Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040823b.jpg" width="353">
Signs are increasing that the deflation is finally coming to an end in Hong Kong. Consumer prices in July were 0.88% above the year ago figure. This was the first increase since October of 1998. Prices in Hong Kong have fallen ever since the 1997-98 Asian financial crisis which led to a severe recession and collapse of the property market. Deflation was aggravated last year by the SARS (Severe Acute Respiratory Syndrome) outbreak. A low point of 91.0 (October 1999-September 2000 = 100) in the Consumer Price Index was reached in August, 2003.
Price decreases began to decelerate earlier this year as the employment picture improved. The unemployment rate for the three months ending in July was steady at 6.9%, unchanged from the three months rate ending in June. but was 1.7 percentage points below the figure a year ago. Moreover, the three month average of employment ending in July was 0.79% above that ending in June and 2.64% above the year ago figure. Retail sales were down almost one percent in the second quarter of this year from the first quarter but were up almost 19% over the second quarter of last year..
The decline in the unemployment rate and the rise in employment has led to some improvement in demand on the part of domestic consumers, but the big increase in demand has come from the increase in tourism. Tourist arrivals increased 2.88% in the second quarter from the first and 208.44% from the SARS affected first quarter of 2003. Tourist arrivals in the first half of this year were over 10 million, compared with the city&#39;s population of 6.8 million.
While some of the increase in July prices may have been due to cost pressures with the rise in oil prices, the evidence suggests that rising demand is beginning to put pressure on prices and an end to deflation is in sight.

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<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">Jul 04</th>
<th scope="col">Jun 04</th>
<th scope="col">Jul 03</th>
<th scope="col">M/M&nbsp;%</th>
<th scope="col">Y/Y%&nbsp;</th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
<th scope="col">&nbsp;2001%</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">CPI (NSA, Oct99-Sep00=100)</td>
<td>91.9</td>
<td>91.8</td>
<td>91.1</td>
<td>0.11</td>
<td>0.88</td>
<td>-2.58</td>
<td>-3.04</td>
<td>-1.60</td>
</tr>
<tr>
<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 class="odd">
<td class="firstcol">Employment (NSA thous,3-month moving average ending)</td>
<td>3282.5</td>
<td>3256.9</td>
<td>3198.1</td>
<td>0.79</td>
<td>2.64</td>
<td>-0.34</td>
<td>-0.64</td>
<td>1.40</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (NSA, %, 3-month moving average ending)</td>
<td>6.9</td>
<td>6.9</td>
<td>8.6</td>
<td>0.0</td>
<td>-1.7</td>
<td>8.0</td>
<td>7.3</td>
<td>5.1</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">&nbsp;</td>
<td>Q2 04</td>
<td>&nbsp; Q1 03</td>
<td>&nbsp; Q2 03</td>
<td>Q/Q %</td>
<td>&nbsp;Y/Y %</td>
<td>2003 %</td>
<td>&nbsp;2002%</td>
<td>&nbsp; 2001%</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales (NSA, Oct99-Sep00=100)</td>
<td>102.4</td>
<td>103.2</td>
<td>86.1</td>
<td>-0.78</td>
<td>18.89</td>
<td>-2.26</td>
<td>-4.08</td>
<td>-1.23</td>
</tr>
<tr>
<td class="firstcol">Tourist Arrivals (NSA Thous.)</td>
<td>5077.4</td>
<td>4935.2</td>
<td>1646.2</td>
<td>2.88</td>
<td>208.44</td>
<td>&nbsp;-6.21</td>
<td>20.70</td>
<td>5.10</td>
</tr>
</tbody>
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Signs are increasing that the deflation is finally coming to an end in Hong Kong. Consumer prices in July were 0.88% above the year ago figure. This was the first increase since October of 1998. Prices in Hong Kong have fallen ever [...]

Deflation in Hong Kong Coming to an End?

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040823a.jpg" width="353">
Though the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) ticked 0.2% higher in the latest week, its growth rate slowed to 0.0% versus double digit rates of growth into this past Spring.
The weekly rise was due to higher mortgage applications and lower jobless claims which offset a lower money supply, but the trend in mortgage apps and money growth has been soft.
During the last ten years there has been a 69% correlation between the six-month growth in the ECRI leading index of the US economy and two quarter growth in real GDP.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. There has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</a>.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM"> ECRI Leading Index</a></th>
<th scope="col"> 08/13/04</th>
<th scope="col"> 08/06/04</th>
<th scope="col"> Growth Rate</th>
<th scope="col"> 2003</th>
<th scope="col"> 2002</th>
<th scope="col"> 2001</th>
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</thead>
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<tr class="odd">
<td class="firstcol">Weekly</td>
<td>131.7</td>
<td>131.4</td>
<td>3.6%</td>
<td>6.5%</td>
<td>1.1%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td> July</td>
<td> June</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly</td>
<td>131.7</td>
<td>132.0</td>
<td>1.1%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
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Though the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) ticked 0.2% higher in the latest week, its growth rate slowed to 0.0% versus double digit rates of growth into this past [...]

ECRI U.S. Leading Indicators Soft

ECRI Leading Indicators Soft

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/040820a.jpg" width="353">
A piece of what is now &quot;ancient&quot; history: on December 10, 1998, the price of a barrel of West Texas Intermediate Crude oil was $10.73. Yesterday, it was $48.70. A page 1 story in today&#39;s Wall Street Journal highlights the role of demand in helping to push up this price. And indeed, demand has risen. World oil demand was 82.2 billion barrels in the first quarter of this year, up by 2.3% over a year earlier, compared to a 10-year average of 1.6% growth.
The Journal cites the US market as the &quot;price-setter&quot; because it&#39;s the biggest market. With 20.77 billion barrels of consumption in Q1, it has the largest share of any country. However, that share, 25.2%, is down from about 27% in mid-1999. China&#39;s growth largely accounts for the offset. Its share in 1999 was about 5.7%, and has risen steadily to 7.6% in Q1 this year. Its demand, 6.25 billion barrels in that quarter, was up more than 19% from the year earlier period and a four-quarter moving average, 5.78 billion barrels, surpassed that of Japan, 5.50 billion, for the first time. All these Department of Energy data appear in the Haver database, &quot;OGJ&quot;, compiled for us by the Oil and Gas Journal. Prices are maintained daily, weekly and for longer periods in USECON, WEEKLY, and DAILY.
This isn&#39;t to diminish the importance of heavy energy consumption in the US. Annual data in Haver&#39;s USECON database show that as of 2002 there were 194.3 million licensed drivers in the US, but 225.9 million &quot;personal&quot; vehicles, that is, cars, light trucks and motorcycles. Light trucks, of course, have gained significantly as the vehicle of choice in recent years. In the early 1980s, there were fewer than 1/4 as many lights trucks on the road as there were passenger cars; in 2002, they were more than 60% as numerous as cars. Since the spring of 2001, sales of new light trucks have exceeded those of cars, so the share of these trucks in the total stock of vehicles has surely expanded even more. Trucks tend to use more gasoline than cars, so the rising volume of truck traffic would point to more gasoline consumption.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040820b.jpg" width="353">
At the same time, even as energy consumption rises in the US, energy efficiency continues to increase. As evident in the second graph, the amount of GDP per unit of energy consumption (in this case, quadrillion BTUs) continues to increase. In the latest four quarters available, through Q1 this year, the gain was 3.4%, following even stronger yearly gains in the prior three quarters, averaging 4.6%. The graph further shows that energy efficiency has increased even when the price of oil has trended lower. So while the US economy is indeed a big user of energy, it is becoming more resourceful, helping to restrain the impact of energy prices on the economy. Carol Stone

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A piece of what is now "ancient" history: on December 10, 1998, the price of a barrel of West Texas Intermediate Crude oil was $10.73. Yesterday, it was $48.70. A page 1 story in today's Wall Street Journal highlights the role of [...]

Energy Prices Rise as World Demand Increases, But US Energy Efficiency Alleviates Some Impact

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040819c.jpg">
The Philadelphia Fed&#146;s index of general business conditions in the manufacturing sector moderated in the August survey, falling to 28.5 from 36.1 in July. The 8.2-point decrease was weaker than Consensus expectations for a marginal decline to 34.5.
Every one of the sub-indexes had a lower reading in August than in July, particularly new and unfilled orders; delivery times had a net negative index of -6.8.
The business conditions index reflects a separate survey question, not a weighted combination of the sub-indexes. Moreover, the August value at 28.5 is &quot;weak&quot; only relative to some prior months this year. The performance so far this year, which averages 30.5 in the first eight months, is among the highest recorded in the survey&#39;s 36-year history. In the accompanying graph, a horizontal line at that average shows how few occasions the survey has been able to sustain higher readings for more than a few months.
Further, the separate index of business conditions expected in six months turned upward sharply from 36.3 in July to 52.7 for this month.
The prices paid index rebounded after July&#39;s moderation. No details are collected on the source of price changes, but we&#39;d guess that energy costs are a major culprit. 54.7% of respondents reported increases in prices paid and only 1% experienced decreases. More companies than that had seen prices rise in earlier months this year, but this is the smallest number garnering price decreases in nearly four years.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally. The data are carried in Haver&#39;s &quot;SURVEYS&quot; database, along with an extensive collection of similar surveys by other Federal Reserve Banks.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0704.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Aug &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
<tbody>
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<td class="firstcol">General Activity Index</td>
<td>28.5</td>
<td>36.1</td>
<td>28.9</td>
<td>21.9</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
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<tr>
<td class="firstcol">Prices Paid Index</td>
<td>53.7</td>
<td>46.3</td>
<td>51.9</td>
<td>14.4</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
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The Philadelphia Feds index of general business conditions in the manufacturing sector moderated in the August survey, falling to 28.5 from 36.1 in July. The 8.2-point decrease was weaker than Consensus expectations for a marginal [...]

Philadelphia Fed Index Moderates, But Still Strong Historically

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040819a.jpg">
Initial unemployment insurance claims fell 3,000 to 331,000 last week and the prior week was up revised marginally. Claims were once again lower than expected; the consensus forecast was 335,000 claims.
The 4-week moving average of initial claims fell to 337,000 (-15.1% y/y).
Continuing claims for unemployment insurance rose 16,000 following a revised 13,000 drop the week prior. These continuing claims, that is, the total number of unemployment benefit recipients, run closely parallel to the total number unemployed in the monthly employment survey; the correlation has been 82% over the last 15 years.
The insured rate of unemployment remained at 2.3%, where it has hovered since the end of April.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">08/14/04</th>
<th scope="col">08/07/04</th>
<th scope="col">07/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>331</td>
<td>334</td>
<td>337</td>
<td>-14.7%</td>
<td>399</td>
<td>403</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2904</td>
<td>2888</td>
<td>-19.3%</td>
<td>3,516</td>
<td>3,564</td>
<td>2974</td>
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Initial unemployment insurance claims fell 3,000 to 331,000 last week and the prior week was up revised marginally. Claims were once again lower than expected; the consensus forecast was 335,000 claims. The 4-week moving average of [...]

Initial Jobless Claims Edge Lower Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040818a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association jumped 11.9% last week, breaking out of its recent tight range. At 689.4 (Mar 16, 1990 = 100), the index reached its highest since the first week of May.
Applications for mortgages for home purchase rose 6.2% after declining 2.7% the week before. These are 20.4% ahead of their year-ago volume.
Applications to refinance existing mortgages surged 20.9% in the latest week, following a modest 2.9% rise the prior week. These &quot;refi&#39;s&quot; are 28.1% below a year ago.
Mortgage applications, particularly for refinancing, are especially sensitive to interest rate movements. The widely followed FHLMC 30-year contract rate was 5.99% in the August 6 week and fell to 5.85% last week. In the industry, 6.00% stands as a kind of &quot;flashpoint&quot; for significant increases in refinancing activity. As seen in the graph, there is an 80% correlation of the refi index and this Freddie Mac mortgage rate.
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>. In Haver&#39;s databases, these weekly data appear in &quot;SURVEYW&quot;. There is a sizable collection of related information in USECON covering mortgage terms, debt service, and the role of securitization in the mortgage market.

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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">08/13/04</th>
<th scope="col">08/06/04</th>
<th scope="col">07/30/04</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>689.4</td>
<td>616.1</td>
<td>620.4</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>467.0</td>
<td>440.0</td>
<td>452.0</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,982.7</td>
<td>1,640.5</td>
<td>1,600.3</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
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The index of mortgage applications compiled by the Mortgage Bankers Association jumped 11.9% last week, breaking out of its recent tight range. At 689.4 (Mar 16, 1990 = 100), the index reached its highest since the first week of May. [...]

Mortgage Applications Reach Highest in 3 Months

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

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

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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.

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**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).

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**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.

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**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.

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**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.

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**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.

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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).

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Charts of the Week: Growth Holds Firm

Robert Brusca

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Manufacturing output in the countries of the European Monetary Union continues to underperform. The median change for the 11 countries reporting on the table is a 0.5% decline in May following a 0.3% increase in April. However, only 41.7% of the reporters are accelerating in May, compared to 25% in April, although in March over half of the reporters had showed some acceleration, with output at 61.5%.

In May, of these eleven early reporters, seven showed month-to-month declines in output. This compares to four showing declines in April and four showing declines in March.

**Sequential trends**
Over 12 months, output is declining in four of these eleven countries: Germany, Luxembourg, Ireland, and Portugal. Over six months, output declines in five of the eleven countries. Over three months, output declines in four of the eleven countries. Over these broader sequential periods, output is increasing in most cases; only one country, Ireland, shows consistent declines in output over three months, six months, and 12 months. However, among EMU countries, only Italy shows output expanding on all three timelines, although Sweden, an EU member country, also shows output increasing in all three periods.

Amid the output weakness in May, the quarter-to-date calculation for industrial production growth is also broadly weak. In May, seven of the eleven quarter-to-date changes in industrial production are negative. Positive results, increases in the quarter-to-date, are registered by Germany, Luxembourg, Greece, and Portugal.

The ranking of the year-over-year growth rates shows seven countries with output growth rate rankings below 50%, marking them as below their respective medians. The comparisons for output growth are taken back to 2006, a period of about 20 years.

Four EMU countries rank above their twenty-year medians: France, Italy, Luxembourg, and Greece.

The snapshot of industry in the monetary union is consistent, showing little momentum, little strength, and relatively low rankings for current growth rates; only a minority of reporters show an acceleration in growth in May compared to April. With the situation in the Strait of Hormuz deteriorating again, the outlook for industrial production has to remain guarded.

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Europe

Industrial Sector Remains Under Pressure in EMU

Winnie Tapasanun

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Existing home sales unexpectedly fell 2.4% m/m (+2.8% y/y) to 4.09 million units (SAAR) in June, the first monthly decline since March, following an upwardly revised 3.7% increase to 4.19 million in May (previously +3.2%; 4.17 mil.), according to the National Association of Realtors (NAR). The Action Economics Forecast Survey had expected June sales of 4.20 million units. Sales remained 36.4% below a high of 6.43 million in January 2022 and 38.0% below a peak of 6.60 million in January 2021. The June decline coincided with a rise in the average 30-year fixed mortgage rate to 6.49% in June, the highest since August 2025, after increasing to 6.44% in May, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales fell 2.4% (+3.3% y/y) to 3.73 million units in June, the first m/m fall in three months, following a 4.1% gain to 3.82 million in May, remaining 34.6% below a high of 5.70 million in January 2022. Sales of condos and co-ops decreased 2.7% (-2.7% y/y) to 360,000 in June, the lowest level since May 2025, after being unchanged m/m for the third successive month at 370,000, remaining 50.7% below a high of 730,000 in January 2022.

Regionally, June existing home sales declined m/m in all regions except the Northeast. Sales in the South dropped 3.6% (+3.8% y/y) to 1.89 million in June, a three-month low, after a 3.2% rise in May, and sales in the Midwest slid 3.0% (+2.1% y/y) to 980,000 following a 7.4% May advance; both posted the first m/m decrease in three months. Sales in the West fell 1.3% (+2.8% y/y) to 740,000, the lowest level since January, after being flat m/m at 750,000 in May. In contrast, sales in the Northeast increased 2.1% (0.0% y/y) to 480,000 after a 4.4% May gain. Notably, the South remained the dominant region, accounting for 46.2% of total U.S. existing home sales.

The median price of all existing homes (NSA) rose 2.2% (1.8% y/y) to $440,600 in June, the fifth consecutive m/m rise, on top of an upwardly revised 3.3% increase to $431,200 in May ($429,300 previously). Prices were 22.1% above a low of $360,800 in January 2023. The median price of an existing single-family home climbed 2.3% (1.8% y/y) to $446,400 in June, the fifth straight m/m increase, after a 3.4% advance to $436,400 in May. The median price of condos and co-ops, up for the sixth time in seven months, grew 0.6% (1.6% y/y) to $380,000 following a 1.0% May gain to $377,800. Regionally, overall prices rose m/m and y/y in June in the Northeast (+5.6%; +3.9% y/y), Midwest (+2.1%; +2.7% y/y), South (+1.0%; +0.9% y/y), and West (+0.8%; +0.9% y/y). All these price series were at their record highs.

Inventories of homes for sale fell m/m in June for the first time since December. The number of existing homes for sale (NSA) declined 0.6% (+1.3% y/y) to 1.56 million units following an upwardly revised 4.7% May rise to 1.57 million (the highest level since November 2019). The supply of homes on the market at the current selling rate (NSA) increased to 4.6 months in June from 4.5 months in May and April, matching the highest level since August 2025. A record low in supply of 1.6 months was in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- June sales -2.4% m/m to 4.09 mil., first drop in three mths.; +2.8% y/y, third straight y/y rise.
- Sales m/m down in the South (-3.6%), Midwest (-3.0%), and West (-1.3%); up in the Northeast (+2.1%).
- Sales y/y up in all regions except the Northeast w/ a flat reading.
- Median sales price +2.2% (+1.8% y/y) to $440,600, a record high.
- Unsold inventory -0.6% (+1.3% y/y) to 1.56 mil. units, first m/m decline since Dec.; 4.6 months' supply, highest since Aug. ’25.

U.S. Existing Home Sales Unexpectedly Fall in June from a Five-Month High

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined 2,000 to 215,000 in the week ending July 4, from 217,000 in the week ending June 27, revised from 215,000. The four-week average was 218,750 in the July 4 week, down from 222,500 in the week ending June 27. The Action Economics/Haver Analytics Survey looked for 218,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 8,000 to 1.814 million in the week ending June 27, from 1.806 million in the week ending June 20, revised from 1.814 million. The four-week moving average rose to 1.808 million in the June 27 week from 1.801 million in the June 20 week. The insured unemployment rate was unchanged at 1.2% in the week of June 27. Except for a one-week dip to 1.1% in the week of April 25, the insured unemployment rate has been at 1.2% since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending June 20, the highest unemployment rates were in Washington (2.03%), New Jersey (2.11%), Minnesota (2.15%), and Puerto Rico (2.45%). The lowest rates were in South Dakota (0.28%), Florida (0.35%), Alabama and North Carolina (both 0.41%), Louisiana (0.42%), and Arkansas (0.49%). Rates in other notable states include California (1.88%), Pennsylvania (1.63%), Illinois (1.58%), New York (1.52%), and Texas (1.12%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims declined by 2,000 to 215,000 in the week ending July 4.
- Continuing claims rose by 8,000 to 1.814 million in the week ending June 27.
- The insured unemployment rate was unchanged at 1.2% in the week of June 27.

U.S. Initial Unemployment Claims Declined in the Week of July 4

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The German trade surplus surged in May to €19.1 billion from €14.7 billion in April. Exports rose by 0.9% in May while imports fell by 2.5%, creating a jump in the surplus month-to-month. In April, exports increased by 0.8% while imports rose by 1.1%.

Details on exports and imports lag by one month. In April, exports for motor vehicles and consumer goods declined, while exports of capital goods and other exports rose. On the import side, there were increases in imports ranging from 2.8% to 4.3% month-to-month across capital goods, motor vehicles, and consumer goods, but for the catch-all category ‘other’ imports fell by 2.7% month-to-month.

Flows adjusted for inflation showed an increase in exports of 0.4% in May while real imports fell by 3.3%. In April, real exports were flat while real imports fell by 0.2%.

The sequential behavior of real exports and real imports show independent activity. Imports log a clear weakening, rising 0.1% over 12 months, falling at a 5% annual rate over six months, and then falling at a 10.3% annual rate over three months. On the export side, real exports rose by 2.6% over 12 months, accelerated to a 7.2% annual rate over six months, but over three months have pulled back and fallen at a 1.6% annual rate. However, export growth still exceeds import growth over each of these horizons: 12 months, six months, and three months.

Trade trends paint a darkening picture of the German economy, with imports weak in real terms and trending even weaker, while activity on the export side of the equation pops over 12 months and six months but takes a hit over three months.

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The situation in the Strait of Hormuz continues to muddy the waters for the future. Passage through the strait has been sharply stopped, stabilized, revived, and now is back to being destabilized. That makes the strait a major uncertainty zone; it's hard to tell how these effects are going to play out over the coming months for German trade results and everyone else's. The deterioration of conditions in the Strait of Hormuz is now unknowable because Iran has decided to start shooting at ships, further destabilizing the outlook.

Economy in Brief

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Deflation in Hong Kong Coming to an End?

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