Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030508a.jpg" width="353">
Initial claims for unemployment insurance fell slightly more than Consensus expectations for a decline to 435,000. Initial claims fell 6.2% w/w to 425,000. That added to a 1.3% decline the week earlier which was revised shallower.
The four-week moving average of initial claims rose to 446,000 (4.8% y/y), the highest level since mid-April 2002.
During the last ten years there has been an 81% (inverse) correlation between the level of initial jobless insurance claims and the y/y change in real GDP.
Continuing claims for unemployment insurance rose 0.2% w/w to the highest level since early-October. The prior week&#39;s figure was revised down.
The insured rate of unemployment was stable at 2.9% for the second week.

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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">5/03/03</th>
<th scope="col">4/26/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Initial Claims</td>
<td>425.0</td>
<td>453.0</td>
<td>3.2%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,665</td>
<td>-0.1%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
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</tbody>
</table>
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Initial claims for unemployment insurance fell slightly more than Consensus expectations for a decline to 435,000. Initial claims fell 6.2% w/w to 425,000. That added to a 1.3% decline the week earlier which was revised shallower. The [...]

Initial Jobless Insurance Claims Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030507a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association jumped 18.6% last week and erased the declines of the three prior weeks. Despite the latest rise, applications were 25.5% below the peak level of mid-March.
Last week&#39;s increase was due to huge gains in mortgage applications both for home purchase and refinance. Mortgage applications for home purchase surged 16.9% (8.7% y/y) last week to a record high level.
During the last ten years there has been a 52% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Refinancing applications rose 19.4% w/w but nevertheless were off 35.3% from the March peak.
The average size of a mortgage loan application surged to $185,400 (-0.5% y/y). The average size of an application for home purchase fell slightly to $196,900 (+7.0% y/y). The average size of an application to refinance jumped 6.6% to $180,200 (-5.1% y/y).
Interest rates on a conventional 30-Year mortgage ticked up with the effective rate at 5.83% versus 5.80% the prior week. The effective rate on a 15-year mortgage was 5.21%.
Visit the Mortgage Bankers Association site at <a href="http://www.mbaa.org/">www.mbaa.org.</a>

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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">5/02/03</th>
<th scope="col">4/25/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total Market Index</td>
<td>1,246.6</td>
<td>1,050.8</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>416.0</td>
<td>356.0</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>6,077.8</td>
<td>5,092.0</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
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</tbody>
</table>
US Dollar Down Broadly 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 7, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030507b.jpg" width="353">
The US dollar has been under broad pressure due to little evidence that US interest rates will rise anytime soon. Yesterday&#39;s announcement by the FOMC dropped the trade weighted dollar&#39;s value another 0.6% versus major currencies. The dollar&#39;s decline is versus a peak early last year and now has come to 17%.
The Euro has been above parity with the US dollar since November of last year, but erratic gains extend back to late 2000. Since then the Euro is up by almost one third, 29% since early 2000.
Against the Canadian dollar the US currency has suffered declines not seen since the late 1980s. Since early last year the C$ is up roughly 12% with virtually all of that gain since last Winter.
Versus the Japanese Yen, the dollar has traded narrowly since the middle of last year. That followed dollar declines early in the year which came to over 10%.
Exchange rate puzzles are explored <a href="http://www.frbsf.org/publications/economics/review/2002/article4.pdf">here</a> by the Federal Reserve Bank of San Francisco.
The differing behavior of the US Federal Reserve System and the Eurosystem is explored by the Federal Reserve Bank of New York <a href="http://www.newyorkfed.org/rmaghome/staff_rp/2003/sr165.html">here</a>.

Consumer Credit Usage Remained Weak 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 7, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030507c.jpg" width="353">
Consumer credit outstanding (which excludes mortgages) rose $0.9B (0.6% AR) in March. Consensus expectations had been for a $3.0B rise. 
The preliminary report of a $1.5B rise in February was revised down slightly to $1.3B. Revolving credit usage was revised down but a drop in nonrevolving was lessened. 
Revolving credit rose 3.9% (AR) following a 5.9% February gain. The six month growth was a barely positive 1.0%. 
Nonrevolving credit fell again in March, at a 1.7% rate following the 2.7% February decline.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E103/@E10308/@E10308.HTM">Consumer Credit Outstanding</a></th>
<th scope="col">Mar m/m</th>
<th scope="col">Feb m/m</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total</td>
<td>$0.9B</td>
<td>$1.3B</td>
<td>3.3%</td>
<td>3.6%</td>
<td>6.9%</td>
<td>10.2%</td>
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<td class="firstcol">&nbsp; Revolving</td>
<td>$2.3B</td>
<td>$3.6B</td>
<td>2.4%</td>
<td>1.6%</td>
<td>5.1%</td>
<td>11.6%</td>
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<td class="firstcol">&nbsp; Nonrevolving</td>
<td>$-1.5B</td>
<td>$-2.2B</td>
<td>3.8%</td>
<td>5.0%</td>
<td>8.2%</td>
<td>9.1%</td>
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The index of mortgage applications compiled by the Mortgage Bankers Association jumped 18.6% last week and erased the declines of the three prior weeks. Despite the latest rise, applications were 25.5% below the peak level of mid- [...]

Mortgage Applications Surged, Purchase Applications Set Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030506a.jpg" width="353">
Chain store sales jumped 2.1% in the opening week of May according to the BTM-UBSW survey. The rise more than recouped a 1.6% decline the prior week and pulled this measure of consumer spending to a record level.
April sales rose 0.1% from the March average. The latest weekly index level was 4.3% above the December average.
During the last ten years there has been a 58% correlation between the year-to-year percent change in these chain store sales and the change in nonauto retail sales less gasoline.
The BTM-UBSW retail chain-store sales index is constructed from the sales results reported by seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">5/03/03</th>
<th scope="col">4/26/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>417.7</td>
<td>409.1</td>
<td>2.5%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
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</table>
FOMC Left Interest Rates Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 6, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030506b.jpg" width="353">
The Federal Reserve left the federal funds target rate unchanged at 1.25%, the lowest level since 1961. The decision was unanimous and as expected by most economists. 
The discount rate remained unchanged with primary credit available at 2.25%.
The press release which accompanied the Fed&#146;s action contained the following statement. &quot;Recent readings on production and employment, though mostly reflecting decisions made before the conclusion of hostilities, have proven disappointing. However, the ebbing of geopolitical tensions has rolled back oil prices, bolstered consumer confidence, and strengthened debt and equity markets. These developments, along with the accommodative stance of monetary policy and ongoing growth in productivity, should foster an improving economic climate over time.&quot;
With regard to the risks to the economic outlook, the Fed stated that &quot;the upside and downside risks to the attainment of sustainable growth are roughly equal.&quot; The Fed statement added that &quot;the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level.&quot;
<a href="http://www.federalreserve.gov/boarddocs/press/monetary/2003/20030506/default.htm">Here</a> is the complete text of the Fed&#39;s latest press release.
Analysis by the Federal Reserve Bank of St. Louis of new credit programs at the Discount Window can be found <a href="http://research.stlouisfed.org/publications/mt/cover.pdf">here</a>.

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Chain store sales jumped 2.1% in the opening week of May according to the BTM-UBSW survey. The rise more than recouped a 1.6% decline the prior week and pulled this measure of consumer spending to a record level. April sales rose 0.1% [...]

Chain Store Sales Surged to Record Level

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030505a.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) improved in March, but the index level still was negative as it has been for most of the last three years. . A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth (just over 3% p.a. during the last ten years).
The three-month moving average of the CFNAI was -0.43. That&#39;s consistent with roughly 1-2% growth in real GDP.
During the last ten years there has been a 73% correlation between the level of the CFNAI and quarterly growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production &amp; income, the labor market, personal consumption &amp; housing, mfg. &amp; trade sales, and inventories &amp; orders.
For a complete discussion of the latest Chicago Fed&#39;s National Activity Index click <a href="http://www.chicagofed.org/economicresearchanddata/national/index.cfm">here</a>.
A discussion of the CFNAI and its role as a business cycle indicator can be found <a href="http://www.chicagofed.org/publications/economicperspectives/2002/3qepart2.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#39;02</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">CFNAI</td>
<td>-0.67</td>
<td>-1.24</td>
<td>-0.28</td>
<td>-0.31</td>
<td>-1.13</td>
<td>-0.13</td>
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</table>
ISM Nonmanufacturing Index Rebounded 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 5, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030505b.jpg" width="353">
The Institute for Supply Management business activity index of the nonmanufacturing sector rose last month to 50.7. That was more than Consensus expectations for a smaller gain to 49.0.
The 2.8 point rise recouped just half of the sharp decline in the prior month.
During the last five years, there has been a 70% correlation between the level of the Business Activity Index from the ISM nonmanufacturing survey and quarterly growth in real GDP in the service sector plus structures.
The seasonally adjusted new orders index rose modestly to 50.6 as did the employment index to 48.2.
Business activity for the nonmanufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted index of prices fell to 56.7, the lowest level this year.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The nonmanufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Business Activity Index</td>
<td>50.7</td>
<td>47.9</td>
<td>54.9</td>
<td>55.1</td>
<td>49.0</td>
<td>59.3</td>
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<tr>
<td class="firstcol">Prices Index</td>
<td>56.7</td>
<td>62.0</td>
<td>54.8</td>
<td>53.9</td>
<td>51.6</td>
<td>63.5</td>
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</tbody>
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Challenger Survey of Layoff Announcements Up Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 5, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030505c.jpg" width="353">
According to Challenger, Gray &amp; Christmas, announced job cuts surged in April to the highest level since November. The rise followed a sharp decline in March and pulled the three month moving average of job cut announcements more than one third higher than last summer.
Job cut announcements differ from layoffs in that many are achieved through attrition or just never occur.
Announcements of job cuts rose in most industries except computers where they fell for the second month. Layoff announcements also fell in the transportation, electronics and health care industries.
During the last ten years there has been a (negative) 75% correlation between the level of announced job cuts and the y/y percent change in nonfarm payrolls.

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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">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Announced Job Cuts</td>
<td>146,399</td>
<td>85,396</td>
<td>30.0%</td>
<td>1,431,052</td>
<td>1,956,876</td>
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The Chicago Fed National Activity Index (CFNAI) improved in March, but the index level still was negative as it has been for most of the last three years. . A zero value of the CFNAI indicates that the economy is expanding at its [...]

Chicago Fed National Activity Index Negative

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030502b.jpg" width="353">
The unemployment rate rose to 6.0% in April, back to the level of last December. Consensus expectations had been for a rise to 5.9%. Employment rose 339,000 (+1.1% y/y) following two months of slight decline. The labor force surged 680,000 (+1.2% y/y).
Nonfarm payrolls fell in April by 48,000. So far this year nonfarm payrolls have fallen 322,000, or 0.2%. Consensus had expected a 50,000 worker decline in April. The decline in March payrolls was deepened to a loss of 124,000 from a loss of 108,000 reported last month.
The one month diffusion index for nonfarm payrolls was unchanged at a still-low 48.6, so it continued to suggest poor hiring prospects. The three month diffusion index was unchanged at 39.8. By measuring the breadth of hiring increases, these indexes are leading indicators of job growth.
Where Jobs Fell: The number of factory sector jobs fell 95,000 (-0.6% m/m, -3.3% y/y), the most for any one month since January 2002. The one-month diffusion index for the factory sector fell to 33.8 from an upwardly revised March. That was the lowest breadth of gain in factory sector jobs since December 2001. Retail hiring fell another 10,000 (-1.0% y/y). Transportation and public utilities industries shed 19,000 (-2.5% y/y) jobs.
Where Jobs Rose: Construction jobs rose 18,000 (0.2% y/y) for the second consecutive monthly gain. Jobs in service producing industries rose 25,000 for the first gain in three months. All of the gain was due to a 32,000 worker rise in government payrolls. The number of services jobs rose 21,000 (0.9% y/y) and employment in finance, insurance and real estate rose 7,000 (1.3% y/y).
The index of aggregate hours worked (employment times hours worked) fell 0.7% in April so it began 2Q 0.7% below the average for 1Q. Hours worked fell 0.4% (AR) in 1Q versus 4Q02.
Over the last ten years there has been a 58% correlation between the quarterly change in aggregate hours worked and real GDP. That correlation is down from 89% in the 1980s. The decline is due to the recent acceleration in productivity growth.
Average hourly earnings rose just 0.1%, slightly less than expected.
The nonfarm payroll employment figures are based on reports provided to the US Labor Department by businesses, while the figures from which the unemployment rate is derived are based on a survey of US households.
Research from the Federal Reserve Bank of St. Louis which highlights recent regional employment trends can be found <a href="http://research.stlouisfed.org/publications/net/netpub.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
<tbody>
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<td class="firstcol">Payroll Employment</td>
<td>-48,000</td>
<td>-124,000</td>
<td>-0.3%</td>
<td>-0.9%</td>
<td>0.2%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-95,000</td>
<td>-43,000</td>
<td>-3.3%</td>
<td>-5.5%</td>
<td>-4.2%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>34.0</td>
<td>34.3</td>
<td>34.2</td>
<td>34.2</td>
<td>34.2</td>
<td>34.4</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.1%</td>
<td>3.1%</td>
<td>3.2%</td>
<td>4.0%</td>
<td>3.8%</td>
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<td class="firstcol">Unemployment Rate</td>
<td>6.0%</td>
<td>5.8%</td>
<td>5.9%</td>
<td>5.8%</td>
<td>4.8%</td>
<td>4.0%</td>
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</tbody>
</table>
U.S. Light Vehicle Sales Rose, As Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030502a.jpg" width="353">
Unit sales of light vehicles rose to an expected sales rate of 16.5 million units in April. Sales rose 1.9% from March and the gain was to the highest sales rate of the year.
Consensus expectations were for a 16.6 mil. unit sales rate.
Sales of cars fell 3.1% m/m and were down 11.6% y/y. Truck sales rose 6.5% m/m and were up 1.6% y/y. 

<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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil.Units)</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.50</td>
<td>16.19</td>
<td>-4.8%</td>
<td>16.81</td>
<td>17.26</td>
<td>17.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.50</td>
<td>7.74</td>
<td>-11.6%</td>
<td>8.07</td>
<td>8.48</td>
<td>8.83</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>9.00</td>
<td>8.45</td>
<td>1.6%</td>
<td>8.74</td>
<td>8.78</td>
<td>8.56</td>
</tr>
</tbody>
</table>
Factory Inventories About Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030502c.jpg" width="353">
Manufacturing inventories fell, but just slightly, in March. The reading followed three consecutive months of accumulation.
Sharp decumulation of automobiles and light trucks led the turn away from accumulation in March, but inventories of computers and electronic products also fell sharply for the fourth straight month.
Nondurable goods inventories rose a slight 0.3% (+4.1% y/y).
Factory shipments rose 1.9% for the second strong monthly gain this year.
Factory orders surged 2.2%. Durable goods orders rose 1.5%, revised down from a 2.0% rise in the advance report. Nondurable goods orders rose 3.0% (7.8% y/y).

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>-0.0%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>-1.9%</td>
<td>-8.0%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.2%</td>
<td>-1.0%</td>
<td>4.2%</td>
<td>-0.8%</td>
<td>-7.2%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.9%</td>
<td>-1.4%</td>
<td>4.2%</td>
<td>-1.1%</td>
<td>-5.3%</td>
<td>4.4%</td>
</tr>
</tbody>
</table>


</html>

The unemployment rate rose to 6.0% in April, back to the level of last December. Consensus expectations had been for a rise to 5.9%. Employment rose 339,000 (+1.1% y/y) following two months of slight decline. The labor force surged [...]

Unemployment Up, Nonfarm Payrolls Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030501a.jpg" width="353">
Nonfarm labor productivity last quarter grew slightly less than expected, up 1.6% versus a Consensus estimate for 2.0% growth.
Productivity growth, though slow, accelerated versus 4Q despite slower growth in output. Output rose 1.4% last quarter and 1.7% in 4Q02. Hours worked fell 0.1% after a 0.9% 4Q gain.
Unit labor cost growth decelerated to 1.9% from 3.2% in 4Q. Growth in compensation remained relatively firm at 3.5% versus 3.9% in 4Q. During the last ten years there has been a 60% (inverse) correlation between the year-to-year growth in unit labor costs and after tax operating corporate profits.
Manufacturing sector productivity growth recovered to 2.1% (2.8% y/y) following a 0.5% decline in 4Q. The rise lowered the gain in unit labor costs to 2.7% from 5.9% in 4Q.
Analysis from the Federal Reserve Bank of Philadelphia of ways to promote creativity and innovation can be found <a href="http://www.phil.frb.org/files/br/brq103ln.pdf">here</a>.
Technological change is explored in this <a href="http://www.frbsf.org/publications/economics/letter/2003/el2003-08.pdf">paper</a> by the Federal Reserve Bank of San Francisco.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;03 Prelim.</th>
<th scope="col">4Q &#39;02 Final</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.6%</td>
<td>0.7%</td>
<td>2.3%</td>
<td>4.8%</td>
<td>1.1%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.5%</td>
<td>3.9%</td>
<td>3.3%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>7.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.9%</td>
<td>3.2%</td>
<td>0.9%</td>
<td>-2.3%</td>
<td>1.6%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 1, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030501b.jpg" width="353">
Initial claims for unemployment insurance last week fell less than Consensus expectations. Initial claims fell 2.8% w/w to 448,000. That reversed a 3.1% rise the week earlier which was revised up.
The four-week moving average of initial claims rose to 442,000 (2.3% y/y), the highest level since April of last year.
During the last ten years there has been a 66% correlation (inverse) between the level of initial claims and the month to month change in nonfarm payrolls. The latest claims figures are consistent with a slight decline in April payrolls, to be released tomorrow.
Continuing claims for unemployment insurance rose 3.1% w/w to the highest level since early-October. The prior week&#39;s figure was revised down.
The insured rate of unemployment rose to 2.9%, the highest level since early October.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">4/26/03</th>
<th scope="col">4/19/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>448.0</td>
<td>461.0</td>
<td>6.9%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,679</td>
<td>0.4%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
ISM Indicates Further Contraction in Factory Activity 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 1, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030501c.jpg" width="353">
The ISM Composite Index of manufacturing sector activity fell to 45.4 last month. It was the second month the index was below 50 since October and thus indicated another decline in factory sector activity.
Consensus expectations were for a reading of 47.0.
During the last ten years there has been a 51% correlation between the level of the ISM index and the month to month change in factory sector industrial production.
Three of the five composite index&#39;s component series declined last month. New orders, employment and the vendor delivery index were down. Production and inventories each rose but just slightly to levels that still suggested contraction.
The separate index of inflation pressure fell for the first month since November. This index is not seasonally adjusted.

<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">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>45.4</td>
<td>46.2</td>
<td>53.3</td>
<td>52.4</td>
<td>44.0</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>63.5</td>
<td>70.0</td>
<td>62.5</td>
<td>57.6</td>
<td>42.9</td>
<td>64.8</td>
</tr>
</tbody>
</table>
Construction Spending Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 1, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030501d.jpg" width="353">
The value of construction put in place fell a sharp 1.0% in March versus consensus expectations for a slight rise. The slight decline in February spending was revised to a slight rise.
Lower levels of public and of nonresidential construction recently accounted for much of weakness in total construction spending.
In constant 1996 dollars, overall construction spending fell 1.1% (-2.0% y/y) in March. Real public spending fell 3.6% (-2.9% y/y). Real nonresidential activity fell 0.2% (-11.8% y/y).
In addition to those declines, growth in residential building expenditures slowed appreciably. In March, real residential spending was unchanged following a 0.2% February gain. Year-to-year growth fell to 5.0% from a high of 8.5% at the end of last year.

<table border="0" cellspacing="0" width="100%">
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<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">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-1.0%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>0.7%</td>
<td>2.5%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Residential</td>
<td>0.1%</td>
<td>0.8%</td>
<td>9.7%</td>
<td>7.1%</td>
<td>3.3%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>-9.5%</td>
<td>-16.4%</td>
<td>-3.1%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public</td>
<td>-3.5%</td>
<td>-2.1%</td>
<td>-0.3%</td>
<td>6.2%</td>
<td>7.4%</td>
<td>5.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm labor productivity last quarter grew slightly less than expected, up 1.6% versus a Consensus estimate for 2.0% growth. Productivity growth, though slow, accelerated versus 4Q despite slower growth in output. Output rose 1.4% [...]

1Q Productivity Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030430b.jpg" width="353">
The Chicago Purchasing Manager&#146;s Index of Business activity fell more than expected to 47.6, below 50 for the second month. Consensus estimates were for a reading of 48.5.
The decline was similar to the Philadelphia Fed survey which showed moderate deterioration in general activity versus March. Both surveys indicated a decline in activity this month.
Over the last five years there has been a 61% correlation between the Chicago PMI and the month to month change in factory sector industrial production.
The new orders index fell sharply and moved below 50 for the first month since October. Inventories, employment and the vendor deliveries index also fell. Production improved slightly to a still low 51.0. 
The prices paid index fell for the first month since January.
Visit the Chicago Purchasing Managers website at <a href="http://www.napm-chicago.org/">www.napm-chicago.org.</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/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Barometer</td>
<td>47.6</td>
<td>48.4</td>
<td>54.7</td>
<td>52.7</td>
<td>41.4</td>
<td>51.8</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>55.9</td>
<td>62.8</td>
<td>54.3</td>
<td>56.9</td>
<td>50.4</td>
<td>65.6</td>
</tr>
</tbody>
</table>
Mortgage Applications Down Modestly 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 30, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030430a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association fell just 0.5% last week but it was the sixth consecutive weekly decline. During that period applications have fallen 37.2%.
Last week&#39;s decline was due to slight declines in applications both to refinance and purchase. Refinancing applications fell 0.2% but are down 45.8% during the last six weeks. Despite that drop, applications to refinance are 50.3% higher than last year&#39;s average level.
Mortgage applications for home purchase fell 1.1% last week, the fourth decline in five weeks. A surge in purchase applications at the end of March and in early April raised the average level so far for April 3.6% above March which was up 9.3% from February.
During the last ten years there has been a 51% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The average size of a mortgage loan application fell for the third consecutive week to $176,500 (-5.6% y/y). The average size of an application for home purchase fell slightly to $192,800 (+3.8% y/y). The average size of an application to refinance also fell, by 1.1% to $169,000 (-10.4% y/y).
Interest rates on a conventional 30-Year mortgage fell sharply with the contract rate down to 5.51%. The effective rate (incl. points) fell to 5.80%. The effective rate on a 15-year mortgage fell to 5.16%.
Visit the Mortgage Bankers Association site at <a href="http://www.mbaa.org/">www.mbaa.org.</a>

<table border="0" cellspacing="0" width="100%">

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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
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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">4/25/03</th>
<th scope="col">4/18/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>1,050.8</td>
<td>1,055.8</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>356.0</td>
<td>359.9</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>5,092.0</td>
<td>5,103.9</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
</body>
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The Chicago Purchasing Managers Index of Business activity fell more than expected to 47.6, below 50 for the second month. Consensus estimates were for a reading of 48.5. The decline was similar to the Philadelphia Fed survey which [...]

Chicago Purchasing Agents' Index Below 50 for Second Month

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030429d.jpg" width="353">
Business confidence in France declined sharply in April. The composite business climate indicator, reported today, fell 3.16% from 95 in March to 92 in April. The decline was largely accounted for by depressed household spending and lower export orders.
The French decline follows yesterday&#146;s report of a further decline in German business confidence. The IFO indicator fell 1.70% to 86.6 in April from 88.1 in March. 
The imminence of the end of the war in Iraq has failed to stem the erosion in confidence in the EuroZone; as a result, forecasters have lowered their expectation of growth in the area. The OECD is now estimating growth at only 1% for 2003, down from the 1.8% earlier estimate.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/G10/@GQ/@GQ8/@GQ804/@GQ804.HTM">Business Climate Indicators</a></th>
<th scope="col">April 03</th>
<th scope="col">Mar03</th>
<th scope="col">Apr 02</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">France</td>
<td>92</td>
<td>95</td>
<td>98</td>
<td>-3.16</td>
<td>-6.12</td>
<td>96</td>
<td>101</td>
<td>120</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>86.6</td>
<td>88.1</td>
<td>90.5</td>
<td>-1.70</td>
<td>-4.31</td>
<td>89.1</td>
<td>89.9</td>
<td>99.3</td>
</tr>
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<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/G10/@GQ/@GQ2/@GQ202/@GQ202.HTM">GDP</a> (Quarterly % Change, SA/WDA)</th>
<th scope="col">Q4 02</th>
<th scope="col">Q3 02</th>
<th scope="col">Q2 02</th>
<th scope="col">Q1 02</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">France</td>
<td>-0.08</td>
<td>0.33</td>
<td>0.47</td>
<td>0.72</td>
<td>1.22</td>
<td>2.10</td>
<td>4.23</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-0.03</td>
<td>0.31</td>
<td>0.15</td>
<td>0.29</td>
<td>0.22</td>
<td>0.75</td>
<td>3.09</td>
</tr>
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<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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Business confidence in France declined sharply in April. The composite business climate indicator, reported today, fell 3.16% from 95 in March to 92 in April. The decline was largely accounted for by depressed household spending and [...]

Continued Erosion of Business Confidence in France and Germany

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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Winnie Tapasanun

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The NFIB Small Business Optimism Index rose to 97.4 in June, the highest level since February, after a 0.6-point decline to 95.3 in May, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index was slightly below its 52-year average of 98.0 for the fourth consecutive month and down from a peak of 105.1 in December 2024, albeit above a low of 88.5 in March 2024. Seven of the 10 index components rose, while three fell. Meanwhile, the NFIB Small Business Uncertainty Index edged down to 89 in June following a three-point increase to 91 in May, remaining well above its historical average of 68. The index was below its record high of 110 in October 2024 but above its recent low of 84 in December 2025 and a low of 65 in November 2023.

The outlook for business conditions in the next six months remained positive for the 20th straight month in the latest survey. The net balance of respondents expecting the economy to improve advanced to 13% in June, a four-month high, following a one-point decline to 3% in May; these readings were far below a high of 52% in December 2024 but significantly above a record low of -61% in June 2022. Expected real sales climbed to a net 9% in June, a five-month high, from 1% in May; the latest figure was below a high of 22% in December 2024 but above a low of -18% in August 2024. A net -4% of respondents reported higher nominal sales in the past three months, up from -5% in May and marking the highest reading in four months; the latest result remained above a low of -20% in October 2024 but below the recent positive reading of 1% in February and a peak of 9% in June 2021.

Plans to expand the business inched up to 8% in June from 7% in May and April; the latest figure was down from a high of 20% in December 2024 but up from a low of 2% in March 2023. Plans to make capital outlays rebounded to 20% in June from 16% in May; these numbers were still below a high of 28% in November 2024 and a peak of 31% in October 2021. Expected credit conditions slipped to -5% in June, a three-month low, from -3% in May; this result was slightly below a high of -2% in December 2024 but above a low of -11% in November 2023. Meanwhile, a net 0% of respondents viewed current inventory stocks as “too low” in June, up from -4% in May and matching the highest reading since August 2025 (also 0%); the positive reading of 1% was recorded in May 2025.

On the labor front, 51% of respondents reported that qualified workers to fill job openings were hard to find in June, up from 46% in May and registering the highest level since September 2024. These numbers were above a low of 43% in August 2025 but below a high of 56% in August 2024 and a peak of 62% in September 2021. A net 11% planned to increase employment in June, up from 9% in May; it matched a low of 11% in March 2024 but remained below its recent high of 19% in November 2025 and a peak of 32% in August 2021. Notably, 32% reported positions not able to be filled in June, up from 29% in May (the lowest level since May 2020); these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The measure fell to -20% in June, the lowest level in three months, following a four-point increase to -15% in May. These readings were below the most recent high of -14% in February and a high of -5% in June 2021 but above a low of -37% in August 2024,

On the pricing front, actual and expected selling prices remained at an inflationary level, indicating continued inflationary pressures. The net percent of firms raising their average selling prices rose to 38% in June, the highest reading since February 2023, after a six-point increase to 36% in May. The latest reading was up from a low of 20% in August 2024 but well below a peak of 66% in March 2022. The percentage planning to raise prices eased to a still-elevated 32% in June following a seven-point rise to 34% in May (the highest level since November 2023); these readings remained above a low of 21% in April 2023.

Wage inflation remained relatively high in the June survey. A net 28% of respondents raised compensation during the last three months, down from 31% in May and marking the lowest since November 2025. It was also below a high of 46% in February 2023 and a peak of 50% in January 2022. A net 17% of firms planned to raise worker compensation in the next three months, slightly down from 18% in May and matching the lowest reading since July 2025; this remained below highs of 28% in November 2024, 30% in November 2023, and 32% in October 2022.

Inflation was cited as the single most important problem facing small businesses, as reported by 21% of NFIB members in June, up from 18% in May and representing the highest since October 2024; these readings were well below a peak of 37% in July 2022. Taxes ranked second as the next most important problem (alongside labor quality), as reported by 19% of respondents in June, unchanged from May. Labor quality also remained a key challenge for small businesses, as reported by 19% of respondents in June—the highest since December—compared with 13% in May (the lowest level since December 2016). Other concerns (in June vs. May) included labor costs (8% vs. 14%), government requirements (8% vs. 10%), insurance cost/availability (8% vs. 8%), poor sales (7% vs. 7%), and competition from large businesses (5% vs. 6%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

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- Uncertainty Idx down 2 pts. to 89, remaining well above the historical avg. of 68.
- Expectations for economy up 10 pts. to 13%, a four-month high.
- Expected real sales up 8 pts. to 9%, a five-month high.
- Plans to expand business up 1 pt. to 8%, highest in three mths.
- Firms raising avg. selling prices up 2 pts. to 38%, highest since Feb. ’23.
- Top three business concerns: inflation (21%), taxes (19%), and labor quality (19%).

U.S. NFIB Small Business Optimism Rebounds in June to a Four-Month High

Michael J. Moran

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Most analysts were looking for a dip in the CPI because of a likely retreat in gasoline prices, but the published decline of 0.4% in the headline index was noticeably softer than the consensus estimate of -0.1%. Gasoline prices did not disappoint, with a drop of 9.7% offsetting approximately one-quarter of the cumulative surge in the prior three months. Prices of fuel oil fell almost as much as gasoline prices, and electricity charges contributed to the softness with a decline of 1.0%. The price of natural gas services was the only major energy item to increase in June (0.5%). All told, the energy component of the CPI fell 5.7% after climbing 19.6% in the prior three months.

The drop in energy prices was notable, but the core component provided a bigger surprise by posting a decline, the first since a series of three consecutive decreases during the pandemic. Before the pandemic-related retreat, the core component fell only twice from 1990 to 2019. The drop in June was minuscule (-0.02%), but the fact that it carried a minus sign was striking.

Both the goods and services components of the core index contributed to the restraint. Prices of goods other than food and energy fell 0.1%. The Bureau of Labor Statistics publishes six key subcategories of core goods, and five of them fell in June. Apparel prices stood out with a decline of 0.6%. Prices of core services were nearly unchanged at 0.03%, restrained by declines in medical services and motor vehicle insurance. Airfares, which showed upward pressure from rising fuel prices in the prior three months, posted a nondescript increase of 0.2%. The modest increase in the prices of core services led to a dip in the 12-month average increase after stepping up in April and May. The trend in core goods prices continued its gradual deceleration (chart, below right).

Food prices in June rose 0.2%, a reading comfortably within the range of the past few years.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- The energy component retraced a portion of its surge in the prior three months.
- Prices excluding food and energy provided a surprise by posting a rare decline.

June CPI: Cooling Energy Prices and a Restrained Core Component

Robert Brusca

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Industrial output in Norway fell by 1% in May after rising by 0.6 in April and falling by 1.1% in March. The seesaw act for output continues. Over broader horizons, however, output is falling. It falls by 0.1% over 12 months, falls at a 1.1% annual rate over six months, and falls at a 6.2% annual rate over three months, giving us a clear sequential trend toward falling and decelerating output. Utilities output has chaotic trends, as do mining and quarrying; however, manufacturing shows a clear trend toward output acceleration, with a 2.1% output increase over 12 months, a 2.6% annual rate rise over six months, and a 9% annual rate increase over three months.

Manufacturing sectors show consumer goods output increasing in May, also showing secular acceleration from 12 months to six months to three months. Durable goods, however, are the fly in the ointment, with output up 2.2% over 12 months, accelerating over six months, and then dropping at a 20.4% annual rate over three months. However, consumer nondurables show growth and acceleration, with a 12-month gain of 1.8%, rising to a 3.6% annual rate increase over six months and a 10.9% annual rate increase over three months. Intermediate goods output trends return to more difficult times and show declines over 12 months, six months, and three months, but not a clear path of deceleration. Capital goods output is up 5.4% over 12 months and at an 8.5% annual rate over three months, but there is an intervening soft spot with output up at only a 3.4% annual rate over six months.

Against this background, inflation in Norway showed solid increases in May, rising by 0.2% overall and by 0.3% for the core HICP. However, sequentially inflation gains 3% over 12 months, rises at a 3.8% annual rate over six months, and then backs down to a 1.2% annual rate over three months. The core HICP is steadier, with a 3.4% gain over 12 months, rising to a 3.8% annual rate over six months, and then backing down to 3.2% at an annual rate over three months. That's a set of growth rates that are more stable than either accelerating or decelerating.

In the quarter-to-date (QTD) basis, industrial production is falling 4.6%; this is two months into the second quarter. On the other hand, manufacturing output is rising QTD at a 4.9% annual rate, with consumer nondurables showing strong positive growth along with intermediate goods output. There is a solid gain of 3.1% at an annual rate from capital goods. The QTD inflation trends remain somewhat mixed, with a weak headline showing a 1.6% annual rate, against a core HICP at a 3.4% annual rate rise, the latter gain being well in step with its sequential results.

The far right-hand column compares industrial production over the broad period from just before COVID (in January 2020) looking at the ratio of the level of output in May 2026 to its index value in January 2020. Remember that IP data are inflation-adjusted, so these are real data. Over this span, industrial production excluding construction is up by approximately 10%, with utilities output up at about 21%, mining and quarrying up about 5%, and manufacturing up a little more than 7%. This is a 5½-year period. Consumer goods output is up by 2.7%, led by consumer nondurables which rise 4.1% on the period and against durable goods output where there is a decline of about 13% on that timeline. Intermediate goods output drops slightly on the timeline by less than half a percentage point, while capital goods output is up at a solid and strong 23% gain. Looking at prices over the same period, the headline HICP is higher by 27% while the core is higher by 24%.

The weakened output shows the stresses and strains of the period, with weak gains in place over the last 5½ years and with the consumer showing considerable wear and tear, leaving consumer goods output lower on balance over this 5½-year span. It hasn't been such a bad time for capital goods, where output rose by 23% over the period. Inflation got out-of-the-box and grew quite strongly. The headline HICP grew by 27% since January 2020, a duration of time during which, sticking to its target, would have implied a gain in the price level of only 11.5%.

**Ongoing overshooting**
Even now central banks are trying to decide how to come to grips with the inflation pressures from that. Pressures continue to linger and threaten the economies. Of course, there are some new factors in place, but that's the nature of inflation: if it's not one thing, it's something else. And failing to respond to the one thing means that you're going to get hit even worse when it becomes something else. This is the lesson the central banks haven't learned during this period. 

**Have central banks learned their lesson?**
Noting that inflation is over target and then forecasting that it's going to come back down to target over some period ahead puts the inflation performance at risk to whatever happens between now and the end of that period ‘ahead.’ If that forecast isn't perfectly right and if there's something else that disturbs the path of prices, what will happen is that an inflation that is already over the top of the target will push even farther over the top of the target and the dilemma faced by the central bank will become even worse. This is why kicking the can down the road generally is not a very good strategy, but it's one that virtually all the central banks pursued in the wake of COVID. So, will central bankers come to see inflation that is here and now as a here-and-now problem to be addressed here and now, or as a candidate for tomorrow land? The ECB seems to be changing, and the Fed has formed task forces. What about Norway and the rest of the world? Norway did push its target rate up as the ECB hiked. But what is its plan?

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Norway

Norwegian IP Struggles, but Manufacturing Shows Some Strength

Tian Yong Woon

In this week's Letter, we examine the underbelly of the AI boom, the risks that sit beneath its optimism. Start with the public mood: American concern about AI has grown alongside adoption over the past three to four years (chart 1). Those worries span mass job displacement, misuse of top-end models by bad actors, and fears of being left behind. The first of these is already surfacing: in June, AI was again the most cited reason for announced US layoffs, with year-to-date AI-linked cuts above 100,000 (chart 2). Technology led all sectors in overall cuts, though the data do not isolate how many were AI-driven. Among those hit, the young are arguably the most exposed to these labour effects. They enter a labour pool swollen by displaced professionals, just as AI masters the entry-level tasks where they would start. India and Indonesia illustrate the stakes on youth NEET, the share not in education, employment, or training, both above 20% and among Asia's highest (chart 3). Beyond the labour market, the same optimism reshapes asset prices. The rally has lifted AI-related valuations to historic highs and concentrated a few names in cap-weighted indexes (chart 4). That raises correlation and the risk of a sharper index fall should the rally unravel. The same concentration runs through economies via exports, from Taiwan's advanced chips to South Korea's memory (chart 5). Its footprint is physical too, and cuts both ways: data-centre investment has lifted growth in Johor, Malaysia (chart 6) while straining local power and water. None of this argues against riding the AI wave, which still promises real productivity and welfare gains. Rather, these are caveats that investors and policymakers must keep in view, since the story is not all upside.

**AI-related concerns**
AI adoption has exploded over the past three to four years, and Americans' concerns have risen alongside it (chart 1). That is understandable, given how advanced and broad AI's proven applications have become. They now span everyday tasks and subject-specific work across fields such as finance and production, as well as tech and development, the sector AI was born in. Major concerns run from mass AI-induced job displacement to a more recent fear, that top-end models fall into the wrong hands and are used by bad actors. A further worry is distributional: AI advances are powerful and could deliver leaps in productivity, yet they may also leave many people behind. Those most exposed include workers already displaced from their jobs and people facing scarcer basic resources as AI demand competes for them. Others simply lack equitable access to AI tools or their benefits.

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**AI-driven job displacement**
Some of the fears US workers first had about AI-driven job displacement are already playing out. In June, AI was again the most cited reason for announced job cuts in the US (chart 2). That pushed year-to-date job cuts attributed to AI above 100,000, more than half of all AI-tagged cuts since AI became a selectable reason in 2023. The data come from the latest survey by Challenger, Gray & Christmas. This likely reflects AI's disproportionately heavy impact on certain industries such as technology, which again led all sectors in cuts. At the same time, announced hiring plans stayed subdued, leaving laid-off workers with limited opportunities to find new roles. All of this is occurring even as market valuations remain elevated on the broader wave of AI optimism.

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**AI and youth unemployment**
Arguably among those bearing the brunt of these labour-related effects are the youth. Many have graduated on a curriculum built largely for a pre-AI era. They now enter a labour pool swollen by experienced professionals whom AI has displaced. At the same time, AI is proving especially capable at the entry-level tasks on which young workers usually start. An elevated youth unemployment rate only intensifies the competition young people face for gainful employment. On the broader NEET measure, which also captures youth who are neither working nor studying, India and Indonesia stand out. On the latest available WDI data, both have youth NEET rates above 20%, among the highest in Asia and above the global average (chart 3). Should employers in these economies adopt AI aggressively across processes and production, including physical AI such as humanoid robots, the problem could worsen. Yet firms that stay purely labour-intensive risk losing out to rivals using more efficient, and perhaps cheaper, AI-driven methods.

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**Concentration risk**
The recent wave of AI optimism has pushed the equity valuations of major AI developers and AI-related goods producers to historically high levels. These gains are partly backed by strong earnings and upbeat forward guidance. Most major indexes are weighted by market capitalisation, so a counter's weight tracks its price. As these counters have outperformed their peers (chart 4), their index weight has risen close to mechanically, when holding the number of shares constant. This raises concentration risk, since a small group of counters now carries more of the index and moves it more closely. So, if the rally in these counters were to unravel deeply, it would drag the broader index down more heavily with it.

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AI-related concentration risk is not confined to equity indexes; it also shows up in the growth of major economies. In Asia, that risk usually runs through a country's exports. Take Taiwan, the world's largest advanced semiconductor exporter, as an example. As chart 5 shows, its recent export growth has come more than entirely from integrated circuits and from infocomm and audiovisual equipment. Other goods categories have often contributed negatively in recent months. This is good news for the Taiwanese economy, which sits right at the centre of the global AI boom. Yet it is also a source of concentration risk, should AI-related goods demand collapse or substantial alternative supply emerge elsewhere. A similar story applies to South Korea, through its role in supplying high-end memory chips.

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**Data centres, energy, and water**
Finally, rapidly advancing AI promises major productivity gains and broad improvements to daily life. Yet AI infrastructure rests on resource-intensive inputs: the energy needed for data centre compute, and the water needed to cool those centres. Both may deprive real people of the very resources they need to survive. One recent hotspot is Malaysia, which has courted a wave of foreign direct investment to expand its data centre footprint in the state of Johor. These capital inflows are welcome, and have lifted state-level growth through the construction sector (chart 6). But they have also raised concerns about straining local grids and water supplies, possibly leaving less for residents. Among estimates, a recent one puts data centres at around 40% of Johor's electricity demand by 2035. That is pressuring the state to expand generation capacity and grid access to match the data centre pipeline already in place. Its neighbour Singapore faced similar strains earlier, and has since repositioned itself as a hub for the most advanced and efficient data centres, partly because of its severe land constraints. 

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Asia

Economic Letter from Asia: The AI Underbelly

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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.