Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050302a.jpg" width="353">
Unit sales of light vehicles in February edged up 0.5% versus January to 16.30M according to Autodata Corporation. Versus last year sales fell 1.3% and so far in 1Q sales have averaged 16.26M, down from 17.25M in 4Q04.
Sales of light trucks rose a moderate 1.4% m/m but sales of imports posted a 5.3% (+2.0%) gain. Sales of domestic light trucks rose 0.8% (-1.7% y/y).
Total auto sales fell 0.6% following a 10.8% slide in January. Sales of domestic autos fell 2.6% (-3.2% y/y) while imported car sales rose 4.7% (3.5 y/y).
Imports&#39; share of the US market for new vehicles rose to 20.6% in February.
Fed Chairman Alan Greenspan&#39;s testimony titled Economic outlook and current fiscal issues can be found <a href="http://www.federalreserve.gov/boarddocs/testimony/2005/20050302/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.30</td>
<td>16.22</td>
<td>-1.3%</td>
<td>16.88</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.36</td>
<td>7.41</td>
<td>-1.4%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.94</td>
<td>8.81</td>
<td>-1.2%</td>
<td>9.39</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
Mortgage Applications Lower With Fewer Refi's 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050302b.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications fell 2.4% last week following two weeks of slight decline.
Applications to refinance plunged 9.9% w/w and reversed most of the gains of the prior three weeks.
Purchase applications did rise 5.3% but the average in February is up just slightly from January. During the last ten years there has been a 59% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-year mortgage rose to 5.98% versus 5.92% the prior week. The effective rate on a 15-year mortgage also rose to 5.59% last week.
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>.

<table border="0" cellspacing="0" width="100%">
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<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">02/25/05</th>
<th scope="col">02/18/05</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>710.1</td>
<td>727.9</td>
<td>-19.2%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>440.0</td>
<td>417.8</td>
<td>4.1%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,281.1</td>
<td>2,532.0</td>
<td>-35.4%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Challenger Layoff Count Back Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050302c.jpg" width="353">
Challenger, Gray &amp; Christmas reported that job cut announcements rose 17.4% last month and reversed most of the decline in January.
Challenger also reported that announced hiring rose to 41,984 jobs, up sharply from 4Q.
During the last ten years there has been an 85% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Increases in job cut announcements were notable last month in the telecommunications, transportation, insurance, energy and consumer goods industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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">Announced Job Cuts</td>
<td>108,387</td>
<td>92,351</td>
<td>40.3%</td>
<td>1,039,175</td>
<td>1,236,426</td>
<td>1,431,052</td>
</tr>
</tbody>
</table>
</body>
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Unit sales of light vehicles in February edged up 0.5% versus January to 16.30M according to Autodata Corporation. Versus last year sales fell 1.3% and so far in 1Q sales have averaged 16.26M, down from 17.25M in 4Q04. Sales of light [...]

U.S. Light Vehicle Sales Lackluster

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050301e.jpg" width="353">
Today&#39;s releases of data on production, sales, employment and survey results for Japan have failed to clear the cloudy outlook.
Industrial production for manufacturing increased 2% in January from December, but the Ministry of Economy, Trade and Industry (METI)&#39;s survey forecast a decline of 0.5% for Februaryand one of 1.0% for March. Although the forecasts (found in the Industrial Production Section of Haver&#39;s Japan data base) tend to overestimate the magnitudes of the changes, they do a good job in predicting the direction of the change, as can be seen in the first chart.
Retail sales were up 5.71% in January over December and 1.66% above January of a year ago. The magnitude of the January increase may merely be a bounce back from the depressed sales at the end of 2004, due, in part to the negative effect of unusual weather conditions--earthquakes and the tsunami--on sales in the latter part of 2004. The unemployment rate held steady at 4.5% in January and employment increased 0.74%. The Household Survey conducted by the Ministry of Internal Affairs and Communication shows a sharp rise of 11.52% in disposable income of worker households in January, but again this appears to be bounce back from the sharp decline in December. A similar, but more muted trend is shown in Living Expenditures of these households.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050301d.jpg" width="353">
The Shoko Chukin Small/Medium Firm Survey indicates that these firms were expecting some improvement in business conditions in February and March, but were forecasting a decline in sales, the first decline since December 2002.The mixed message of these data is shown in chart two.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Jan 05 M/M %</th>
<th scope="col">Dec&nbsp;04 M/M %</th>
<th scope="col">Nov 04 M/M %</th>
<th scope="col">Oct 04 M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp; 2002&nbsp; &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Industrial Production Mfg (2000=100)</td>
<td>2.10</td>
<td>-0.79</td>
<td>1.72</td>
<td>-1.29</td>
<td>1.09</td>
<td>100.1</td>
<td>95.1</td>
<td>92.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales&nbsp; (2000=100)</td>
<td>5.71</td>
<td>-0.76</td>
<td>-0.46</td>
<td>0.33</td>
<td>2.23</td>
<td>91.7</td>
<td>92.5</td>
<td>94.1</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>0.74</td>
<td>0.27</td>
<td>-0.33</td>
<td>-0.24</td>
<td>0.65</td>
<td>6.3 mil</td>
<td>6.3</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.5</td>
<td>4.5</td>
<td>4.6</td>
<td>4.6</td>
<td>-0.5</td>
<td>4.7</td>
<td>5.2</td>
<td>5.4</td>
</tr>
<tr>
<td class="firstcol">Household Survey</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Disposable Income</td>
<td>11.52</td>
<td>-9.21</td>
<td>0.53</td>
<td>-1.45</td>
<td>0.73</td>
<td>94.6</td>
<td>93.3</td>
<td>95.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Living Expenditures</td>
<td>7.70</td>
<td>-2.40</td>
<td>0.42</td>
<td>0.21</td>
<td>2.55</td>
<td>97.1</td>
<td>95.6</td>
<td>97.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Small/Medium Firm Survey</td>
<td>Mar 05</td>
<td>Feb 05</td>
<td>Jan 05</td>
<td>Dec 04</td>
<td>&nbsp;2004&nbsp;&nbsp;</td>
<td>&nbsp;2003</td>
<td>&nbsp; 2002&nbsp; &nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Conditions Per cent Better-Worse</td>
<td>50.2</td>
<td>47.6</td>
<td>47.3</td>
<td>48.4</td>
<td>49.6</td>
<td>46.4</td>
<td>43.5</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Sales Y/Y %</td>
<td>-3.4</td>
<td>2.8</td>
<td>2.1</td>
<td>2.8</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Industrial Production Forecast</td>
<td>-1.0</td>
<td>-0.5</td>
<td>2.8</td>
<td>-0.9</td>
<td>1.5%</td>
<td>1.6%</td>
<td>1.8%</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
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Today's releases of data on production, sales, employment and survey results for Japan have failed to clear the cloudy outlook. Industrial production for manufacturing increased 2% in January from December, but the Ministry of [...]

Japanese Economic Outlook Still Cloudy--Much New Data Notwithstanding

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050301a.jpg" width="353">
Chain store sales jumped 1.5% last week according to the International Council of Shopping Centers (ICSC)-UBS survey.
The strong end to February pulled the month&#39;s average 1.0% ahead of January and last week&#39;s sales were 3.8% above four weeks earlier.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department.
The leading indicator of chain store sales from ICSC, down 0.6% (-0.2% y/y), fell for the second consecutive week. The indicator&#39;s February average nevertheless remained above January.
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%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">02/26/05</th>
<th scope="col">02/19/05</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>452.5</td>
<td>445.6</td>
<td>3.3%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
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Chain store sales jumped 1.5% last week according to the International Council of Shopping Centers (ICSC)-UBS survey. The strong end to February pulled the month's average 1.0% ahead of January and last week's sales were 3.8% above [...]

Chain Store Sales Jumped Last Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050301c.jpg" width="353">
The total value of construction put in place rose another 0.7% in January. Revised figures indicate consistent gains throughout 2004. Consensus expectations had been for a 0.4% rise for January.
Private residential building activity rose 0.7% after an upwardly revised 1.2% rise in December. New single family building added 0.9% (11.8% y/y) to the 1.0% December gain.
Nonresidential building jumped 1.2% but the prior month&#39;s gain was lessened. The gain was led by large m/m increases in shopping centers (+40.5% y/y) and malls (+4.8% y/y).
Public construction rose 0.8%. Spending on residential projects rose 2.6% (17.3% y/y) and highways &amp; streets, nearly one third of the value of public construction spending, rose 4.4% (15.7% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.7%</td>
<td>1.2%</td>
<td>10.6%</td>
<td>8.9%</td>
<td>5.1%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.6%</td>
<td>1.2%</td>
<td>11.3%</td>
<td>10.7%</td>
<td>6.0%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.4%</td>
<td>1.5%</td>
<td>11.8%</td>
<td>13.8%</td>
<td>13.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.2%</td>
<td>0.3%</td>
<td>10.1%</td>
<td>3.7%</td>
<td>-7.1%</td>
<td>-12.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.8%</td>
<td>1.5%</td>
<td>8.5%</td>
<td>3.4%</td>
<td>2.6%</td>
<td>7.0%</td>
</tr>
</tbody>
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The total value of construction put in place rose another 0.7% in January. Revised figures indicate consistent gains throughout 2004. Consensus expectations had been for a 0.4% rise for January. Private residential building activity [...]

U.S. Construction Spending Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050301b.jpg" width="353">
The Composite Index of activity in the manufacturing sector reported by the Institute of Supply Management slipped again in February to 55.3. The index has fallen during six of the last seven months. Consensus expectation had been for an increase to 57.0.
During the last twenty years there has been a 69% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The new orders component slipped modestly following the sharp January decline to 55.8. The separate index of export orders rose 0.5 points, but the prior month&#39;s gain was reversed. The production index reversed all of the prior month&#39;s 1.1 point gain and the inventories index cratered 4.2 points to 48.6, the lowest level since last May.
The employment index slipped 0.7 points to 57.4 after the 4.8 point rise in January. During the last twenty years there has been a 69% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.
The prices paid index fell for the fourth straight month, off 3.5 points to 65.6 and down twenty two points from the high last April.
Is there evidence of the new economy in the U.S. GDP data? from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/economicperspectives/ep_1qtr2005_part2_kouparitsas.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#39;04</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">Composite Index</td>
<td>55.3</td>
<td>56.4</td>
<td>62.8</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>56.5</td>
<td>62.6</td>
<td>69.2</td>
<td>&nbsp;63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>69.0</td>
<td>72.0</td>
<td>75.5</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
</body>
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The Composite Index of activity in the manufacturing sector reported by the Institute of Supply Management slipped again in February to 55.3. The index has fallen during six of the last seven months. Consensus expectation had been for [...]

ISM Factory Index Slipped Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050301b.jpg" width="353">
The Composite Index of activity in the manufacturing sector reported by the Institute of Supply Management slipped again in February to 55.3. The index has fallen during six of the last seven months. Consensus expectation had been for an increase to 57.0.
During the last twenty years there has been a 69% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The new orders component slipped modestly following the sharp January decline to 55.8. The separate index of export orders rose 0.5 points, but the prior month&#39;s gain was reversed. The production index reversed all of the prior month&#39;s 1.1 point gain and the inventories index cratered 4.2 points to 48.6, the lowest level since last May.
The employment index slipped 0.7 points to 57.4 after the 4.8 point rise in January. During the last twenty years there has been a 69% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.
The prices paid index fell for the fourth straight month, off 3.5 points to 65.6 and down twenty two points from the high last April.
Is there evidence of the new economy in the U.S. GDP data? from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/economicperspectives/ep_1qtr2005_part2_kouparitsas.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/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#39;04</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">Composite Index</td>
<td>55.3</td>
<td>56.4</td>
<td>62.8</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>56.5</td>
<td>62.6</td>
<td>69.2</td>
<td>&nbsp;63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>69.0</td>
<td>72.0</td>
<td>75.5</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Up  
by <a href="/comment/Moeller.html">Tom Moeller</a> March 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050301c.jpg" width="353">
The total value of construction put in place rose another 0.7% in January. Revised figures indicate consistent gains throughout 2004. Consensus expectations had been for a 0.4% rise for January.
Private residential building activity rose 0.7% after an upwardly revised 1.2% rise in December. New single family building added 0.9% (11.8% y/y) to the 1.0% December gain.
Nonresidential building jumped 1.2% but the prior month&#39;s gain was lessened. The gain was led by large m/m increases in shopping centers (+40.5% y/y) and malls (+4.8% y/y).
Public construction rose 0.8%. Spending on residential projects rose 2.6% (17.3% y/y) and highways &amp; streets, nearly one third of the value of public construction spending, rose 4.4% (15.7% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.7%</td>
<td>1.2%</td>
<td>10.6%</td>
<td>8.9%</td>
<td>5.1%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.6%</td>
<td>1.2%</td>
<td>11.3%</td>
<td>10.7%</td>
<td>6.0%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.4%</td>
<td>1.5%</td>
<td>11.8%</td>
<td>13.8%</td>
<td>13.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.2%</td>
<td>0.3%</td>
<td>10.1%</td>
<td>3.7%</td>
<td>-7.1%</td>
<td>-12.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.8%</td>
<td>1.5%</td>
<td>8.5%</td>
<td>3.4%</td>
<td>2.6%</td>
<td>7.0%</td>
</tr>
</tbody>
</table>
Chain Store Sales Jumped Last Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050301a.jpg" width="353">
Chain store sales jumped 1.5% last week according to the International Council of Shopping Centers (ICSC)-UBS survey.
The strong end to February pulled the month&#39;s average 1.0% ahead of January and last week&#39;s sales were 3.8% above four weeks earlier.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department.
The leading indicator of chain store sales from ICSC, down 0.6% (-0.2% y/y), fell for the second consecutive week. The indicator&#39;s February average nevertheless remained above January.
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">02/26/05</th>
<th scope="col">02/19/05</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>452.5</td>
<td>445.6</td>
<td>3.3%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050228f.jpg" width="353">
Although they are declining, pessimists among consumers and businessmen in the 25 country European Union continue to outweigh the optimists. The excess of pessimists among consumers held steady in February at 10% while the excess of pessimists among industrial businessmen rose 1 percentage point to 5%.
The picture for &quot;The 25&quot; is slightly better than that of the 12 countries comprising the Euro Zone, suggesting that the non Euro Zone countries--largely Eastern European countries, plus the U.K, Sweden and Denmark--are less pessimistic than those in the Euro Zone. The first chart shows consumer confidence in the Euro 12 and the Euro 25.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050228e.jpg" width="353">
The data are not aggregated for the non Euro Zone countries, but the fact that pessimism among &quot;The 25&quot; is less than than of &quot;The 12&quot; suggests that pessimism among the non Euro countries is considerably less. Data released today by France and Slovakia show that consumer confidence in Slovakia, for example, has become decidedly less pessimistic beginning in early 2004--perhaps coinciding with the enlargement of the EU-- and is now less pessimistic than France. In the U.K., another non Euro Zone country, the balance of pessimists over optimists has over recent years been much smaller that the balance for the Euro Zone. Currently the pessimists and optimists in the U. K. are evenly balanced.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Feb 05</th>
<th scope="col">Jan&nbsp;05</th>
<th scope="col">Feb 04</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp; 2002&nbsp; &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro 12</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Confidence</td>
<td>-13</td>
<td>-13</td>
<td>-15</td>
<td>0</td>
<td>2</td>
<td>-14</td>
<td>-18</td>
<td>-11</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Industrial Confidence</td>
<td>-7</td>
<td>-5</td>
<td>-7</td>
<td>-2</td>
<td>0</td>
<td>-5</td>
<td>-10</td>
<td>-11</td>
</tr>
<tr>
<td class="firstcol">Euro 25</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Confidence</td>
<td>-10</td>
<td>-10</td>
<td>-12</td>
<td>0</td>
<td>2</td>
<td>-12</td>
<td>-16</td>
<td>-9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industrial Confidence</td>
<td>-5</td>
<td>-4</td>
<td>-6</td>
<td>-1</td>
<td>1</td>
<td>-4</td>
<td>-11</td>
<td>-12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">France: HH Confidence</td>
<td>-23</td>
<td>-25</td>
<td>-23</td>
<td>2</td>
<td>0</td>
<td>-22</td>
<td>-27</td>
<td>-16</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia: Consumer Confidence</td>
<td>-15.3</td>
<td>-14.2</td>
<td>-35.9</td>
<td>-1.1</td>
<td>20.6</td>
<td>-23.9</td>
<td>-34.8</td>
<td>-30.2</td>
</tr>
<tr>
<td class="firstcol">U.K.: Consumer Confidence</td>
<td>0</td>
<td>0</td>
<td>-5</td>
<td>0</td>
<td>5</td>
<td>-3</td>
<td>-6</td>
<td>-4</td>
</tr>
</tbody>
</table>
</body>
</html>

Although they are declining, pessimists among consumers and businessmen in the 25 country European Union continue to outweigh the optimists. The excess of pessimists among consumers held steady in February at 10% while the excess of [...]

Confidence in the Euro Zone and the Broader EU-25

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050228c.jpg" width="353">
The Chicago Purchasing Managers Business Barometer rose for the second month and increased to 62.7 in February, beating Consensus expectations for a decline to 60.2.
During the last ten years there has been a 67% correlation between the level of the Chicago Business Barometer and the three month change in factory sector industrial output. That correlation has risen to 82% during the last five years.
The employment index surged 4.9 points to 57.7, the highest level since November. During the last ten years there has been a 78% correlation between the level of the employment index and the three month change in factory sector employment. The new orders index rose to the highest level since October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050228d.jpg" width="353">
The index of prices paid fell sharply to the lowest level in nearly a year. During the last ten years there has been an 86% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb&nbsp;&#39;04</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">Business Barometer</td>
<td>62.7</td>
<td>62.4</td>
<td>64.7</td>
<td>62.9</td>
<td>54.6</td>
<td>52.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>68.5</td>
<td>65.8</td>
<td>66.4</td>
<td>67.0</td>
<td>58.0</td>
<td>56.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>70.1</td>
<td>76.5</td>
<td>67.7</td>
<td>80.1</td>
<td>55.8</td>
<td>56.9</td>
</tr>
</tbody>
</table>
</body>
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The Chicago Purchasing Managers Business Barometer rose for the second month and increased to 62.7 in February, beating Consensus expectations for a decline to 60.2. During the last ten years there has been a 67% correlation between [...]

Chicago Purchasing Agents' Index Up Again

PMIs showing widespread revival of global economy

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

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Andrew Cates

**Growth Surprises Continue to Underpin Equity Resilience**
Global equity markets have proved remarkably resilient in recent weeks, shrugging off intermittent bouts of geopolitical and policy uncertainty to grind higher. Chart 1 below helps explain why: it tracks the relationship between global growth-versus-inflation surprises and world equity markets, and on that measure the recent run of global growth data has continued to surprise on the upside relative to inflation outturns — a combination that has historically been supportive for risk assets. Whether that resilience persists will depend on whether the growth-surprise advantage evident in the chart below can be sustained in the face of the inflationary pressures explored below.

260709Z1.jpg

**PMIs Confirm a Broadly Solid Global Expansion**
This week's final composite PMI readings for June reinforced the broader impression of resilient global growth. As chart 2 below shows, most major economies posted readings comfortably in expansionary territory, with India continuing to lead the pack and the US not far behind. Even the laggards in the sample are hovering close to the expansion threshold rather than falling decisively below it, suggesting stabilisation rather than outright contraction (and with the UK a notable exception).

260709Z2.jpg

**Inflation Surprises Are Creeping Back, and Bond Yields Are Taking Notice**
The US growth picture painted by Haver's surprise indices broadly echoes the message from the global PMI data. Chart 3 below shows the combined growth-and-inflation surprise index drifting higher this week, and closer inspection suggests growth is doing most of that work, with activity data continuing to outperform expectations. That is, on the face of it, good news. But it has not stopped bond markets from taking notice: short-dated Treasury yields have remained elevated in recent weeks, as stronger growth keeps alive the possibility that the Federal Reserve holds rates higher for longer or even lifts them in coming weeks.

260709Z3.jpg

**Supply Chains Are Tightening** 
Latest data show that global supply chain pressures tightened by less in June than they had the month before, likely reflecting the easing of Middle East tensions through much of the period. Chart 4 below shows that pressures troughed in the middle of last year and have been building gradually since, though June's slower pace of tightening suggests that easing had started to feed through. Still, today's flare-up threatens to undo that improvement, particularly if it affects shipping routes or energy flows through the region once again.

260709Z4.jpg

**Extreme Weather: An Old Supply-Side Risk Returns**
Geopolitics is not the only source of supply-side risk currently in play. Large parts of Europe have been gripped this week by another intense and prolonged heatwave, with temperatures in several major cities running well above seasonal norms. Extreme heat of this kind carries real economic costs: it depresses labour productivity, particularly in outdoor and manufacturing-adjacent sectors, strains electricity grids as air-conditioning demand spikes, and can disrupt agricultural output and river-based transport when water levels fall. Episodes like this have become more frequent in recent years, and while any single heatwave rarely shifts the macro picture on its own, the cumulative effect of more frequent and more severe weather events could start showing up in productivity and inflation data across the advanced economies. It is a reminder that the supply side of the global economy faces structural as well as cyclical challenges, and that climate-related disruption deserves a permanent place alongside geopolitics and demographics in any assessment of medium-term inflation risk.

260709Z5.jpg

**AI Investment: The Other Side of the Supply Equation**
Set against these supply-side headwinds is a genuinely positive structural development: the extraordinary scale of private investment now flowing into artificial intelligence. Chart 6 below shows just how sharply that investment has grown in recent years, reaching a fresh high last year. If even a fraction of that investment translates into genuine productivity gains, it could provide a meaningful long-run offset to the energy, climate and geopolitical constraints highlighted elsewhere in this week's charts. The scale of the bet now being placed on AI is large enough that it is beginning to show up in aggregate investment and capital expenditure data across the advanced economies, and it is likely to remain one of the defining structural themes shaping the global growth outlook over the remainder of this decade.

260709Z6.jpg

Global markets head into this week’s closing stages digesting a mixed set of signals. Last week's US non-farm payrolls report undershot expectations, adding to questions about the durability of the US labour market even as broader activity data have continued to hold up well. Compounding that picture, news broke today of renewed instability in the Middle East, reintroducing a geopolitical risk premium into markets just as investors had begun to look past it. Global equity markets have nonetheless remained resilient, continuing to track the broadly encouraging tone of incoming activity data (chart 1). That resilience was reinforced by a solid set of global PMIs across most major economies over the past few days (chart 2). Haver's surprise indices tell a similar story of positive growth momentum in the US, but with an important caveat: incoming inflation data have also been surprising to the upside, driven largely by higher oil prices (chart 3). These inflation risks could persist moreover, as global supply chain pressures have picked up in recent months and today's flare-up in the Middle East threatens to add further strain (chart 4). The world economy remains vulnerable to other supply-side shocks too, such as the extreme heat gripping much of Europe this week (chart 5). Still, on the other side of the ledger the enormous scale of investment now flowing into artificial intelligence could be a genuine source of supply-side potential (chart 6).

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/0dl4LKZaL1oTC5UPIaqrA9?utm_source=generator&si=7aa69345dbfd4ac4" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Growth Holds Firm

Kathleen Stephansen, CBE

260708A2.jpg

260708B2.jpg

Mortgage applications dropped 2.2% w/w (-5.4% y/y) in the week ending July 3, following no change in the week ending June 26, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house edged down 0.6% w/w (-6.3% y/y) in the latest week, after rising 0.5% w/w (3.2% y/y) in the June 26 week.  Applications for loan refinancing dropped 4.1% w/w (-4.2% y/y) in the week ending July 3, after declining 0.7% w/w (+9.1% y/y) in the June 26 week.

The effective interest rate on a 30-year fixed-rate loan rose 1bp to 6.77% in the week ending July 3 from 6.76% in the week ending June 26. The rate on 15-year fixed-rate mortgages edged down 2bps to 6.17% in the July 3 week from 6.19% in the June 26 week. The 30-year Jumbo rate edged down 1bp to 6.62% in the latest week from 6.63% in the June 26 week. The rate on a 5-year ARM rose 5bps to 6.19% in the July 3 week from 6.14% in the June 26 week.

The share of applications for refinancing an existing loan declined to 40.6% of total applications in the week of July 3 from 41.4% in the June 26 week. The adjustable-rate mortgage (ARM) share of activity edged up to 7.8% in the July 3 week from 7.6% in the June 26 week.

The average size of a mortgage declined 0.4% w/w (+1.3% y/y) to $391,500 in the week ending July 3, after rising 1.1% w/w (0.4% y/y) to $393,200 in the week ending June 26. The average size of a purchase loan declined 1.0% w/w (+4.3% y/y) to $451,000 in the latest week, after rising 1.2% w/w (2.7% y/y) to $455,600 in the June 26 week. The average size of a loan to refinance a mortgage edged down 0.1% w/w (-3.9% y/y) to $304,600 in the week ending July 3, after rising 0.5% w/w (-2.8% y/y) to $304,900 in the June 26 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Both applications for loans to purchase and applications for loan refinancing declined in the latest week.
- Interest rate on 30-year fixed-rate loans rose 1bp to 6.77%. 
- Average loan size edged down.

U.S. Mortgage Applications Retrenched in the July 3 Week

Robert Brusca

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**The Clash!**
The U.S.-Iranian clash in the Middle East resulted in a closure of the Strait of Hormuz that collapsed the economy watchers index in Japan earlier this year. However, as the war-like conditions settled down and the two sides have moved toward some kind of cease fire or a more permanent arrangement, in the wake of that comparative tranquility, the economy watchers index improved, and its future index improved more sharply. These comments applied to the data in the table and conditions up to the end of June.

**New day dawning...**
However, the data in the table are unrelated to what has happened in the past two days, when Iran took potshots at a couple of ships in the Strait, causing the U.S. to retaliate and President Trump to declare that the ceasefire has now ended. The door remains open for some kind of talks; however, the president’s recent remarks carried in the newspapers has clearly stated that the ceasefire has ended, and the U.S. intends to hit Iran and has suggested that it intends to hit it ‘hard.’ At the same time, Mr. Trump has said the door remains open to continuing talk and negotiations if both sides still want to get together; however, he admits he is not optimistic.

**Precarious times and conditions**
So, these are precarious conditions. Oil prices have already responded and moved higher. We have Japan’s economic data for June showing some revival in the current index and some sharply higher revivals over the last few months in the future index. However, when the dust clears the queue standings of the current and future indexes are revealed, they are pretty similar, with the current index at a standing of 29.6% and the future index of 31.6%. Both the current and future readings coalesce around a 30-percentile standing, marking the two segments of the survey as usually stronger about 70% of the time which marks the latest readings as relatively weak. And that is before we take the new realities of July into account.

**The current IS the future...**
There isn't too much point in talking about the two parts of the survey separately. The current and future surveys are simply not that different. This month, the lowest percentile standing in the current subindexes is housing, at an 11.5 percentile standing, followed by employment at a 17.8 percentile standing. In the future index, housing has an 11.1 percentile standing and employment has an 18.6 percentile standing; these readings are also the two lowest rankings in the future survey.

**Sequential improvement is only point-to-point**
Over three months, we can see the point-to-point changes in the current index and some improvements in all of the components except housing. In the future index, the three-month changes show point-to-point improvements in all of the components. However, both surveys show point-to-point declines over six months and broad point-to-point declines over 12 months as well. Looking at the changes based on smooth data (shown at the bottom of the table), for the three-month averages compared to six-month averages and six-month averages compared to 12-month averages, conditions show no improvement. We see no improvements in the current or future indexes over three months or six months, and no improvement in the future index in the 12-month average compared to 12-month average of 12 months ago—although 40% of the components in the current index are improved over 12 months compared to 12 months ago.

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**Summing up**
The bottom line here seems to be that the opening of the armed conflict in Iran that led to the closure of the Strait of Hormuz was a terrible blow according to the economy watchers. However, once conditions settled down, the willingness to believe that conditions were going to get better and eventually open the Strait led to improved perceptions as things appeared to be headed back toward normal. Now, war-like conditions are back into effect for a period that's more recent than the tabular data can address. It seems likely that we are going to see the indexes decline once again if this current rupture in the normalization process is unable to be repaired soon. The responses and changes in the economy watchers index illustrate a couple of things: one, being that the Strait of Hormuz is very important; two, being that the survey participants were willing to believe that the former war participants could act in a civilized manner and reopen the Strait. The question now is whether the survey participants can believe that after one normalization agreement fell apart, the next agreement is one that they can believe in. That's what we will be waiting to see.

Japan

Economy Watchers Poll Marks Revival—Still Weak; What’s Next Now with a New Rift?

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

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German industrial production in May rose by 0.9% after rising by 0.2% in April. Top-line growth for industrial production shows an increase of 0.1% over 12 months, a decline of 0.2% over six months, but a revival with growth at a 4% annual rate over three months. The revival was led by consumer goods output, which gained 1.2% in May after rising 2.2% in April. Consumer goods output is lower by 0.1% over 12 months, rises at a 2.6% annual rate over six months, and again at an 8.6% annual rate over three months, marking an acceleration over this three-period sequence. Capital goods, however, an important sector in the German economy, continued to be erratic in May. Capital goods output rose by 1.3% in May after falling by more than 1% in each of the two previous months. Capital goods output is lower by 2.8% over 12 months, falling at an 8.6% annual rate over six months, and that drop is trimmed to a 4.4% contraction over three months.

The output of consumer goods is pushing industry production higher, but the output of capital goods is pulling industrial production back lower. Intermediate goods, however, are showing growth and acceleration, despite falling by 0.4% in May after increases in each of the two previous months. Nevertheless, intermediate goods output is up by 1.1% over 12 months; it accelerates from a 1.9% annual rate over six months to a 6.4% annual rate over three months.

Focusing on manufacturing output alone, there was a gain in output of 0.8% in May and a gain of 0.3% in April. However, manufacturing output is still lower by 0.6% over 12 months and falls at a 2.3% annual rate over six months before recovering a 2.2% annual rate gain over three months; nothing in this sequence is an impressive performance.

Real manufacturing orders have been oscillating back and forth, rising by 1.9% in May after falling 3.2% in April. However, over 12 months, real orders for manufactured goods are up 6.3%; yet that same series falls at a 4% annual rate over six months and then rebounds to surge ahead at a 12.8% annual rate over three months. That's an erratic performance, but with a good ending trend. Real sales in manufacturing show gains in each of the last three months, including a 1.8% month-over-month increase in May. Real sales in manufacturing rise to a 4.2% annual rate over six months and 12 months and then accelerate to a 12.4% annual rate over three months. The performance of sales is encouraging and fits well at least with the three-month spurt in real manufacturing orders.

Indicators for the German economy show that the ZEW current index weakened to -77.8 in May from -73.7 in April. The IFO manufacturing index moved higher, with the May reading of 86.7 compared to 86.3 in April. Manufacturing expectations in the IFO framework, however, weakened to 87.7 in May from 88.2 in April. The EU Commission industrial index registered -15.6 in May after -14.5 in April, another sign of weakening. Two of these four indexes weakened sequentially, looking at the values from 12 months to six months to three months; improvements were seen in the ZEW current index and the EU Commission index on this timeline.

Looking at manufacturing IP output data from select other European countries, France and Spain showed slippage in May compared to April, while Portugal posted a gain in May after a decline in April. Over 12 months, six months, and three months, France shows period-to-period positive growth, but growth is not gaining momentum. Spain shows an increase of 0.4% in output over 12 months, with slippage over six months and a solid gain over three months. In Portugal, output acceleration is in gear, with a 2.2% decline over 12 months shifting to a 6.7% annual rate gain over six months and a 10.6% annual rate gain over three months.

On a quarter-to-date (QTD) basis, German industrial production is rising for all the major sectors except for capital goods. Manufacturing output is rising QTD, along with real manufacturing orders and real sales in manufacturing. The industrial surveys for Germany all weaken QTD. Industrial production shows QTD declines for France and Spain, while Portugal posts a gain.

The ranking of year-over-year growth rates, or, for indicators, the ranking of the level compared to the past back to 2006, shows mostly weak performance for German output. There is a stronger assessment for the intermediate goods with a year-over-year growth rate ranking above the 50% rank, putting it above its historic median. Demand indicators, however, as reflected in real manufacturing orders and real sales for manufactured goods, have rankings in the 70th percentile, showing some better life for demand—that could bode well for output in the future. The industrial indicators, however, are all weak and substantially weak compared to their historic levels back to 2006.

On balance, the manufacturing and industrial data as well as surveys as of May for Germany and Europe show mixed results. There are a few pockets of strength; one of the bright spots is demand, but supply has not consistently responded to it yet. The industrial surveys are uniformly weak and definitely not a bright spot. Overall, the results are not reassuring.

Economy in Brief

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